Tip Credit

Seventh Circuit Weighs In On 80/20 Rule and Tip Credit Disputes


The Seventh Circuit addressed tip credit and 80/20  issues in a decision involving pay practices at Original Pancake House restaurants in Chicago.

On the 80/20 issue, the Court found that although some waiters and waitresses tasks may be performed by untipped staff at other restaurants, it does not make them unrelated to their server duties. The Court noted that “the possibility that a few minutes a day were devoted to keeping the restaurant tidy does not require the restaurants to pay the normal minimum wage rather than the tip credit rate for those minutes.”

On the tip credit issue, the Court analyzed the requirements of §203(m) and explained “workers are entitled to knowledge about the tip credit program but not to a comprehensive explanation.” The Seventh Circuit’s take on the requirements for notification of the tip credit was threefold: “Three things are apt to matter most to employees at establishments such as these defendants: (a) in anticipation of tips the employer will pay less than the minimum wage; (b) how much the cash wage will fall short of the current minimum wage; and (c) if tips plus the cash wage do not at least match the current minimum wage, the employer must make up the difference. We think that person told these things has been adequately “informed” for the purpose of the statute, during the time before the Department of Labor elaborated by regulation.”

T.I.’s Atlanta Restaurant Employees Are Suing Him for Unpaid Wages

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Twelve restaurant workers employed by Scales 925, a restaurant in Atlanta, Georgia owned by Clifford Harris – the famous rapper formerly known as T.I. – are suing the Atlanta restaurant for minimum and overtime wage violations of the Fair Labor Standards Act (“FLSA”). The wage theft lawsuit alleges that the waitstaff would routinely work more than 40 hours per week without being paid overtime and spent more than twenty percent of their time performing non-tipped tasks.

According to the lawsuit, waiters and waitresses were required to work off the clock for three hours before they were allowed to go home. The waitstaff complained to Scales 925 about not being paid overtime, but Scales 925 management ignored their complaints. In addition, the lawsuit claims the restaurant unlawfully deducted money from server’s paychecks for broken glasses, even if no glasses were broken. The restaurant also deducted money from servers’ paychecks supposedly to pay for busboys, which the busboys claimed they never received.

Astoria Restaurant Ordered to Pay Waitresses for Wage Violations

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Las Margaritas, a Mexican restaurant in Astoria, was ordered to pay two former waitresses $41,618.08 for multiple wage violations under the Fair Labor Standard Act and New York Labor Law following a four-day trial and a jury verdict in favor of the waitresses. Magistrate Judge Cheryl Pollak upheld the jury’s verdict which found that the restaurant failed to pay waitresses minimum wage, overtime, and improperly applied a tip credit towards their wages. Las Margaritas also violated New York Labor Law by failing to pay the waitresses a uniform allowance of $9.00 per week as well as making deductions from the waitresses’ pay or making them pay out of pocket if the cash register was short.

The waitresses were represented by Vivianna Morales and Lou Pechman, founder of waiterpay.com.

Connecticut Restaurant Sued in Class Action Lawsuit for Wage Theft

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Servers and bartenders have united in a class action lawsuit against Shea’s American Bar and Grill for minimum wage violations and improper deductions under the Fair Labor Standard Act (“FLSA”) and the Connecticut Minimum Wage Act (“CMWA”). According to the worker’s lawsuit, servers and bartenders were required to perform non-tipped work at the beginning or end of their shifts, and even during their shifts. The lawsuit alleges the Restaurant did not keep a record of what time was spent performing non-tipped work in violation of the CMWA.

In addition, the lawsuit claims that Managers would clock out workers from the time keeping system, even though they were still working. It is alleged that the restaurant shaved workers’ hours worked by changing clock-in and/or clock-out times in the timekeeping system. Therefore, the servers and bartenders worked off the clock without pay and were not given overtime compensation for hours they worked past forty in a week.

The lawsuit further alleges that the restaurant took improper deductions from employee paychecks. The restaurant deducted a cost between $15-$20 for uniforms workers were required to wear which carried the restaurant logo. Penalties of at least $20 were also deducted from paychecks if the managers were not “satisfied” with a cleaning job by an employee. The restaurant even deducted customer bills from a server’s or bartender’s pay for those customers that “walked out”. Workers’ rights were violated as these deductions brought the workers’ wages below the minimum wage under the FLSA. This lawsuit seeks unpaid wages, liquidated damages, interest, and attorneys’ fees.

Joe’s Crab Shack Eliminates Its “No Tipping” Policy

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Joe’s Crab Shack announced that it would restore tipping at most of their no tipping locations less than a year after adopting the highly criticized “no tipping policy” at their restaurant chain. Created with the intention of moving away from an antiquated gratuity model, Joe’s Crab Shack became the first national chain to eliminate tipping from their restaurants when they applied the “no tipping policy” to 18 of their restaurants.

The restaurant’s research showed that about 60% of customers disliked the policy because it took away incentive for good service and that they didn’t necessarily trust that management is passing along the money to workers. The feedback from the customers of Joe’s Crab Shack is consistent with the results of a survey held by WaiterPay.com which revealed that a majority of servers were against no tipping policies. The WaiterPay survey revealed that waiters and waitresses believed that “no tipping” policies would negatively affect the pay they earned and decrease they quality of customer service.


Owners of Charleston Area Restaurants to Pay Nearly $1.2M in Back Wages and Damages

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An investigation by the U.S. Department of Labor’s Wage and Hour Division found that the owners of 13 Charleston, South Carolina area restaurants violated minimum wage, overtime, and recordkeeping provisions of the Fair Labor Standards Act (FLSA).

