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Joe's Crab Shack tests no-tipping policy. Will more restaurant chains follow?

Joe's Crab Shack has announced that it will eliminate tipping at 18 of its 131 restaurants and give workers higher base wages. The policy adoption makes it the first national restaurant chain in the US to seriously test a no-tipping model.

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    Imported Dungeness crabs are displayed for sale at Fisherman's Wharf, Thursday, Nov. 5, 2015, in San Francisco. Joe's Crab Shack is trying a no tipping policy.
    Eric Risberg/AP/File
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At Joe’s Crab Shack, the next time a server delivers great service, they might not be doing it for a tip.

Joe’s Crab Shack has become the first national chain to seriously test a no-tipping business model that has gained traction in the fine dining world over the past few months. CEO Ray Blachette told analysts last week  that the restaurant chain has been testing a model that gets rid of tipping and pays staff higher wages at a few locations for several months. Over the past 30 days, Joe's Crab Shack has expanded the trial to include 18 of its 131 US locations, according to Nation’s Restaurant News. 

In October, restauranteur and Union Square Hospitality Group CEO Danny Meyer announced tipping would be eliminated at all of the company’s restaurants by the end of this year. Joe’s Crab Shack's status as a national chain has the potential to push the wage model into the mainstream. The expansion of the no-tipping test for Joe’s Crab Shack is due to positive performance reviews from trial locations.

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“What makes us optimistic is the restaurant that has been in test the longest is gaining the most traction,” Mr. Blanchette told analysts. 

Joe's Crab Shack parent company Ignite Restaurants says the wages for servers will start at $14 an hour and may vary from server to server depending on performance, according to Restaurant Business. Kitchen and wait staff will also receive pay boosts. Blanchette hopes the wage model will solve many issues that stem from a tip-based model, including competition among workers and a separation between server and kitchen staff. 

"Servers, hosts, bartenders are paid now higher, fixed, hourly wages," Blanchette told CNBC, "and it's expected to result in an improved team atmosphere, a significant reduction in turnover and greater financial security for the employees."

Previously, private restaurants and fine dining institutions have largely championed the wage model for restaurants. An increasingly visible movement for a $15 minimum wage has added pressure. However, for many of these restaurants a change from tipping to higher wages has been accompanied by higher base prices for diners. In Seattle, where a $15-an-hour minimum wage took effect this past April, Ivar’s Seafood Bars increased prices by 21 percent in response. 

There is also major pushback against the no-tipping policy from industry groups like the National Restaurant Association. The association estimates the “median hourly earnings for servers range from $16 to $22, depending on experience.” By those estimates, removing tipping in favor of higher wages would actually result in a pay cut for many servers, which could cause many to leave the industry, the group argues. 

“The tipped culture is still what draws many people into our industry,”  Christin Fernandez, a spokeswoman for the National Restaurant Association, told  The New York Times.

Joe’s Crab Shack’s no-tipping experiment could provide a clearer example of the impact higher wages and no tipping has on a national scale.

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