Today is National Waiters and Waitresses Day. To commemorate, check out this blog about the top ten wage violations in the restaurant industry written by waiterpay.com founder Louis Pechman, featured on the Huffington Post.
Wage Theft Protection Act
In handling over 100 restaurant pay lawsuits, I have seen common themes play out, whether that restaurant is a mom and pop take out place or a high end fine dining establishment. From the perspective of someone who has collected millions of dollars for restaurant workers across the United States, here are my top five tips to avoid wage theft lawsuits.
1. Tips Are the Property of Servers
From the management point of view, think of tips as kryptonite – stay away. It is not your money. Many of the lawsuits against restaurants arise from management dipping into gratuities left by customers for their servers. Tips are not house money. Owners need to make sure that tips are only shared with waiters, waitresses, bussers, runners, and other front of the house workers who deal with customers. And, managers need to stay out of the tip pool as well. The temptation to dip into the tips of servers – some of whom may be making a six-figure income – often times is irresistible for an owner. Taking 5% off of the pool, sharing tips with the kitchen, putting a manager in the tip pool, and having servers kick in cash every shift for a dishwasher to scrape plates, are all examples of skimming of tips that have resulted in lawsuits. Keep in mind that the penalties for skimming tips are severe, as the restaurant may have to disgorge the tips, lose the tip credit, and be subject to liquidated damages.
2. Paying Salary or Shift Pay = Lawsuits
Unfortunately, there is a common misconception that if you pay an employee on a salary, you don’t have to pay overtime. This can be a catastrophic mistake. The fact is that only a limited amount of employees in restaurants are “exempt” from the requirement of overtime under the federal Fair Labor Standards Act (FLSA) and the New York Labor Law. In order to qualify as an “exempt” job under these laws, a restaurant worker has to fit within the administrative, executive, or professional exemption. So, if you are paying your cook, maître’d, bookkeeper, host or other non-management employee a salary for a workweek in excess of 40 hours, you are unlawfully failing to pay them overtime — regardless of how much they are paid. Likewise, regardless of how much you pay an employee for shift pay, if that employee works more than 40 hours per week, the restaurant has broken the law by not paying him or her time and one-half for all hours worked over forty.
3. Keep Track of Work Hours
Restaurant pay lawsuits usually involve some sharply contested claim that employees are not paid for all hours worked. Do the kitchen workers take a break between lunch and dinner rush? Do waiters clean up for a half hour after they close out of the POS system? What is the start time, stop time, break time, lunch time? If a restaurant is not keeping track of hours worked by employees in either the front of the house or the back of the house, then it risks claims for unpaid hours. Both the FLSA and the New York Labor Law require employers to keep time and pay records of their employees. In this regard, it is important to note that in the Mt. Clemens case the Supreme Court held that where the employer keeps inadequate records, there is a presumption that the employee’s recollection of hours worked should be believed.
4. Know Your Restaurant Pay Math
Many restaurants get caught up in “gotcha” violations because they do not keep track of the specific wage rates for their workers. Here is a checklist for current restaurant pay requirements in New York
o Minimum Wage for non-tipped employees, including back of the house, is $8.75 per hour and $13.13 per hour for overtime hours.
o Tipped Minimum Wage for front of the house is $5.00 per hour and the tip credit is $3.75. The overtime rate for front of the house is $9.38 per hour. (You can only take the tip credit once).
o Tipped Minimum Wage for delivery workers is $5.65 and the tip credit is $3.10. The overtime rate for delivery workers making tipped minimum wage is $10.03 per hour.
o Uniform Maintenance for workers that work over 30 hours a week is $10.90; 20 -30 hours a week is $8.60; and less than 20 hours a week is $5.20.
o Meal Credits for front of the house and delivery workers is $2.50 and for back of the house workers is $3.00.
o Restaurants may deduct the cost of converting a tip left on a credit card to cash, but only may deduct the pro-rated share of the charge levied by the credit card company.
o All restaurant employees that work a spread of hours that exceed 10 hours on any day must receive an additional $8.75 in spread of hours pay.
