With their claim, “When you’re here, you’re family,” Olive Garden has become synonymous with America’s proliferation of family-style restaurants. Olive Garden is the largest retail brand of Darden Restaurants, the world’s largest full-service restaurant conglomerate, and the world’s largest employer of tipped employees. Beyond size, however, Olive Garden has made a name for itself by using the casual or family-style restaurant concept to bring Tuscan-style Italian cuisine to the mainstream. However, there is at least one way in which the Olive Garden and many chain Italian restaurants serving Italian food in America are antithetical to restaurant culture in Italy—through the practice of tipping.
Unlike the other large chain restaurant corporations profiled in this book, there is no hometown origin story, no hometown founder who started poor and made it big, for Olive Garden. The company began in 1982 as a brand-expansion experiment by the food manufacturing and food-service conglomerate General Mills, Inc., and quickly grew into the largest chain of Italian-themed full-service restaurants in the United States. In 1995 General Mills spun off its restaurant holdings into a separate corporation, Darden Restaurants. Darden’s growth was based, at least in part, on “using assembly-line methods like those employed at the company’s fast-food counterpart, McDonald’s.”
Darden Restaurants is today the largest full-service directly owned restaurant company in the world. The company originally consisted of Red Lobster, then Olive Garden, then later grew to include Capital Grill Steakhouse, LongHorn Steakhouse, and other popular American brands. (In 2014, in response to a hedge-fund takeover effort, the company sold off Red Lobster.) Olive Garden accounts for $3.6 billion in annual sales and brings in approximately 58 percent of Darden Restaurants’ total revenue since the Red Lobster sale. Olive Garden is also Darden’s largest chain in terms of employees and locations: of the company’s 150,000 workers, 96,000 (64 percent) work at one of Olive Garden’s 831 locations in the United States. Olive Garden is also Darden’s most value-oriented chain, with an average check of $16.75 per person (versus $72 per person at Capital Grille).
Troubled Times
Olive Garden’s sales have begun to decline. The restaurant chain’s sales of $3.64 billion in fiscal year 2014 were 1.1 percent below those of fiscal year 2013. The decrease in sales is also reflected in guest counts, which decreased 4.2 percent over the same period. According to The Business Insider, Olive Garden is facing fierce competition from fast-casual restaurants like Panera and Chipotle, brands that offer guests lower price points, design that “feels fresher,” and food that “is just better.” The company has suffered various setbacks in their recent attempts to bring customers back; in 2011, Olive Garden faced criticism and even mockery for offering dishes with inauthentic names such as “pastachetti” and “soffateli.” The restaurant chain attributed its declining sales to these unfamiliar menu items. As a result of all these issues, and with an impending hedge-fund takeover, in 2014, Darden announced it would “sell Red Lobster and focus on fixing Olive Garden.”
In spring 2014, Darden announced a “brand renaissance” to address the sales crisis at Olive Garden. It involved a new logo for the chain, a countrywide store remodel, and a new menu. Under the outgoing management’s plan, seventy-five locations were to receive the new look in 2015, and all Olive Garden locations were to be renovated at a cost of up to $600,000 a piece.
As part of its campaign to gain control of Darden, a hedge-fund called Starboard Value authored a strong critique of Olive Garden’s brand-renaissance plan. Starboard pointed toward poor reception of the new Olive Garden logo and the fact that a similar plan had failed to turn around Red Lobster. Starboard also performed an analysis of Olive Garden’s ratings on Yelp to demonstrate that the company rates below its peer group, and actually rates the lowest in Middle American states, which constitute the brand’s core customer base.
In September 2014, Starboard presented its three-hundred-page report about Darden Restaurants to Darden shareholders, focusing much of its critique around mismanagement at Olive Garden. The report was part of its attempt to convince shareholders to let them take over control of the company. Starboard argued that the Olive Garden suffers from an overly complex menu exemplified by idiosyncratic items like hummus, tapas, and burgers, which confuse the Italian focus of brand. Starboard has also criticized the planned Olive Garden remodel program, arguing that the $175 million planned for the project would destroy shareholder value, and that improving operations and guest experience would be a better emphasis than spending capital on remodels.
