Labor & Employment Law

Tip Pool Cases Abound: The Danger For Restaurant Employers

By Mark Tabakman

A group of employees has filed a lawsuit against a high-end Greek restaurant situate in the vacation haven of the Hamptons.  The plaintiffs, servers, are alleging that the employer improperly implemented a tip-pooling policy that violated the Fair Labor Standards Act ('FLSA').  Four employees filed the case, but the allegation is there are 75 others similarly situated.  There has lately been a rash of tip pool class and collective actions filed, with large settlements and verdicts inuring to the plaintiffs.

This is because unless a tip pool is correctly implemented, the employer loses a significant advantage that it enjoyed, namely, the taking of the tip credit and then major minimum wage violations occur.   The case is entitled Sierra v. Orama Inc and was filed in the Southern District of New York.

Under the federal law (and most states), employers may take a tip credit, as concerns their tipped employees, i.e. waiters, busboys, bartenders, etc.  This means that the restaurant need not pay the full minimum wage (i.e. $7.25 per hour) but it pays only a small fraction of that (approximately 50%) with the assumption that the employee will derive the balance of at least the minimum wage from customers leaving tips.

If, however, employees who do not 'customarily and regularly' receive tips are included in the pool, or a management employee shares in the pool, the validity of the pool is destroyed and with that destruction, the tip credits that had been taken by the employer are also ruled invalid.  That means for each hour worked by the tip employee, there is a shortfall for payment of the minimum wage. That means large-dollar violations.

The plaintiffs' theory herein is that managers shared in the tip pool.  This has been the allegation in a number of cases emanating out of New York City restaurants, some of them very famous.  The lesson for restaurant employers is to ensure that managers have no share in the tip pool.  If uncertain as to whether someone is a true 'manager,' it is safer to consider them as such and not to include them in the tip pool.

The downside is a very, very upset stomach for the employer.
 

Full post as published by Wage & Hour - Development & Highlights on June 23, 2010 (boomark / email).