5. Respect, Respect, Respect
A large portion of workers who sue their boss for wage pay violations visit an attorney because they believe they were the victims of an unlawful termination or wrongful discharge. Although that claim is generally DOA because employees in New York are “at will,” the inquiry leads to the follow-up question of “But how were you paid?” If that worker was paid incorrectly, and the employee believes he has been mistreated, a lawsuit will follow. However, there are many occasions where employees with excellent claims for back pay do not want to sue because the owner always treated them with respect and they believe they were paid fairly, albeit incorrectly. On the other hand we have seen lawsuits where some of the highest paid servers in New York have sued because they were treated disrespectfully, called names, and talked to in a demeaning manner. Restaurant owners in New York are right to believe they are under siege, but it is a misconception that every employee has a goal to bring a public lawsuit. Sometimes, treating employees with respect can make the difference in whether your cook or waiter has the word “plaintiff” before his name.
*These comments were prepared for the New York City Hospitality Alliance program on February 2, 2015, Have We Reached the Tipping Point for Tips?
Louis Pechman, the founder of Waiterpay, was a featured guest on BK Live’s June 2, 2014 segment on Tipped Wages. The segment focused on pay issues in New York City restaurants, including concerns about the increase in lawsuits for illegal pay practices. Among the topics discussed were the differences between minimum wage and tipped minimum wage, the complicated set of laws involving the tip credit, spread of hours, and other worker rights issues.
A food preparer at Hale and Hearty New York, has filed a class action lawsuit suing the chain of soup restaurants and its production facility for failing to pay workers for all hours worked, failing to pay overtime wages and other Fair Labor Standards Act (FLSA) and New York Labor Law wage violations.
The Complaint filed by Alfredo Ferrari alleges that Hale and Hearty would regularly change punch clock records and reduce the recorded hours employees worked, so as to avoid paying overtime compensation for hours worked over forty in a workweek. Ferrari alleges that he failed to receive compensation for an average of ten hours per week. The Complaint also alleges that production workers and food preparers were required to clock out for fifteen minute lunch breaks but were often forced to work during that time.
The class action lawsuit seeks unpaid wages, liquidated damages and attorneys’ fees for violations of the FLSA and the New York Labor Law.
The owners of Colony Diner in East Meadow, New York have pled guilty to cheating seventy-two of their workers out of minimum wage and overtime payments, and falsifying payroll and time records.
As part of their plea, the restaurant owners agreed to pay $337,780 in back wages, $163,742 in damages, and $46,681 in state unemployment insurance payments. An investigation by the Department of Labor found that between September 2007 and September 2010 Colony waiters, busboys, and servers at the restaurant sometimes earned less than $2 an hour and the kitchen staff earned no overtime despite working 50 to 60 hours a week.
According to an article in Newsday, after obtaining a search warrant, the Nassau County District Attorney’s office found two sets of books at the restaurant, one with falsified payroll and time records and another set with the “true pay rate and hours work by the diner’s employees”. “Labor laws exist to ensure that hardworking employees are paid every penny of their wages,” said District Attorney Kathleen Rice.
The guilty pleas arise out of the first joint investigation under New York State’s Wage Theft Prevention Act. Both the Nassau County District Attorney’s office and the federal and state labor departments filed charges against Colony Diner. On July 17, the owners will be sentenced and could face up to four years in prison for their labor law violations.
A program on “How to Handle a Wage and Hour Case” will be held at the New York County Lawyers’ Association on January 31, 2013. Faculty for the program are Terri Gerstein, the Labor Bureau Chief, New York State Attorney General’s Office; Justin Swartz, attorney with Outten & Golden LLP; and Noel Tripp, attorney with Jackson Lewis LLP.
Louis Pechman, founder of waiterpay.com, will moderate the program. For more information on the program, visit NYCLA’s site.
Under the New York State Wage Theft Prevention Act, effective February 1, 2012, New York employers are now required to give annual notice to their employees of wage information, including:
•His or her regular rate(s) of pay and overtime rates of pay (if applicable);
•The basis of the employee’s wage rate (i.e. hourly, weekly, salary, commission, other);
•Any allowances claimed against the minimum wage (tip credit, meal credit, lodging allowances, etc.);
•The employer’s principal place of business, and mailing address (if different);
•The employer’s telephone number; and
•Additional employer information, such as the official name of the business and all “doing business as” names.
