Owed Unpaid Wages?

Information for workers owed unpaid wages.

Tip-Sharing

Eleventh Circuit Denies Valet Right to Sue Over Unpaid Tips

Upholding the Atlanta-based federal District Court, the 11th Circuit Court of Appeals has affirmed a ruling that denied a valet employee her right to maintain a collective action against her employer. The allegations involved the employer improperly withholding the employee’s tips.

More specifically, the case sought to recover tips that valet employees allegedly received at a Georgia parking complex but were in part used by the employer to pay business expenses. The Plaintiff sought to maintain a collective action lawsuit against the parking garage employer, which alleged that the employer improperly withheld the valet drivers’ tips, and in doing so, violated the Fair Labor Standards Act. According to the valet, all tips were pooled and then distributed amongst the valets drivers; however, a portion of the tips were kept by the employer and used to cover other operating expenses.

Types of Tip Pools an Employer May Establish

The United States Department of Labor (DOL) is very specific about the types of tip pools that an employer may establish for tipped employees.  Generally, a tip that is received by an employee is the property of that employee.  However, in certain situations, an employer may require employees to pool tips. The DOL issued Fact Sheet #15, which provides for the following description of a valid tip pool:

Tip Pool: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors.

Plaintiff Failed to State a Theory of Liability under the FLSA

However, the Plaintiff in this case based her entire complaint on a 2011 U.S. Department of Labor regulation (29. C.F.R. § 531.52), which states that “[t]ips are the property of the employee whether or not the employee has taken a tip credit.”  In what turned out to be a fatal error in pleading, the Plaintiff failed to state a theory of liability under the FLSA for a minimum wage or overtime violation, she merely referenced the regulation.

The DOL (in an amicus brief) and the Court agreed that the Plaintiff could not hang her hat on solely on the regulation as her theory of liability, where she did not also state a violation of the minimum wage or overtime provisions of the Fair Labor Standards Act.  The 11th Circuit did acknowledge that even in the absence of a minimum wage or overtime violation, a case for wrongfully withheld tips could be maintained as a Rule 23 class action and under other state laws.  However, the Plaintiff’s case did not plead that, so the 11th Circuit determined that the case was properly dismissed.

Restaurants in a Budget Crunch May be Tempted to Cheat Workers

It’s no secret that most restaurants operate on razor-thin profit margins. To be successful, restaurant owners and operators must budget carefully and plan for every expense. That is their responsibility.

Unfortunately, some establishments do not take budgeting seriously – and try to make up shortfalls on the backs of restaurant workers. Some may not budget for the actual cost of paying employees their proper wages and overtime, which can lead to wage theft.

Misclassifying Workers

Restaurant owners caught in a budget crunch, for example, might be tempted to misclassify workers as being exempt from overtime. They will call a server or host an assistant manager, or give a cook the title sous chef, and say they are now exempt. If that employee’s duties are still those of an hourly worker, however, and they do not have any managerial responsibilities or personal discretion over how they do their job, then they are not exempt from overtime. The employer has merely used that title to make up for a budget shortfall.

Unlawful Tip-Pooling

Tip-sharing violations are another way for restaurants that are short on cash to cheat their employees. Under the federal Fair Labor Standards Act (FLSA), tipped employees are entitled to their tips and do not have to turn them over to an employer. That does not mean an employer can’t have a tip-pooling program, but this must be done in compliance with the FLSA. Tip-pooling policies must be clearly laid out to tipped employees, for example. The percentage that servers, bartenders, and others are expected to tip out should also be clear and consistent.

Employers also can’t use tip sharing to top up the wages of cooks and dishwashers who are not normally tipped. Facing a cash flow problem, some restaurant owners are often tempted to use shared tips as a way of making it look like all staff are being paid minimum wage. They will underpay kitchen staff and use tip-pooling to make up the difference.

If a restaurant is dodging overtime, underpaying workers, or messing with tips, that can constitute wage theft under the FLSA. Restaurant staffs have tough, demanding jobs and deserve to receive every penny they have earned. It is not their fault that their employer has failed to budget properly for crucial expenses such as wages and overtime.

When Tip-Pooling Becomes Wage Theft

What do Chili’s, Red Robin, Starbucks and even New York’s ritzy Le Cirque have in common? All have been accused of illegal tip-pooling practices that deprived restaurant workers of their rightful wages.

These restaurants have faced class action lawsuits brought by workers claiming tip-sharing violations, and some have paid significant settlements as a result:

When Is Tip-Pooling Wage Theft?

Under the federal Fair Labor Standards Act (FLSA), a tip is the sole property of the tipped employee and he or she cannot be forced to give it up. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer.

Restaurants are, however, allowed to implement tip-pooling policies. It’s not illegal if tips are shared among restaurant workers who customarily and regularly receive tips. The FLSA does not regulate how the sharing is calculated.

Which Restaurant Employees May Be Required to Share Tips?

The key language here, though, is “employees who customarily and regularly receive tips.” Some restaurants mandate tip-pooling with kitchen staff, such as cooks and dishwashers, who do not have a role in serving customers directly. In other words, as a general rule of thumb, “front of the house” employees cannot be required to share tips with “back of the house” employees. This can be a problem if the restaurant is using tip-pooling to avoid having to pay those workers minimum wage. Under the FLSA, that is illegal and tipped workers should not be forced to share tips with those employees.

Any violation of the FLSA when it comes to tip-pooling is wage theft – and restaurants can be held liable for depriving restaurant workers of their rightful earnings.