Federal Fair Labor Act Standards – Protecting the Interests of Waiters and Waitresses in Our Favorite Restaurants

Federal Fair Labor Act Standards – Protecting the Interests of Waiters and Waitresses in Our Favorite Restaurants

Federal Fair Labor Act Standards – Protecting the Interests of Waiters and Waitresses in Our Favorite Restaurants

We interact with them on an almost daily basis. They can make or break our dining out experience. Often times, they will recognize you as a regular customer and know what you want before taking your order. At the end of your meal, you leave a "tip" for great service. Have you ever wondered what happens to these tips, or realized that your tip may be your waitress's primary form of compensation for a job well done?

More often than not, the waiters and waitresses in our favorite restaurants must rely on the tips left by their customers because their paid wage may be as low as $2.13 per hour. Under the Federal Fair Labor Standards Act ["FLSA"}, 29 U.S.C. 201, et seq., an employer may take a "tip credit" and pay its waiters and waitresses a mere $2.13 per hour in direct wages, unless applicable state law requires a higher amount. As exemplified by a recent Department of Labor investigation and action against Philadelphia sports bar and restaurant chain Chickie's & Pete's, restaurants often abuse the FLSA's "tipped employee" provisions and ignore other statutory provisions which require additional wages be paid to tipped employees.

Chickie's and Pete's recently agreed to pay over $6.8 Million to resolve the Department of Labor enforcement action and numerous federal civil actions filed by current and former employees. Allegations of misconduct against the popular chain include paying its servers a flat $15 per shift wage rather than an hourly rate and failing to pay overtime when servers worked more than 40 hours in a workweek. The $15 per shift flat rate often fell far below the $2.13 per hour minimum wage required by the federal government. Appallingly, Chickie's and Pete's also required their servers to contribute between 2 and 4 percent of the server's daily sales to a "tip pool" which was paid to the manager at the end of shift in cash. If a server did not have enough cash to satisfy the "tip pool" contribution because the server's tips were from credit card transactions, the server was required to make ATM withdraws or borrow cash from co-workers. Rather than distributing the "tip pool" funds among employees entitled under applicable laws to share in the tips, Chickie's and Pete's allegedly retained 60% of the funds in what has come to be known as "Pete's tax". While the abuses uncovered at Chickie's and Pete's are egregious, they are not isolated. In recent years and aided by civil enforcement actions, the U.S. Department of Labor's Wage and Hour division has stepped up efforts to enforce FLSA requirements in the restaurant industry.

The FLSA contains specific provisions governing "tipped employees", i.e. employees who customarily and regularly receive more than $30 per month in tips. In order to legally claim a $5.12 "tip credit" and pay an hour wage of only $2.13 per hour, an employer must specifically inform the tipped employee: (1) that the employer is invoking the $5.12 tip credit; (2) that the employer may not claim a credit which exceeds the amount of tips actually received; and (3) that all tips are to be retained by the employee except for contributions to valid tip pooling arrangements. A tip pool may be instituted to distribute tips amongst employees who customarily and regularly receive tips, but may not include such employees as dishwashers, cooks and management personnel. Under the FLSA, an employer invoking the tip credit must be able to demonstrate that a tipped tipsfreeimage.jpg employee receives at least a minimum hourly wage exceeding $7.25 when tips are considered in conjunction with the $2.13 hourly wage or make up the difference.

While an employer is permitted to make certain deductions from tipped employees' wages, those deductions are limited. An employer is permitted to deduct credit card fees from tips where the tip is placed on a credit card, but only an amount proportionate to the tip itself. For example, if a $10 tip is given on a $50 bill and the credit card company charges a 3% fee, the employer may only deduct $0.30 from the tip given to the server, not the $1.80 applicable to the entire credit card transaction. Under no circumstances, however, may an employer utilize deductions which result in the tipped employee receiving less than the $7.25 per house federal minimum wage, regardless of whether the deductions are for credit card fees, breakage or walk-out reimbursements.

Overtime is also required to be paid for all hours worked in excess of 40 hours per work week. Overtime is calculated at the full federal minimum wage and not the lower "tip credit" wage.

Waiters and waitresses at our favorite restaurants are entitled to be fairly compensated for the hard work that they do day in and day out. While Chickie's and Pete's is the latest high profile restaurant chain to find itself the subject of legal actions arising from its treatment of tipped employees, it is not the first and it will likely not be the last. Two years ago, celebrity chef Mario Batali and his business partner settled claims arising from their practices with respect to tipped employees at their eight New York restaurants for $5.25 Million. While larger, high profile restaurants may attract the most publicity for their illegal wage and hour practices involving their tipped employees, the law applies to everyone and relief is available where our restaurant workers are not receiving the compensation they deserve or are having their tips improperly taken from them.