Restaurants nationwide are facing costly wage and hour lawsuits for failure to comply with federal and state employment laws. In these types of cases, employers run the risk of serious financial penalties, whether their actions are due to ignorance or a willful disregard of the law.
In fact, across the country, employers were hit with 8,261 FLSA lawsuits in 2017 – a sharp rise in the past 20 years, since only 1,597 FLSA lawsuits were filed in 1997. Recent examples include allegations of paying below-minimum wage, violating tip pooling rules, and recording only 40 hours on timecards in order to avoid overtime pay.
Ignorance of the law is not a valid defense and restaurant owners and managers need to be sure they understand current state and federal employment laws and comply with those requirements or incur what are often stiff penalties.
For instance, under the federal Fair Labor Standards Act (FLSA), which establishes minimum wage, overtime pay and recordkeeping rules, an employee’s claim can go back three years, raising the amount in dispute. If the employee prevails in court, the restaurant owner could pay double the amount of lost pay, plus reasonable attorney’s fees and court costs.
It is far better to take a proactive approach and defuse potential wage and hours disputes or other employment issues in advance, rather than having to defend a costly lawsuit.
Here are several common mistakes restaurant operators make when it comes to wage and hour compliance:
- Exempt vs. non-exempt employees. Under the FLSA, managers, professionals and executives are typically exempt from overtime rules. However, an employer cannot arbitrarily place a restaurant employee into the exempt category to avoid paying overtime – that would be a violation of the FLSA.
- Overtime pay. Non-exempt employees who work more than 40 hours in a scheduled workweek are entitled to overtime pay. However, some employers have tried to avoid overtime by paying employees off the books, not allowing them to clock-in for overtime or simply ignoring the rules.
- Independent contractors. The Internal Revenue Service (IRS) has specific criteria for determining if a worker is an employee, who would be covered by the FLSA, or an independent contractor. Unless hired to be paid a flat amount for the completion of a specific project, it’s likely that a worker would be considered an employee.
- Minimum wage. In Florida, the full minimum wage is now $8.46 per hour. However, a restaurant server or bartender could be paid as little as $5.44 an hour plus tips, giving the employer a credit of $3.02 per hour. If the server’s tips fall short, though, the employer must pay the difference.
- Tip pools. Employers in Florida are allowed to create tip pools for their employees who regularly receive tips from patrons. That money can be shared with other staffers who customarily and regularly receive tips, such as waiters, waitresses, bussers, but not with employers, managers or supervisors. To avoid potential claims, employers need to have a written policy regarding tip pool participation and processes, and be sure that their employees follow those rules.
Other Employment Issues
Along with FLSA issues, restaurants face other types of employee claims, such as sexual harassment. To reduce potential liability, employers should have a formal anti-harassment policy, provide training to supervisors and managers and establish an independent line of reporting for employees. These actions can also defuse any plaintiff claims about a hostile work environment.
While it’s natural for personal contact to occur in the close working conditions of a restaurant, the employer needs to be alert for any incidents involving sexual suggestions, inappropriate touching or other types of harassment – particularly in the #MeToo era.
Restaurant operators must keep apprised of the latest rules and regulations regarding employment. Knowing the regulations and being proactive before a dispute arises can ultimately save restaurants money in the long run.