Don’t Get Caught
With Your Hands In The Tip Jar
Advice To Restaurateurs For Avoiding The Rise Of Wage & Hour Lawsuits
By Adam D. Kemper, Esq.
Outside of the traditional wage and hour lawsuit (typically based on an employer’s failure to pay minimum wage or overtime compensation), there is a separate type of lawsuit aimed at restaurants (and other hospitality industries) for a different type of wage and hour violation—one based on improper tipping practices.
Over the last few years, Department of Labor (DOL) investigators found tip credit violations in over 1,500 cases, resulting in nearly $15.5 million in back wages. Unique to the wage and hour lawsuit is the potential for individual liability: In other words, a manager, high-level employee or owner of a restaurant can, and often does, get named as a defendant in a wage-and-hour lawsuit based on wage and hour violations.
It is no secret that employees in the restaurant industry rely heavily on tips, as they comprise a significant portion of their compensation. Tips from customers are considered property of the employee, and employees are entitled to retain all monies they earn in tips.
Under the law, an employer may take a credit against its minimum wage obligation and pay a reduced minimum wage to certain “tipped employees” employees (i.e., individuals who have regular customer interaction and receive more than $30 dollars per month in tips). Employers must fill in the gap when and if the employee fails to earn at least the normal minimum wage through wages and tips combined.
Additionally, an employee may participate in a “tip pool,” which is where an employee shares his or her tips with other tipped employees and all such employees receive distributions from the tip pool. A tip pool may not include employees who do not have customer interaction and do not customarily and regularly receive tips (i.e., dishwashers, managers, cooks, chefs, janitors, and other back of the house employees).
In fact, a common lawsuit is one that involves a tipped employee claiming that the restaurant employer “diluted” the tip pool by including non-tipped employees in the tip pool. By permitting non-tipped employees (who earn at least the normal minimum wage and do not engage in customer interaction), tipped employees are losing a portion of their hard-earned tips that would ordinarily only belong to them.
Another common lawsuit is when a restaurant employer requires his or her employees to perform non-tipped duties at the reduced/tipped minimum wage. In every restaurant, there is some down time or a list of “side work” for tipped employees to complete. (For example, servers may be asked to assist in setting and/or wiping down tables, restocking supplies or silverware, etc., even though such work does not directly result in tips.). The DOL permits restaurant employers to continue to pay the reduced minimum wage to tipped employees while performing such side work so long as it is (1) minimal and no greater than 20 percent of the time and (2) related to the performance of tipped duties.
However, employers cannot pay their tipped employees the reduced minimum wage if they spend a significant amount of time performing non-tipped work (e.g. washing dishes, preparing food, mopping the floor, wiping down tables, etc.). In this scenario, the employer is improperly benefitting from paying its tipped employees the reduced/tipped minimum wage, while the employee is performing significant work that does not result in tips.
It’s important to note that each state has its own minimum wage and tipping requirements. Nevada (and in particular, Las Vegas) is the home of many popular restaurants found on the famous Las Vegas Strip. Recognizing the need to maintain quality service to cater to a tourist crowd, Nevada is one of a minority of states that provides equal treatment to tipped workers in terms of wages, meaning restaurants must pay their employees at least the regular minimum wage (rather than a reduced tipped minimum wage) per hour. Thus, Nevada employers may not take a tip credit for their employees and must pay at least the full minimum wage.
Nevada, however, has still had its share of tip-violation issues. In 2015, the limousine company Executive Las Vegas was required to pay over $200,000 to 479 employees for minimum wage violations. In that case, the DOL reported, among other things, that Executive used incorrect calculations to measure whether employees’ tips exceeded the minimum wage.
Earlier this year, the 9th Circuit Court of Appeals reversed a lower court decision that allowed Wynn Las Vegas to pool its dealers’ tips and distribute them among other employees. Wynn’s tip-pooling policy previously required that casino dealers share their tips with “box people” at the craps tables and customer service team leaders.
This may result in Wynn (and other casinos or Vegas organizations that have similar tip pools) having to compensate hundreds of dealers who previously had to share their tips with other employees. Wynn elected to maintain its policy as it awaits further appeal before the U.S. Supreme Court.
With all of the above said, here are five “tips” to avoid the tip-related audit or lawsuit in any state, including Nevada:
- Understand that tips are the property of the employee and the employee is not required to share them with anyone. If your restaurant is permitted to take a tip credit on employees and does, make sure employees are notified and paid the appropriate tipped minimum wage.
- If your restaurant has a tip pool, maintain and enforce a strict policy that only permits employees who “customarily and regularly” receive tips to participate in the tip pool. Never allow non-tipped employees to participate in the tip pool.
- Maintain adequate and accurate time-keeping records. If your “tipped employee” is performing non-tipped work, make sure it is related to the tipped position and only for a very limited amount of time. Otherwise, the employee must be paid the full minimum wage for time spent on non-tipped work.
- Constantly monitor compensation and tip distribution to ensure employees are paid appropriately and timely.
- Keep your employees happy. Retaining happy employees is the number one way to avoid a workplace-related lawsuit.
Adam D. Kemper, Esq., is senior counsel for Greenspoon Marder, P.A., a full-service law firm with offices in Florida, Nevada, California, New York, and Colorado. He practices in the area of labor and employment law where he regularly counsels employers on a variety of workplace issues including but not limited to interviewing; hiring; employee discipline and discharge; workplace discrimination; harassment; retaliation, wage and hour (including tipping practices); whistleblowers; unemployment; restrictive covenants; non-compete, non-solicitation and non-disclosure agreements; separation agreements; and workplace policies and employee handbooks.
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