Under the FLSA, employers are allowed to take a “tip credit” and pay tipped employees below the full federal minimum wage per hour if the employees will make at least minimum wage after keeping their tips.  To legally apply the tip credit, a restaurant must ensure that all tips received by tipped employees are retained by the employees (unless there is a valid tip pooling arrangement). In the present case, the employer required servers to give a percentage of their tips back to them and compelled three servers to work for only tips. The restaurant owners also required workers at some locations to purchase their uniforms, which reduced their earnings below the minimum wage.

The investigation also found that the employer failed to pay cooks, dishwashers and runners for all hours worked, resulting in these employees not earning minimum wage for all hours worked. Furthermore, these workers did not receive overtime pay of time-and-one-half for all hours worked beyond 40 in a workweek. Lastly, the owners failed to keep legally mandated time and attendance records.

Judge C. Weston Houck, of the U.S. District Court for the District of South Carolina, approved a consent judgment between the department and the owners, who will pay a total of $1,179,045 to 119 employees, which includes $589,523 in back wages and an additional equal amount in liquidated damages for all affected employees who worked at any of the 13 restaurants from Aug. 13, 2011 to Dec. 13, 2014.




Iowa Restaurants Sued for Tip Credit Wage Violations

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Servers at two Des Moines, Iowa restaurants, Johnny’s Italian Steakhouse and Centro Restaurant, have filed lawsuits against the restaurants alleging violations of the Fair Labor Standards Act (FLSA) and Iowa wage laws. In the collective action and class action lawsuits, filed in Iowa Federal Court, the servers assert that they were illegally paid a tipped minimum wage rate for time spent performing non-tipped work, such as sorting, polishing, and rolling silverware and cleaning tables, counters, walls, and floors.

Under the FLSA and Iowa wage laws, employers are allowed to take a “tip credit” and pay tipped employees such as waiters and bussers below the federal minimum wage of $7.25 per hour. However, employees who spend more than 20% of their time doing non-tipped work must receive the full minimum wage rate for time spent performing those duties. The lawsuits allege that the servers were paid at the Iowa reduced minimum rate of $4.35 for all hours worked even though they spent more than 20% of their working time performing non-tipped duties such as setting-up and cleaning.

This so-called 80/20 rule has been the subject of a previous waiterpay blog regarding Applebee’s.



Serendipity 3 Restaurant Sued for Wage Violations

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Serendipity 3 Restaurant, renowned for its $25,000 ice cream sundae and feature in the movie Serendipity, has been sued for minimum wage, overtime, and tip credit violations by a former server. The lawsuit, filed by WaiterPay.com founder Louis Pechman, has been reported on by the New York Daily News, the New York Post, Daily Mail, and Law360.

Servers Say NO To No-Tipping Policy

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Restaurants that have adopted a “no tipping” policy and got rid of tips in favor of a higher hourly wage have received a great deal of media attention in the last few months. While much has been discussed from the management and customer perspective, WaiterPay.com conducted a survey to get the server point of view. We sampled a group of about 200 restaurant workers, the majority from the tri state area, and asked how they thought a no tipping policy would affect their work performance and livelihood.


According to the survey, 78% of participants believed there was a direct correlation between tips and service, agreeing that “the quality of service greatly affects tips.”


When asked “How will a no-tipping policy affect the quality of service you provide to customers?”

38% of survey takers said they believe the no tipping policy will significantly reduce the quality of service they provide to customers.

30% of survey takers said they believe the no tipping policy will not affect the quality of service they provide to customers.

32% of survey takers said they believe the no tipping policy would slightly reduce the quality of service they provide to customers.


When asked, “Do you believe earning a higher hourly wage and eliminating tips will reduce your incentive to upsell?”

 33% will not have a reduced incentive to upsell.

77% will have a reduced incentive to upsell.


When asked, “How do you think eliminating tipping and earning a straight hourly wage will affect the amount you earn?”

94% believed they would be earning less.

3% thought they would earn more.

3% thought they would earn the same.


When asked, “Do you think front of the house workers should make a higher hourly wage than back of the house workers?”

35% said back of the house workers should be making more than front of the house workers.

46% thought they should be making the same.

19% said front of the house workers should be making more than the back of the house workers.


When asked, “If tips were eliminated at your restaurant, what do you think is a reasonable hourly wage for serves?”

The survey average was $25/hr.


When asked, “Do you believe that restaurants should adopt a no tipping policy?”

94% of survey takers  said NO.
2% of survey takers said YES.


For more information about the survey please check out Waiterpay.com’s Facebook and feel free to contact Louis Pechman at [email protected]

New York Red Robin Restaurants Hit with Wage Theft Class Action

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Red Robin, fresh off of a $1.3 million settlement for its servers in Pennsylvania, had been hit with a class action lawsuit on behalf of servers at Red Robin restaurant in New York.

The New York class action lawsuit alleges that Red Robin required its waiters, waitresses, and bussers, to share their tips with expediters even though the expediters had little to no direct interaction with customers. The lawsuit also claims that Red Robin required its servers to perform substantial side work, which exceeds 20 percent of their work time. That non-tip producing side work included cleaning, preparing food, refilling condiments, and stocking and replenishing the bar and food stations. Under the New York Labor Law, on any day that a server works at a non-tipped job for two hours or more for more than twenty (20) percent of the workday (which ever is less), the wages of the server are not subject to a tip credit for that day.

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