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December 1st, 2012

by Total Food Service

Applebee’s Franchise Issues No Hiring


An Applebee's New York area franchisee is the latest CEO to go public threatening drastic plans to avoid costs associated with the Affordable Care Act, otherwise known as Obamacare.


"We've calculated it will cost some millions of dollars across our system. So what does that say - that says we won't build more restaurants. We won't hire more people," Zane Tankel, chairman and CEO of Apple-Metro, said. 

Apple-Metro, which runs 40 Applebee's restaurants, employs from 80 to 300 people at each of its locations. Obamacare mandates that businesses with more than 50 workers must offer an approved insurance plan or pay a penalty of $2,000 for each full-time worker over 30 workers.

“Most small businesses with 50 or more employees already do offer health insurance,” notes John Arensmeyer, CEO and founder of Small Business Majority, a national small business advocacy organization. But restaurant chains typically are among the sliver of businesses not offering insurance to workers. Other food chains have commented publicly that they would take strong measures to avoid the effects of Obamacare, but so far none of them have taken that action.

Darden Restaurants, owner of Olive Garden and Red Lobster, said that it would increase the number of part-time workers to skirt the law, while Jimmy John Liautaud, founder of Jimmy John's Gourmet Sandwiches chain, also recently told Fox Business News that he is considering cutting workers' hours.

Applebee's owner Tankel wouldn't go so far as saying he would lay off current employees or cut their hours to keep them part-time rather than pay for their health care, but he did hint that those were distinct possibilities. "The model has been set. I am sure all our people are watching this right now so I don't want to make any commitments one way or another," he said. "I want to simply say we are looking at it, we are evaluating. If it's possible to do without cutting people back, I am delighted to do it, but that also rolls back expansion, it rolls back hiring more people, and in a best-case scenario, we only shrink the labor force minimally. Best case."

Applebee's owner Tankel wouldn't go so far as saying he would lay off current employees or cut their hours to keep them part-time rather than pay for their health care, but he did hint that those were distinct possibilities.

"We have to do that. There's no other way we can survive it, because we think it will cost us 50 cents a sandwich. That's just the actual cost," Liautaud said. "If you have 40 or 50 employees at a restaurant, and the penalty is $2,000, and you're going to pay $80,000 or $100,000 penalty, there goes the profit in your restaurant."

Tankel also felt he had little choice in what he called a "fragile environment" but to cut employees or their hours: "In this environment, you can't raise prices, particularly in our space. It's not possible. Efficiencies, hopefully we got all of our efficiencies. We've just faced three terrible years in the environment and the economy. We've been enforcing and putting more and more in every year. So then it's cut back on overhead."

Christine Eibner, senior economist at RAND Corp. who has analyzed health insurance costs for small businesses and studied the health care law, doesn't think cutting hours is the only option firms have. "They could, if they wanted, opt to provide health insurance to these individuals," Eibner noted. "Most economists believe that one way or another the costs of the health insurance are ultimately born by workers, such as through reductions in wages or other benefits."

"The decision is complicated, and may depend on factors such as workers' eligibility for exchange subsidies, whether it is plausible to reduce wages or other benefits to cover health insurance costs, and worker preferences for wages versus health coverage," Eibner added. "The penalties for not having insurance will likely increase workers' relative preference for insurance over wages, which could push some firms toward offering."

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