Deducing Seamless Fees from Gratuities May Violate FLSA

Deducting the full amount of service fees charged by Internet food delivery sites such as SeamlessWeb from employee gratuities may violate federal and state law, according to a recent decision by Judge Alison J. Nathan of the Southern District of New York. Indus Valley, an Indian restaurant located in Manhattan, contracted with Internet food delivery sites that allow customers to log onto the website and order food from Indus Valley for delivery. These sites include SeamlessWeb.com, GrubHub.com, and Delivery.com.   If gratuities are added to orders placed through these websites, Indus Valley withholds a percentage of those gratuities from delivery persons. Under New York Labor Law and the Fair Labor Standards Act, a restaurant is allowed to withhold only the employee’s pro-rated share of the service charge taken by a credit card company for the processing of the employee’s tip.  Although the Court acknowledged that a portion of the fee related to processing costs might be a permissible deduction, Judge Nathan held that the nature of the fees at issue (including a “Processing Fee,” “Commissions” and “Advertisement Fees”) suggest that the restaurant “deducted from gratuities costs beyond those incurred as the result of converting credit card gratuities to cash.”