A new exemption to Sacramento's minimum wage ordinance for sit-down restaurants is being proposed to protect the city's vibrant restaurant scene.

Later this month, Sacramento's City Council is expected to vote on a minimum-wage ordinance, which would bring the city's minimum wage to $12.50/hour by the year 2020. In that ordinance, there is already an exemption designed to protect restaurants from a wage increase. That exemption is referred to as the "total compensation exemption," because it allows businesses to pay a lower minimum wage to workers who make more than $15 per hour, including tips.

The total compensation exemption, however, has raised serious red flags for many labor groups, including Organize Sacramento and the Center for Workers' Rights in Sacramento. They argue the total compensation exemption is illegal according to California Labor Code Section 351, which says that gratuities cannot be counted toward workers' pay.

City Councilmember Jay Schenirer, who co-chaired Mayor Kevin Johnson's task force on raising the minimum wage, acknowledges that the total compensation exemption may be in a legal gray area. Earlier this month, he told ABC10 News that Sacramento would indeed be setting a statewide precedent with this exemption, and that he had talked with the California Restaurant Association about funding legal costs to defend the exemption in court.

But at least one member of the initial task force says the city's restaurant industry needs a back-up plan if the total compensation exemption is struck down.

Region Restaurants CEO Joshua Wood, who also serves as executive director of area business group Region Builders, wrote a letter to Mayor Kevin Johnson and councilmembers Schenirer and Jeff Harris urging them to add a new provision to the ordinance. His suggested provision would exempt sit-down restaurants that have an on-premise liquor license and do not have a drive-thru.

In a copy of Wood's letter provided to ABC10 News, he argues that without an exemption to protect restaurants, the wage increase will put Sacramento restaurants at a significant competitive disadvantage to other dining establishments in the region. Wood says there are quantifiable reasons to exclude sit-down restaurants from the wage increase.

"For example, 60 percent of sit-down restaurants fail within one year, 80 percent of sit-down restaurants fail within five years of opening, and wages comprise 30-35 percent of a sit-down restaurants' expense. Without the additional provision there is a significant potential for business failure in the sit-down restaurant sector," he wrote.

The California Restaurant Association continues to support the total compensation exemption that is currently included in the minimum-wage ordinance. When asked about a potential sit-down restaurant exemption, the CRA provided this statement: "There has been discussion about other potential exemptions but there is no language around those exemptions at this time. We are focused on supporting the thoughtful, balanced and comprehensive proposal that was developed to increase wages while protecting Sacramento's local economy and growing restaurant scene. We thank the mayor and city council for being leaders in this progressive process."

That process will continue at October 13's city council meeting, when the minimum-wage ordinance will be scheduled for review. Any new provisions, such as Wood's suggested sit-down restaurant exemption, would not be added before that meeting.

"The Task Force recommendation is currently what is being considered. The council can amend the recommendation. But ultimately the question of raising the minimum wage, including any exemptions, will be part of a council discussion," Joe Devlin, chief of staff for City Councilmember Jay Schenirer, said.