Much of Starboard’s proposal to cut costs and turn the Olive Garden around focused on cutting labor costs. The group promised it would increase part-time work, buy more prepared food (thus eliminating at least one prep cook per Olive Garden restaurant), and shift more work to tipped employees earning the tipped minimum wage. In proposing this, Starboard inadvertently magnified one of the major negative side effects of a two-tiered wage system, in which tipped workers can be paid as little as $2.13 an hour: employers have a perverse incentive to try to have more tipped employees, and fewer nontipped, and to push as much work onto tipped workers as possible—even when that involves skirting the limits of the applicable legal definitions.
Through these and other cost-saving measures, Starboard argued that the company could realize $36 million annually in labor-cost savings. What these cost-savings projections do not take into account are the enormous costs to thousands of workers: the proposal could mean the loss of between 831 and 1253 positions at Olive Garden’s 831 restaurants, along with immeasurable income lost as greater onus is transferred to the tipping customers.
Takeover
Just before the October 2014 shareholder showdown, Darden’s sitting board made a final attempt to win shareholder favor and prevent Starboard from taking over. The company fired three of its top executives, but provided them millions of dollars in severance pay. The Institute for Policy Studies (IPS) produced a shocking report on the company’s golden parachutes.
Darden Restaurants will pay outgoing CEO Clarence Otis a weekly salary of more than $23,000 for the next two years as part of a $2.4 million severance. With multi-million-dollar gains on his stock options and the accrued balance of his company retirement account, Otis’ total “golden parachute” amount comes to about $36 million. Two other top executives are walking away with $21 million and $11 million “golden parachutes” of their own, including a combined $2.4 million in severance payments directly from Darden.
When compared to the thousands of the company’s employees living daily off an unpredictable income from tips, the severance seems unimaginable. Darden has admitted that it pays at least 20 percent of its U.S. workforce no more than the federal tipped minimum of $2.13 per hour, and none of these workers could count on retirement funds, even if they worked for the company for a lifetime— let alone severance pay if they were let go for alleged misconduct. The severance pay was especially shocking given the company’s vitriolic lobbying efforts to keep wages for workers as low as $2.13. As the IPS study noted, “Since 2008, Darden has spent an average of $1.3 million each year to defeat legislation promoting higher wages and better working conditions.”
In the end, despite all the efforts made by Darden board to make changes that would stave off complete hedge-fund takeover, the shareholders voted the entire board out of office and in favor of Starboard management. As challenging as conditions have been for workers under Darden’s previous management, the future seems even more uncertain under the management of a hedge-fund that has proposed focusing on severely cutting labor costs as a key solution to the company’s financial woes.
Working at Olive Garden While Sick
The Centers for Disease Control estimates that infected restaurant workers are implicated in 70 percent of all norovirus outbreaks— better known as the winter stomach flu—from contaminated food with a known etiology. The Olive Garden does not provide earned sick leave to its employees, which means that workers do not have the right to take a day off when sick and receive pay. This policy is relevant when considering the several illness outbreaks in multiple Olive Garden locations:
In 2006, more than three hundred people complained of norovirus symptoms, known as the winter stomach flu, after eating at an Olive Garden in Indianapolis. The affected diners complained about nausea, vomiting, diarrhea, and fever. Three Olive Garden workers and one customer tested positive for norovirus, according to health officials. Darden settled a class action lawsuit linked to the outbreak for $387,000.
Perhaps the most egregious illness outbreak, apparently from sick Olive Garden workers, occurred in 2011, the same year that Michelle Obama recognized Olive Garden51 for serving healthy food for children. In 2011, a server in a Fayetteville, North Carolina, Olive Garden worked while ill with Hepatitis A, potentially exposing thousands of customers. With Darden’s policy of not providing earned sick leave, and with the minimum wage for servers in North Carolina being $2.13, the server likely could not afford to take a day off despite her illness. The Cumberland County Health Department called in thousands of area diners to be tested for Hepatitis A. After several thousand of these consumers filed a class action lawsuit, Darden settled the case by creating a $375,000 fund to compensate the consumers.
