Luxury Restaurant Group Settles Tip-Pooling Lawsuit: What Tipped Workers Should Know

A federal magistrate judge has preliminarily approved a $1.5 million settlement involving a wage theft class action against Jeff Ruby Culinary Entertainment, a Cincinnati-based fine-dining restaurant group. The case highlights common ways employers can violate federal and state labor laws by misusing tip pools and taking improper tip credits.

Former servers, bartenders, and server assistants brought a class-action lawsuit against Jeff Ruby Culinary Entertainment under the Fair Labor Standards Act (“FLSA”), alleging that the company unlawfully required tipped employees to share their tips with back-of-the-house employees such as cooks and dishwashers. These employees are generally not eligible to participate in tip pools under federal law if the employer takes a tip credit.  The plaintiffs also alleged that the restaurant group required tipped employees to perform significant non-tipped duties—such as cleaning and rolling silverware—while paying them at a sub-minimum “tipped” wage rate. In addition, employees claimed they were required to arrive two hours before service began to prepare for shifts, without being paid full minimum wage for that time.

Although Jeff Ruby Culinary Entertainment denied wrongdoing, it agreed to pay $1.5 million to resolve the claims, with the settlement funds to be distributed among more than 700 former tipped employees.

The FLSA allows employers to implement tip pools, however, employers may not: (1) include back-of-the-house employees, such as cooks or dishwashers, in a tip pool if a tip credit is taken; (2) allow managers or supervisors to receive tips from a tip pool; or (3) keep any portion of employees’ tips.

Violations of these rules can result in employers losing the right to take a tip credit altogether.  The FLSA establishes a federal minimum wage of $7.25 per hour. However, it permits employers to pay tipped employees as little as $2.13 per hour in direct wages, as long as tips make up the difference. The amount the employer counts toward minimum wage is known as the tip credit.  To lawfully take a tip credit, employers must meet all legal requirements, including:

• Properly informing employees of the tip-credit arrangement

• Allowing employees to keep all tips (except in a lawful tip pool)

• Ensuring tips actually bring employees up to minimum wage

Employers may not pay tipped workers a sub-minimum wage while requiring them to perform excessive non-tipped work. Tasks such as cleaning bathrooms, preparing food, washing dishes, or extended pre-shift setup may require payment at the full minimum wage.

If an employer violates these rules, it may be required to pay the full minimum wage for all hours worked, in addition to returning improperly withheld tips.

In addition to federal law, many states impose stricter requirements on tip pooling and recordkeeping. New York, for example, requires employers to maintain detailed tip records for at least six years, including:

(1) a daily log of the tips each employee collected;

(2) a list of positions eligible to receive tips from the tip pool;

(3) the percentage or share of tips assigned to each position; and

(4) the amount of tips that each employee receives from the tip pool by date.

These records must be regularly made available to tipped employees. Failure to comply with state-specific rules can expose employers to significant liability, even if they believe they are complying with federal law.

The Jeff Ruby settlement underscores how frequently tip-credit and tip-pooling violations occur in the restaurant industry.

If you are a restaurant worker and believe your employer may be violating tip-credit or tip-pooling laws, or have questions about your rights as a worker, contact the attorneys of Pechman Law Group at 212-583-9500.