Tip Credit

Judge Rules Fresco by Scotto Violated Tip Credit Rules for Waiters

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The tip credit requirements of the Fair Labor Standard’s Act were violated by Fresco by Scotto Restaurant according to Analisa Torres, a federal court judge in New York.

An employer may not take a tip credit under the FLSA unless the employee has been informed of the FLSA’s tip credit provision. Judge Torres noted that “this requirement is strictly construed, and must be satisfied even if the employee received tips at least equivalent to the minimum wage. The employer bears the burden of showing that it satisfied the FLSA’s notice requirement by, for example, providing the employee with a copy of § 203 (m) and informing the employee that her tips will be used as a credit against the minimum wage as permitted by law. If the employer cannot show that it has informed the employee that tips are being credited against her wages, then no tip credit can be taken and the employer is liable for the full minimum-wage.”

Applying these principles, the Court found that Fresco by Scotto was not entitled to take a tip credit against the servers’ wages under the FLSA prior to July 2012. To begin with, the waiters and bussers were not orally informed about their compensation generally or the tip credit specifically when they began working at Fresco. Moreover, the written notices that the restaurant provided beginning in March 2011 did not adequately explain the tip credit provision because the notices were in English only. Fresco offered no evidence that the servers – all of whom testified at trial in Spanish with the assistance of an interpreter – were sufficiently literate in English to be informed by the notices. Finally, the Court rejected the restaurant’s argument that the government posters displayed at Fresco satisfied the FLSA’s notice requirement. Judge Torres ruled that although “a generic government poster could inform employees that minimum wage obligations exist, it could not possibly inform employees that their employers intend to take the tip credit with respect to their salary.”

Houlihan’s in New Jersey Sued By Servers For Improper Tip Pooling

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Servers at Houlihan’s—a popular New Jersey bar and restaurant chain, are suing A.C.E. Restaurant Group Inc., Houlihan’s franchise owners responsible for operating about 15 Houlihan’s locations in the Garden State. The lawsuit, filed in a New Jersey federal court, alleges that for approximately three years, Houlihan’s maintained a policy of arranging forced tip-pooling agreements, and failed to pay their employees the minimum wage. According to the lawsuit, Houlihan’s forced their servers to pool their tips with kitchen expediters, hostesses, and other non-tipped employees.

Under the Fair Labor Standards Act (FLSA), tip pooling is permitted only when it is “limited to employees who customarily regularly receive tips.” Attorneys for the employees are seeking unpaid minimum wages, unpaid wages, liquidated damages, and attorney’s fees.


KTCHN restaurant and XL Nightclub Sued for Sex Discrimination and Wage Violations








KTCHN restaurant and XL nightclub have been sued by servers for sexual orientation and gender discrimination and for failure to pay minimum and overtime wages and withholding tips.

KTCHN restaurant and XL Nightclub, located in New York’s OUT Hotel, caters to the LGBT community and is referred to as “gay-friendly” in the media. However, according to the lawsuit, management discriminated against servers Donald Shorter and James Stress, the only openly homosexual servers that outwardly presented as feminine at work by regularly wearing eye shadow, glitter eye liner, and nail polish. Shorter and Stress allege that management singled them out for their appearance and implemented a dress code policy that prohibited male employees from wearing nail polish and makeup, stating, “[t]he only acceptable time for gentlemen to wear make-up or nail polish will be Sunday Brunch.” Shorter and Stress complained about the policy and management allegedly humiliated, disparaged and reprimanded them for not following the policy. Shorter and Stress claim that the restaurant’s policy is a violation of the New York City Human Rights Law (“NYCHRL”) which prohibits discrimination based on sexual orientation and gender, and gender is defined by the NYCHRL to include “gender identity, self-image, appearance, behavior and expression.”

In regard to the wage violations, together with Shorter and Stress, two other servers allege that the restaurant unlawfully paid them the reduced tipped minimum wage when they worked in positions that did not receive tips, did not pay them overtime pay, and collected their credit card tips and distributed them at their own discretion and without regard for the established tip pool.

The lawsuit seeks to recover unpaid wages, misappropriated tips, and liquidated damages pursuant to the New York Labor Law and Fair Labor standards Act, and compensatory and punitive damages under the New York City Human Rights Law.

Pizza Hut Restaurants in New York Sued for Wage Payment Violations


Pizza Hut restaurants in New York State have been hit with a wage theft lawsuit by one of its servers. Amanda Perry, a server who worked at a Pizza Hut in Canandaigua, New York, claims in her lawsuit, filed in a federal court in western New York, that the restaurants stiffed her and other servers out of overtime and minimum wage pay.

According to the lawsuit, the Pizza Hut restaurants should not have taken a “tip credit” and paid the servers at the $5 per hour tipped minimum wage because the restaurant did not notify the servers of the tip credit provision of the law and did not provide proper wage statements and notices. Lawyers for the restaurant workers claim the restaurants should have paid at the full minimum wage rate for all hours worked in addition to overtime pay for hours worked in excess of forty per week.

