Legal Landmines for Restaurant Owners

How To Serve Up Wage And Hour Compliance

Libby Henninger

Legal Landmines for Restaurant OwnersIn recent years, wage and hour actions have increased exponentially against the restaurant industry.  Not only have restaurants become the focus of litigation, but the Wage and Hour Division of the Department of Labor (DOL) has targeted the food service industry in its recent enforcement initiatives.  A review of current compensation policies and practices to confirm wage and hour compliance will help to limit the risk that such actions are brought against your Company. Some states have different requirements, so you should also ensure that your practices are compliant under both federal and state law.  The top three areas to focus the review on are discussed below.

First, restaurants using tip credits should audit their practices to ensure compliance with state and federal law.  Generally, a restaurant is permitted to take a credit against required minimum wage payments for tips received by its employees.  However, this credit may only be taken under certain circumstances.  Under federal law, the tip credit can only be taken for tipped employees.  The tip credit can only be taken for tips actually retained by the employee.  Moreover, in order to take a tip credit, employees must receive notification.  There is no express requirement that this notice be provided in writing.  However, because the tip credit will be lost if notice is not given – and minimum wage will be owed for all hours worked – it is advisable to provide all employees with written notification.

Second, to the extent tips are pooled or shared, restaurants should make sure that this practice is done pursuant to a valid tip pooling arrangement.  Generally, in order to be valid, tips can only be shared with other employees who serve customers such as servers, bartenders, bar backs, and bussers.  A tip pool will often be invalidated (and full minimum wage will be owed to participants) if tips are shared with non-tipped employees.  These can include cooks, chefs, and dishwashers.  Also, any pooling with a manager or an owner of a restaurant will typically invalidate the tip pool.  Federal law does not impose any maximum contribution limit to the tip pool.  However, like the tip credit, employers must demonstrate that they have provided notice to employees informing them of any required tip pool contribution amount.

Third, restaurants should work to make sure that all employee work hours are recorded and paid.  This includes side work which may be performed either before or after a scheduled shift.  Employees should be instructed to clock in before performing any work and not to clock out until all work is done.  Emphasizing these requirements with both managers and staff is an important step in maintaining compliance.

Overall, routinely reviewing your business’s practices to verify compliance with the law can help limit costly legal action.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.