Darden Restaurants to stick with full-time employment

Two months ago, I wrote about a pilot program launched by the parent company of the Red Lobster and Olive Garden chains to test whether the firm could avoid incurring the costs of ObamaCare by switching their staffs to part-time employment.  This statement and others from food-service firms created an uproar among ObamaCare supporters and a public-relations backlash against Darden and Papa John’s, among others.  Darden’s public-relations firm contacted me this morning with this announcement:

Darden Restaurants, Inc. (NYSE: DRI) today provided an update on its full-time staffing plans for 2014 following thorough testing of potential changes in the composition of its workforce in connection with healthcare reform.  The company has determined that:

  1. None of Darden’s current full-time employees, hourly or salaried, will have their full-time status changed as a result of healthcare reform.
  2. Each of Darden’s new and existing restaurants will have full-time hourly employees because that is what it takes to fully deliver the experiences guests expect.
  3. In 2014, all of Darden’s full-time employees, including hourly, salaried and executive employees, will have access to the same insurance plan coverage.

Darden’s current full-time population includes approximately 45,000 employees.

Darden Chairman and CEO Clarence Otis commented: “Although our workforce historically has been heavily part-time, we have always had a significant number of full-time employees and they are integral to our success. The data we have collected during our test around guest satisfaction and employee engagement has only reinforced this.  As we think about healthcare reform, while many of the Patient Protection and Affordable Care Act’s rules and regulations have yet to be finalized, we are pleased we know enough at this point to make firm and hopefully reassuring commitments to our full-time employees.”

As I wrote in October, attempting to staff with entirely part-time workers has costs of its own.  It requires more work from management to make sure enough staff are on hand at any given time, and it costs more to go through the hiring process for each position, just in terms of advertising, interviewing, and training.  The average length of employment for a part-time employee, especially in the food-service industry, means that some of that investment will end up being lost, and part-time employment generates much less loyalty on both sides of the relationship.  Even though there are cost savings in theory by using part-time employees, in practice it ends up being a big, costly headache.

That doesn’t mean that the issues of ObamaCare’s costs in the retail market are going to disappear, though.  Firms like Darden and others who operate on thin margins (as is the case in the restaurant industry) will have to find other ways to absorb those costs.  That means either hiking prices or cutting overhead in other ways.  A Denny’s franchisee wanted to put a surcharge on his menu for ObamaCare, which the home office nixed, but the costs will have to get paid somewhere.  That will either come out of the customers’ pockets or the employees.  In general, there isn’t enough margin in the super-competitive restaurant industry to simply shrug at the significant costs that will come into play.

Darden’s decision to keep working with full-time employees is a smart and long-view decision.  But there may end up being fewer of them than would have been the case without ObamaCare in the long run.