A federal judge in Pennsylvania has ruled that Empire Diner, the owner himself and a manager are liable for $1.35 million in back wages and liquidated damages to 107 servers and kitchen workers following a five day trial which confirmed the business used an illegal tip pool and engaged in other wage and hour violations.
The litigation followed an investigation by the U.S. Department of Labor’s Wage & Hour Division, which confirmed the violations, specifically that the employer failed to comply with the federal requirements for tip credit and using servers’ tips to pay bussers’ wages. In doing so, the company violated federal minimum wage, overtime and record-keeping requirements of the Fair Labor Standards Act.
According to the lawsuit, for a period of three years the employer “paid servers $2.83 per hour and claimed a tip credit for the difference between the minimum wage of $7.25 per hour and the cash wage of $2.83 per hour. At the end of each shift, the defendants required the servers to pay approximately 10% to 15% of their tip money to the defendants.
This money seized from servers’ tips was retained, at least in part, by the defendants and was not used in furtherance of a valid tip pool. The defendants therefore willfully violated Section 6 of the act by intentionally seizing the servers’ tip money and failing to pay servers the $7.25 per hour minimum wage required by the act. The defendants also misled the servers — and the Department of Labor — about how those seized funds were used.”
The lawsuit alleged that the manager “understood the restaurant’s tip pooling practice and had the authority to correct the violations of the Act that are at issue in this case” and was therefore personally liable. Unlike federal discrimination laws, individual managers can be personally liable for violations of the FLSA.
In the court’s 23-page ruling, the court determined that the employer willfully violated the FLSA by failing to comply with the tip credit requirements and misused their tips to pay the wages of other employees.
In announcing the ruling, the Department of Labor stated, “Tipped workers in the food services industry rely on their hard-earned tips to make ends meet. By diverting a portion of these tips, restaurant employers violate federal labor laws and harm workers and their families.”
The DOL’s investigation determined that the employer not only required servers to turn over 10 to 15% of their tips to pay the wages of others, but also interfered with the investigation by telling employees to lie about the unlawful pay practices. The employer also failed to pay the proper overtime rate of pay and used an improper practice of paying servers an improper overtime rate, according to the DOL and the court’s ruling.
According to the Bureau of Labor Statistics, more than 900,000 food and accommodation service workers left their positions in June. The Department of Labor has made it a priority to ensure fair wages are paid to service workers. The DOL said of the ruling, “Employers who take advantage of workers by violating their legal rights will find it increasingly difficult to recruit and retain the people they need to fill jobs and stay in business.”
Employers who operate any tip pool or use a tip credit must understand the complex rules around tip sharing and wage payments, and must make sure there is 100% compliance with this. This includes understanding that managers cannot receive any portion of a server’s tips.
The agency operates a helpline at 866-4US-WAGE, and information can be found at dol.gov.