Restaurants, Here are some “Tips” to Avoid Wage and Hour Lawsuits

By: Adam Kemper

Restaurants have become the target of an onslaught of lawsuits claiming wage and hour violations based on improper tipping practices. This type of lawsuit has the potential for individual liability. Owners and managers often get named as defendants.

Additionally, over the last few years Department of Labor (“DOL”) investigators who audit restaurants have found tip credit violations in over 1,500 cases, resulting in nearly $15.5 million in back wages.

Under the law, an employer may take a credit against its minimum wage obligation and pay a reduced minimum wage to certain “tipped employees” (i.e. individuals who have regular customer interaction and receive more than $30 dollars per month in tips). Employers must fill in the gap when and if the employee fails to earn at least the normal minimum wage through wages and tips combined.

An employee may participate in a tip pool which is where an employee shares his or her tips with other tipped employees and all such employees receive distributions from the tip pool. A tip pool may not include employees who do not customarily and regularly receive tips like dishwashers, managers, cooks and chefs.

In fact, a common lawsuit is one that involves a tipped employee claiming that the tip pool was diluted by including non-tipped employees. By permitting non-tipped employees (who earn at least the normal minimum wage), tipped employees are losing a portion of their hard-earned tips that would ordinarily only belong to them.

Another common lawsuit is a restaurant employer that requires its employees perform non-tipped duties at the reduced/tipped minimum wage. In every restaurant, there is a list of side work for tipped employees to complete. For example, servers may be asked to assist in setting and/or wiping down tables, restocking supplies or silverware, even though such work does not directly result in tips.

The DOL permits restaurant employers to continue to pay the reduced minimum wage to tipped employees while performing such side work so long as it is (1) minimal and no greater than 20% of the time and (2) related to the performance of tipped duties.

Here are five “tips” to avoid the tip-related audit or lawsuit:

1. Understand that tips are the property of the employee and the employee is not required to share them with anyone. If your restaurant takes a tip credit on employees, make sure employees are notified and paid the appropriate tipped minimum wage.
2. If your restaurant has a tip pool, maintain and enforce a strict policy which only permits employees who “customarily and regularly” receive tips to participate in the tip pool. Do not allow non-tipped employees to participate in the tip pool.
3. Maintain adequate and accurate time keeping records. If your “tipped employee” is performing non-tipped, make sure it is related to the tipped position and only for a very limited amount of time. Otherwise, the employee must be paid the full minimum wage for time spent on non-tipped work.
4. Monitor compensation and tip distribution to ensure employees are paid appropriately.
5. Keep your employees happy.

Mr. Kemper practices in the area of labor and employment law where he regularly counsels employers on a variety of workplace issues including, but not limited to, interviewing, hiring, employee discipline and discharge, workplace discrimination, harassment, retaliation, wage and hour (including tipping practices), whistleblower, unemployment, restrictive covenants, non-compete agreements, non-solicitation agreements, non-disclosure agreements, separation agreements, workplace policies and employee handbooks. More information about Mr. Kemper can be found at http://www.gmlaw.com/adam-d-kemper/.