The lawsuit also claims that the servers were entitled to an additional hour of pay as “spread-of-hours pay” for days when the waitstaff worked more than ten hours. The lawsuit also claims that the Pizza Hut restaurants required the waitstaff to maintain uniforms without providing additional pay to do so.



Happy National Waiters and Waitresses Day!


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.

Popular California Restaurant Chain Sued for Misclassification and Wage Theft


Sous chefs, prep cooks, and managers have been misclassified as exempt employees and denied overtime pay at 9021Pho Restaurants in Los Angeles, California, according to a lawsuit filed in California federal court.

The collective action lawsuit claims that the Vietnamese Fusion restaurants failed to pay workers time and a half for all hours worked in excess of forty per week. According to the Complaint, workers were wrongly classified as exempt employees and were paid a salary when they should have been paid overtime for all weekly hours worked over forty. 9021Pho also allegedly failed to provide workers with meal and rest breaks, as required by the California Labor Code and Wage Order.

Attorneys for the restaurant workers claim that the chain acted in violation of the Fair Labor Standards Act (FLSA), the California Labor Code, the California Wage Order, and the California Business and Professions Code. The lawsuit seeks back wages, compensatory damages, consequential damages, liquidated damages, special damages, civil penalties, and attorneys’ fees.


Panda Express Managers Settle Overtime Claim for $2.975 Million


Fast-food restaurant chain Panda Express LLC has reached a $2,975,000 settlement with a nationwide class of restaurant managers who claimed the chain violated labor laws by failing to pay the managers overtime.

The wage theft lawsuit was filed in 2009 by a former Panda Express general manager, Khan Kudo, on behalf of all similarly situated general managers. The lawsuit alleged that Panda Express improperly classified managers as exempt from overtime and therefore violated the FLSA by not paying its general managers overtime compensation at the rate of time and one-half for all hours worked in excess of 40 hours in a workweek.

According to the lawsuit, Kudo worked for Panda Express for 10 years at least 50 hours per week. He would spend at least 80 percent of his working hours performing non-managerial activities such as: preparing food, taking and filling customers’ orders, taking inventory, receiving customers’ payments for their food and removing trash and cleaning. Kudo claimed he was permitted little to no discretion in his duties because the restaurant’s corporate management controlled almost every aspect of the restaurant’s day to day operations including, store hours, store layout, hiring and firing, scheduling employees, store budgets, among others.

The proposed settlement will compensate 155 current and former Panda Express managers. The settlement agreement is subject to approval of Judge Seibel, a federal court judge in White Plains, New York.

Steak ‘n Shake Restaurant Workers Sue for Minimum Wage Violations

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A waitress at a Steak ’n Shake Restaurant in St. Mary, Florida filed a class action lawsuit in federal court alleging minimum wage violations at Steak ‘N Shake Restaurants throughout Florida.

The lawsuit alleges that Steak ‘n Shake restaurants in Florida paid its waiters and waitresses a reduced tipped minimum wage rate, but did not satisfy the requirements under the Fair Labor Standards Act (“FLSA”) by which they could take the “tip credit.” Attorneys for the servers claim that the restaurant should not have paid the workers the federal tipped minimum wage because the restaurant required that servers perform substantial non-tipped “side work,” that equaled more than twenty percent of their time at work. That “side work” included cleaning the front of the house, “opening” and “closing” duties, trash removal, and table setup.

Under the FLSA, employers are allowed to take a “tip credit” and pay waiters, bussers, and bartenders below the federal minimum wage of $7.25 per hour (note that in New York the minimum wage is $8.75 per hour).  However, the United States Department of Labor notes in its Fact Sheet on Tipped Employees Under the Fair Labor Standards Act, that “where a tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing related duties, no tip credit may be taken for the time spent in such duties.”

The case against Steak ‘n Shake Restaurant seeks back wages, liquidated damages, and attorneys’ fees.


Five Tips To Avoid Restaurant Pay Lawsuits


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?

Nationwide Certification Granted in Wage Theft Case Against T.G.I. Friday's Restaurants

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A nationwide wage theft class action against T.G.I. Friday’s has been given a green light by a New York Federal Judge. In a decision yesterday by U.S. District Court Judge Analisa Torres, conditional collective certification was granted to servers, bartenders, bussers, runners, and hosts who have worked at T.G.I. Friday’s locations at any time from April 2011 to the present.

The lawsuit claims that restaurant managers forced the employees to work off the clock and they were not paid for this time. The workers also alleged the restaurant chain improperly applied a tip credit toward their wages without properly notifying them of the Fair Labor Standards Act (“FLSA”) tip credit provisions. Other alleged violations of the FLSA tip provisions include a mandatory tip-pooling scheme in which the workers were required to share their tips with non-tipped employees like expeditors and silverware rollers. According to the workers’ attorneys, tipped employees were also required to spend a substantial amount of time performing non-tipped side work and did not receive overtime pay for hours worked over forty.

T.G.I. Friday’s operates 920 restaurants in 60 countries and employs more than 175,000 people worldwide. Over 40,000 tipped employees at T.G.I. Fridays could be eligible to participate in this lawsuit.

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