Haru restaurants in New York City, were hit with a tip theft lawsuit that claimed the restaurants had a tip distribution scheme where sushi chefs would receive a daily portion of the tip pool. The lawsuit claims that the sushi chefs did not perform personal service to customers at a level that is a principal and regular part of their duty and as a result they are not entitled to share tips under either the Fair Labor Standards Act (FLSA) or the New York Labor Laws (NYLL).
Attorneys for the workers also claim that servers, bussers, runners and bartenders were required to perform side work at the start, during, and at the end of every shift which amounted to more than 20% of their work time and an excess of two hours a day. The side work that these tipped employees were required to perform included cleaning bathrooms, sweeping, mopping, setting up and taking out garbage cans, filing soy sauce bottles, folding napkins and restocking. According to the wage theft lawsuit, the restaurants required the workers to perform most of the side work before the restaurant opened or after the restaurant closed and customers had left. Notably the tipped employees were required to come in at 10:30 am for a lunch shift when the restaurant didn’t open until 11:30 am.
Under the FLSA, employers are allowed to take a “tip credit” and pay waiters, bussers, and bartenders below the federal minimum wage. The United States Department of Labor regulations provide, however, that a restaurant will not qualify for the “tip credit” for employees that spend more than 20% of their time performing non-tipped work. Haru’s tipped employees are seeking to recover minimum wage, overtime wages, misappropriated tips and call-in pay.
Haru restaurants are part of a chain of sushi restaurants owned and operated by Benihana National Corp. They have previously been sued for discrimination against Hispanics and unpaid overtime and spread of hours.
The U.S. Department of Labor has issued a proposal to change the tip sharing regulations under the Fair Labor Standards Act (FLSA). Under the proposed rule, workplaces would have the freedom to allow sharing of tips among more employees. The proposal would help decrease wage disparities between tipped and non-tipped workers – an option that is currently restricted by a rule promulgated in 2011 that has been challenged in a number of courts.
The Department of Labor’s proposal only applies where employers pay a full minimum wage and do not take a tip credit and allows sharing tips through a tip pool with employees who do not traditionally receive direct tips – such as restaurant cooks and dish washers. These “back of the house” employees contribute to the overall customer experience, but may receive less compensation than their traditionally tipped co-workers. The proposal would not affect current rules applicable to employers that claim a tip credit under the FLSA.
The Department of Labor promulgated tip regulations in 2011 that restricted this option. Since 2011, there has been a significant amount of litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the federal minimum wage and do not claim a FLSA tip credit. There has also been litigation directly challenging the Department’s authority to promulgate the provisions of the 2011 regulations that restrict sharing of tips.
The Department of Labor stated that in the past several years, several states have changed their laws to require employers to pay tipped employees a direct cash wage that is at least the federal minimum wage. This means that fewer employers can take the FLSA tip credit. The Department of Labor’s proposed new rule follows these developments, along with serious concerns that it incorrectly construed the statute when promulgating the 2011 regulations.
It should be noted that many states like New York and California, have laws that prohibit tips from being shared between back-and-front-of-the-house employees, and that also explicitly prohibit management from sharing in the pot.
Dimora Ristorante, an Italian restaurant in Norwood, New Jersey, has paid $60,000 to a former waiter to settle a wage violations lawsuit for unpaid minimum and overtime wages and tip theft. The waiter argued that Dimora unlawfully required all front-of-the-house tipped employees, such as waiters and bussers, to pool their tips and share portions of them with two of the restaurants’ managers.
Under the FLSA, a restaurant can require front-of-the-house employees to pool and share their tips. However, the restaurant violates the FLSA if managers participate in the tip pool. Only non-managerial tipped employees can participate in the tip pool. If a restaurant violates this rule, it loses the tip credit, which is the privilege of paying front-of-the-house tipped employees at a reduced hourly wage rate. If this happens, the restaurant must pay back the tipped employees the tip credit, i.e., the difference between the full minimum wage rate and whatever reduced amount it paid them (which cannot be lower than $2.13 in New Jersey).
This is what the waiter argued against Dimora. According to the waiter, Dimora required him to share portions of his tips with two managers who hired, fired, interviewed, directed the duties, and set the work schedules of tipped employees. Because of this violation of the FLSA, the waiter claimed that the restaurant should not have paid him at the reduced wage rate of $2.90 per hour. He argued that because Dimora violated the FLSA, it should have paid him the full minimum wage rate of $8.38 in effect in 2016 in New Jersey. In other words, the waiter claimed he was owed the tip credit of $5.48 (i.e., the difference between $8.38 and $2.90) per hour worked up to 40 per workweek. The waiter also claimed that the restaurant failed to pay him any wages at all for hours worked over forty per workweek.
The waiter was represented by Louis Pechman and Gianfranco Cuadra of Pechman Law Group PLLC.