Labor Laws

Noncompliance with the Fair Labor Standards Act Costing Restaurants Hundreds of Thousands of Dollars

With the many tasks on a restauranteurs plate, keeping up with the ever-changing regulations isn’t easy. However, a few important ones have recently taken effect or will take effect in 2023. Here’s what you need to know and the consequences restaurants face for those not following the new laws.

The Department of Labor’s Dual Jobs Final Rule

The Restaurant Law Center, an organization affiliated with the National Restaurant Association, filed a motion in February 2022 for a preliminary injunction to prevent the DOL’s Dual Jobs Final Rule from being enforced, citing issues and concerns with the cost of compliance. On February 22, the motion was denied.

This means that the Dual Jobs Final Rule went into effect in late December 2021 and, for now, is here to stay. This rule sets limits on the amount of time a tipped employee can perform not tip-producing work and be paid the reduced tipped employee wage under the Fair Labor Standards Act (FLSA).

The 80/20 rule remains in effect, which means that employees can spend no longer than 20% of their workweek on support tasks that do not generate tips, like refilling condiment bottles, setting tables, and closing down the restaurant or bar. The added “30-Minute” Rule disallows the tip credit when a tipped employee spends more than 30 minutes at any one time performing non-tip-producing work. In these instances, employers must pay the full minimum wage. Because restaurant workers often move from one task to another, it can be difficult for employees to keep track of the time spent on specific tasks, but it will be required to avoid penalties.

Under the FLSA, employers may take a tip credit and pay bartenders, servers, and other tipped employees as little as $2.13 an hour if workers earn at least the standard minimum wage of $7.25 an hour once tips are added in. Currently, most U.S. states allow tipped credit, except for Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.

SHRM quoted Jessica Looman, the DOL Wage and Hour Division acting administrator. “Women, people of color and immigrants represent more than half of all tipped workers. The final rule enhanced protections for this vital segment of the nation’s essential workforce and combats income disparity and promotes equity.”

While applauded by those who want to see fairer wages, employers are concerned about scheduling, timekeeping, and the possible exposure to legal actions for underpaid wages. The Restaurant Law Center is considering filing an appeal. Check your specific state laws on this matter, as they may vary.

Restaurants Facing Fines

In December 2020, the DOL filed a civil-action lawsuit against Sweet Lemons, claiming numerous violations of federal law. These included not paying staff overtime when they worked more than 40 hours a week and keeping the servers tips.

According to the DOL, the restaurant paid their staff in cash and kept false payroll records. In February 2022, a federal court ordered the Massachusetts restaurant to pay almost $345,000 in back wages and damages to 13 servers due to violations of the FLSA.

The DOL also won a lawsuit against the owners of three northern California restaurants for failure to maintain accurate employee records and not combining hours when they worked at more than one location. The Wage and Hour Division District recovered almost $42,500 in back wages and liquidated damages for six workers. The owners were also assessed a $4,230 penalty for willfully violating the FLSA.

According to Cesar Avila, the Wage and Hour Division District Director in Sacramento, “The pandemic clearly demonstrated that restaurant workers are essential, frontline workers. Many are also among the lowest-paid workers in our economy. When a restaurant employer shortchanges their worker, it hurts them and their families. We encourage all employers to review their pay practices and to contact us for information about how to avoid violations like those found in this case.”

In October 2020, DOL’s Wage and Hour Division notified Tank Noodle, a popular restaurant in Chicago, that they were in violation of FLSA. The Division recovered over $697,000 in back wages for 60 employees, identifying numerous violations, including back wages and overtime requirements. In addition, they reported that the owner failed to keep accurate employee work hours.

Additionally, when employers pooled tips at the end of a shift, they divided them equally among all staff, including management. According to the FLSA, management cannot participate in tip pooling.

In 2021, the Division recovered over $31.7 million in back wages for employees in the foodservice industry. Restaurants can ensure compliance by investing in solutions that accurately track employee hours and tips earned.

Labor Laws
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