Workers’ Rights Violations at Olive Garden
The Olive Garden and its parent company, Darden Restaurants, have been at the center of dozens of lawsuits by employees claiming that their rights were violated. Since 2005, Darden has paid over $14 million to settle lawsuits from servers around wage and hour violations at Olive Garden and Red Lobster.
In 2005, Darden Restaurants agreed to pay $9.5 million to more than twenty thousand current and former servers at California Red Lobster and Olive Garden restaurants in order to settle a lawsuit that alleged violations of state labor regulations when management prevented workers from taking required breaks and required them to purchase and maintain their uniforms. In 2008, Darden Restaurants, Inc. agreed to pay $4 million to settle “two class action lawsuits involving California employees of Red Lobster and Olive Garden restaurants. The suits accused the company of requiring servers and bartenders to make up for cash shortages at the end of their shifts.” In 2008, Darden paid $700,000 to settle a wage-dispute lawsuit filed by a former Olive Garden Server in California. The server alleged that “Olive Garden had failed to properly make minimum shift payment and pay minimum wage.” In 2011, the U.S. Labor Department found that Olive Garden workers in Mesquite, Texas were not being paid for all their hours. The Department of Labor’s investigation concluded that workers were not allowed to clock in at the start of their scheduled work shifts, but rather when customers were seated. Darden agreed to pay $25,000 in back wages to 140 current and former servers. The company was also fined $30,800 in civil money penalties. In 2012, several class action suits were filed against Darden restaurants for underpaying thousands of servers at many restaurants, including Olive Garden.
In addition to these settlements, Olive Garden has tried to implement a number of employment policies that have met with significant worker and public protest. In 2011, Olive Garden implemented a mandatory tip-sharing program, which enabled them to cut more bussers and bartenders hourly wages to $2.13 an hour. This was one of the primary grievances that fueled the growth of ROC’s Dignity at Darden campaign, a national coalition of Darden workers, largely from Olive Garden, demanding change in the company. In 2012, Olive Garden experimented with avoiding federal healthcare-reform-related costs by increasing the share of part-time employees in their workforce, but it withdrew the plan under public backlash.
Based on ROC’s research linking the tipped minimum wage to sexual harassment, it would follow that Darden and Olive Garden— the largest employer of tipped workers in the United States—would hypothetically be the target of numerous sexual-harassment complaints. As a practical matter, this is difficult to track. The company has instituted a mandatory arbitration policy that requires all employees to sign an agreement that they will utilize a mandatory internal dispute resolution procedure rather than take their claims to court. This has made it more difficult for victims of harassment to bring their claims forward in court—and to track these occurrences and their frequency.
Olive Garden’s internal reporting policy has proven to be effective in getting claims dismissed. For example, in 2000, a former Olive Garden employee brought suit against Darden Restaurants alleging that the company “unlawfully subjected her to sexual harassment and a hostile work environment at her place of employment.” The case was dismissed because the employee failed to use the company’s internal dispute resolution procedure. In another 2012 Missouri-based sexual harassment suit, Darden used the same process argument and the Court agreed.
In some cases, however, the allegations have been so strong that workers and their allies have found other ways to bring the sexual harassment to light. In 2011, the National Action Network called on major investors to disinvest from Darden Restaurants after it was alleged that a “Cleveland-area Olive Garden sexually harassed women, discriminated against new moms, hired [undocumented workers] and didn’t adequately discipline a manager who had sex with employees.” Employees also alleged that their hours were cut after returning from maternity leave, and that “managers kept a chart rating women by their physical attributes.” Darden’s email response denied the allegations and claimed that “Darden has a strong, values-based culture built on treating everyone with dignity and respect … our company is committed to diversity and our track record speaks for itself.”
Reprinted from "FORKED: A New Standard for American Dining" by Saru Jayaraman with permission from Oxford University Press © Sara Jayaraman 2016. All rights reserved.
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