The operator of 17 Houlihan’s restaurants in New Jersey and New York, A.C.E. Restaurant Group Inc., has agreed to pay $5 million to settle a U.S. Department of Labor lawsuit, claiming the restaurants violated minimum wage, overtime, and record-keeping requirements of the Fair Labor Standards Act (“FLSA”).
The Department of Labor lawsuit claims that Houlihan’s regularly retained a portion of the tips left by customers and required servers and bartenders to contribute a percentage of tips to a tip pool that was used to pay other employees for custodial tasks and kitchen work. The lawsuit also alleges that restaurant employees made less than the federally mandated $7.25 per hour minimum wage, due to the company’s alleged illegal tip pooling system. According to the DOL, employees were also forced to work off-the-clock, earning only tips, and denied overtime pay when working at more than one of the restaurants, even when their total hours exceed 40 in a single work week. Houlihan’s also deducted pay for employee meal breaks, even when the workers paid for their meals, and the meal deductions amounted to more than the cost of the food, causing those employees to sometimes make less than minimum wage.
Under the FLSA, employers can take a “tip credit” towards its minimum wage obligation for tipped employees. Tipped employees include waiters, waitresses, bussers, runners, and other front of the house workers who deal with customers. Tipped employees must receive no less than $2.13 an hour in direct wages and employers are responsible for making up the difference in tips if direct wages do not amount to the federal minimum wage of $7.25 an hour.Additionally, the FLSA requires employers to pay time and a half for hours exceeding 40 in a workweek.
Employers lose the privilege of paying workers a tipped minimum wage when they require tip sharing with workers who are not entitled to tips, such as expediters or other back of house workers. Further, DOL regulations provide that a restaurant will not qualify for the “tip credit” for employees that spend more than 20% of their time performing non-tipped work such as side work, including cleaning, preparing food, refilling condiments, and stocking and replenishing the bar and food stations.
A.C.E., the Houlihan’s franchisee liable for these violations, will pay unpaid minimum wages, back wages, and liquidated damages to roughly 1,400 current and former restaurant employees who worked at Houlihan’s between February 2013 to May 2015.
A DOL representative said in a statement, “The U.S. Department of Labor will not hesitate to pursue appropriate legal measures, such as this consent judgment, so that employers commit to corrective action, restitution and ongoing compliance with the Fair Labor Standards Act.”