Employers are also required to obtain signed acknowledgements from each employee which memorialize the employee’s receipt of his or her wage notice. These signed acknowledgements must be retained by employers for six years.
This Notice requirement is an important law with significant penalties for non-compliance. Any new employee not provided with the notice within 10 business days of his or her start date may bring a claim to recover $50 for each workweek that a violation occurs and may recover up to $2,500, plus attorneys’ fees. For statutory violations relating to a current employee, the employer may be liable for damages of up to $100 per week and may recover up to $2,500, plus attorneys’ fees.
The Movement to End Wage Theft, a report on minimum wage and overtime violations nationwide, was released this month by the Discount Foundation. The report examines the wage theft movement and strategies that have been developed by workers’ rights organizations and attorneys to combat violations of employment laws.
Tim and Nina Zagat, co-founders of Zagat Survey, in their December 13 letter to the New York Times titled “Adding Fairness to the Tip” raise important issues as to why New York City restaurants are being sued by their workers and what the future holds for the industry. The Zagats rhetorically ask what is behind the onslaught of lawsuits and suggest that it is mainly due to a confusing hodge-podge of laws and regulations. But there is more to the story.
While there is an extraordinarily complicated set of laws governing the pay of restaurant employees, there are also other reasons for the rampant labor law violations in the restaurant industry. First, there is the cash element to the business, making it easier (and more tempting) to short-change workers. Second, many illegal immigrants populate the kitchens and dining rooms of restaurants. Some employers mistakenly believe that the illegal status of their employees exempts them from complying with the law or, at the very least, will make them too scared to speak up. Third, the restaurant industry is competitive and unforgiving to owners who cannot maintain service and quality. Unfortunately, some restaurants seek to increase their profit margins by denying employees the compensation they are due.
While it might lead to greater efficiency, the Zagats’ plea that a special judicial board be created to hear pending and future cases is unrealistic. The rights of restaurant workers are vindicated by private attorneys who file lawsuits under the Fair Labor Standards Act (FLSA) and the New York Labor Law. Congress is not about to change the FLSA, and by passing the Wage Theft Protection Act, the New York legislature has recently increased the penalties to restaurants who violate the law.
The assistance restaurants need, however, is not from Congress or the New York legislature, but rather from their attorneys and accountants. Indeed, the Zagats overlook that there are a few basic rules that restaurants need to know to keep themselves mostly out of trouble. Here is a short list of the top five ways New York restaurants can stay in the kitchen and out of court:
1. Keep track of and pay for all hours worked (Warning: Do not pay shift pay or salary.)
2. Pay overtime for all hours worked after 40 in a week (Warning: Only take the “tip credit” once when overtime is paid.)
3. The entire charge to a customer for a tip, gratuity, or service charge should be distributed to the waitstaff (Warning: If the house keeps part of a service charge, let the customer know.)
4. Keep managers and kitchen employees out of the tip pool (Warning: If an employee manages the restaurant or does not interact with customers in the dining room, they should not share in the tips.)
5. Pay “spread of hours pay” (Warning: New York law requires that certain employees be paid an extra hour of pay at minimum wage (currently $7.25) each day their workday spans more than 10 hours.)
So, how do we rate Tim and Nina Zagat’s letter to the Times? From the waiterpay.com perspective, they get low marks for the premise that the wave of restaurant litigation raises an issue of “fairness” when the real issue is that restaurants simply need to know and comply with the law. Nonetheless, the Zagats still get a 30 for raising awareness about these important issues for restaurant owners and workers in New York.
On December 13, 2010, Governor David Paterson signed the Wage Theft Protection Act into law. The law, which goes into effect on April 12, 2011, strengthens the penalties available under New York labor law for employers who illegally withhold employees’ pay or otherwise violate the minimum wage or overtime requirements. Under the new law, restaurants and other employers may be found to be liable not only for the unpaid wages for their workers, but also for an equal amount in liquidated damages. This double damages penalty is a significant increase from the prior law, which gave workers the right to liquidated damages of 25% of wages owed. The Wage Theft Prevention Act also permits the Commissioner of Labor to obtain liquidated damages of up to $10,000 in the event an employer retaliates against a worker who complains of a violation of the wage laws.
This new law provides important additional rights for restaurant workers whose employers violate the law or engage in retaliatory conduct.