Restaurants: Do your employees know that you take the tip credit? If not, read on because you could be in hot water!

Article By Bill Pokorny on May 15, 2017 Wage and Hour Insights

In 2011, the U.S. DOL published a regulation mandating that restaurants who count tips toward the minimum wage as permitted under the Fair Labor Standards Act have to notify employees that they are taking the credit. (See U.S. DOL Fact Sheet #15 for more information on the current requirement.) Last week, a federal district court in Pennsylvania ruled that a former bartender at Cadillac Ranch All American Bar & Grill could move forward with a hybrid state law / FLSA class/collective action, alleging that the restaurant chain violated the DOL’s notice regulation by failing to tell tipped workers that their wages would be calculated using the tip credit. According to the court’s opinion, the class includes approximately 220 current and former tipped employees. Koenig v. Granite City Food & Brewery, Ltd.

In and of itself, this decision is not particularly surprising or ground-breaking, but that is exactly why it should worry restaurants and other employers of tipped employees. There are certainly areas of business where an informal, “good enough” approach is in fact good enough. Wage and hour law is not one of those areas. The FLSA and state wage and hour law are all about technicalities, which is why they are perfect traps for unwary employers and great sources of business for lawyers.

So, restaurant owners and operators, take heed: If you are not presently notifying all of your employees that you will be taking a tip credit to comply with minimum wage requirements under the FLSA, you may owe all of your tipped employees the difference between the “tipped” minimum wage ($2.13 per hour) and the minimum wage for non-tipped employees ($7.25 per hour), or a total of $5.12 for every hour worked. Over a period of two to three years. Plus liquidated damages (doubling the amount owed) and attorneys’ fees. State law may further increase the liability. If this situation sounds familiar, reach out to your employment counsel today to find out how to protect your business.