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Human Resources, Payroll

SBS 35: Wage and Hour Warning Tale

Hey Compliance Warriors,

Today we talk about a recent court case where weren’t paid correctly, filed a claim, and won big!

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Enjoy and until next time, Be Audit Secure!

Transcription:

Lisa: Welcome back to another edition of small business Spoonfuls. I’m Lisa Smith and today we are talking about the big Domino’s franchisee situation in Illinois.

Mason: I’m Mason Merrell. This was a big one. 16 Domino’s franchises agreed to pay $807,500 to settle wage and hour claims brought by a class of approximately 125 drivers.

Lisa:  This is one of these I’ve been watching because I know someone who used to drive for Domino’s and whenever I heard how they did the pay and so forth, I just immediately saw red flags everywhere. And this wasn’t even Illinois. This was in Georgia. Domino’s, franchisees all over the country, I have a feeling are really doing it wrong, but the Illinois folks got caught and so we want to go through what they were doing wrong. That way you can think about this if you have delivery drivers, which is very popular. If you just have people who work for tips or have uniform deductions and things like that, this is all very applicable to your business.

Mason: Let’s open up the pizza box and dig in here to the meat of the meal. No, pun intended there. Drivers alleged they were under reimbursed for the costs associated with driving their cars for work.

Lisa: Their employer apparently failed to properly claim a tip credit for the drivers wages and they said that they were paid a tipped wage rate, which is usually about $2 and 13 cents an hour. But while they were working on non tipped duties, so let’s say that they didn’t have any deliveries and the drivers were in the store, throwing dough and cleaning and washing dishes. They’re supposed to be getting paid, at least minimum wage for that. But the Domino’s folks were only paying them that tipped wage rate, which was probably a couple bucks an hour. There are legalities in some restaurant businesses in this situation, it wasn’t legal because these people literally could go an hour or more without getting a delivery, which means they were only getting two bucks for that hour. And that’s not, appropriate.

Mason: That’s falling way under minimum wage. That should have been paid right there. The court noted that the settlement amount is substantial given that the number of complex and uncertain legal and factual issues of this matter. basically, here if all the issues were decided in favor of the plaintiff, the court would have been entitled, to more than 2.5 million. So really these Domino’s franchises got off with a steal here it looks like.

Lisa: Yeah, it was a good thing that, they went ahead and, worked this out because they settled this because they were doing just short of a million on the settlement, but again, two and a half million if they hadn’t settled. And another thing that they were doing wrong, I didn’t mention it earlier, which is something that a lot of employers in all industries do wrong, is that they were requiring the employees to, pay the cost of uniforms and laundering their uniforms and so forth. And they were also deducting like Domino’s partners, foundation deductions out of their paychecks. And so all of these things are illegal if your employee is only set to make minimum wage. So like, maybe they’re making more with tips and so forth, but if the basic guideline is that you’re going to pay them at least minimum wage and you’re not agreeing to pay them 15 or $20 an hour, then if you take out the cost of uniforms and you cause their overall pay to fall below minimum because now they’ve had to pay and bear that cost, then that’s illegal.

Lisa: This was just another one of these things. And look at this. This was only, and I say only because it’s not that many, only 125 employees and this was going to cost them two and a half million dollars. So this was really getting out pretty easy, honestly, for that many employees. when you think about, do you have a 100 employees at your workplace And if they all banded together against you on an issue that they were correct on, can you just write a check for 800,000 tomorrow I mean, a lot of employers, if you’re Walmart, you probably can. but this was an Illinois Domino’s franchise.  I mean these are usually like mom and pop operated LLCs or something like that.

Mason: granted with 16 different stores. So, they were probably raking in some money there.

Lisa: Oh no, they’re making money hand over fist. But I’m just saying this wasn’t like a conglomerate.

Mason: It was still a, probably a pretty big hit for that person’s company. They’re running there. So let’s kind of dig into what employers should be aware of in a situation like this. Kind of go line by line here with some different viewpoints. first, let’s start with tip credit.

Lisa: we know that the FLSA, which is the fair labor standards act, we know that it allows an employer to take a tip credit toward minimum wage obligations for tipped employees so that between the credit and the wage, you equal minimum wage. let’s say for instance, the minimum wage federally is  7.25 an hour. So you can pay your employee  2.13 an hour and if their, tips don’t bring them up to minimum wage, then as the employer you’re required to supplement them the other $5 and 12 cents per hour.

Mason: That’s right. So you need to bring them up to make sure they’re at least making minimum wage by the end of what’s going on. Okay. So the next thing here, it would be uniform deductions. The cost of in maintenance required of the uniforms.

Lisa: This is considered an employee or business expense really. And especially in Illinois, if the employer requires the employee to bear the cost of a uniform, deductions cannot reduce an employee’s pay below minimum wage or cut into any of the overtime pay. So this is super important. Illinois of course, has a very strict reimbursement law for business expenses but every, state has The thing under federal law where you cannot cause them to bear the costs of anything really that drops them below minimum wage and uniforms is a hot topic.

Mason: Yeah, for sure. And you need to really check on your state because there’s so many different rules and laws and different things with different States. A lot of them are kind of across the board, but there are some weird things in there. And our website actually helpedesksuites.com we have a nice section for that.

Lisa: We absolutely do. So check us out.

Mason: So the next thing is franchises in joint employment.

Lisa: We noted that here it was the franchisee that was held responsible and that’s great because Domino’s itself was not shown to be a participant in this wrongdoing. So they were not held as a joint employer. There was a California case that was ruled where McDonald’s was also not considered a joint employer in an action, even though they had some knowledge that the franchise owner was violating wage and hour laws. but it was, ruled that, the big guy, McDonald’s and Domino’s, that they were not actually responsible along with the franchisees because they didn’t have sufficient control over the plaintiff’s employment. So they were off. So think about it. If you own a business and if you’re a franchisee, you can’t say, well, we’re going to pass the buck upstairs if something goes wrong. It doesn’t work that way all the time.

Mason:  Franchises are just, self-employed people who are just under, the umbrella of the higher company usually. And in these, franchisors, they pay a lot of money to the franchise just to have that name on their product. So, you might think, Oh, I’m connected to them since I pay them a lot of money,  in the franchise part of it, but no, they’re going to cut ties with you as soon as they can if something goes down.

Lisa: Yeah. There’s no protection there. I mean, there can be, but we have two really strong cases here against that

Mason: So if you’re in a situation like this, you may want to review some of the things that you’re going through and make sure you have a good payroll person, good HR person in place to take care of these things. And just to keep up with all this kind of stuff because you as the business owner just trying to do it yourself, you can’t, I mean, there’s too much red tape here to look at and find in print to try to figure out. So you need to have some good support system in place on that.

Lisa: You really do make sure your managers and everyone are all trained on proper time keeping practices. A lot of times we get in trouble because we haven’t trained our managers. And then our manager does some ridiculous something and it gets us in trouble, make sure the training is there, because I gotta tell you, people look at training as a wasted expense. Oh, it’s not going to happen to us. And then it happens to you and you say, Oh gee, I wish I had trained. So this is one of those times, make sure you get everyone where they are understanding 100% and they can quote it back to you what that wage and hour law is.

Mason: I mean in a lot of these situations you might think as the employer, Oh we’re just always busy, we’re killing it. The money’s good on paper and things like this. But there might be weeks at a time or certain days, evenings. I went into a Domino’s last night and it literally, everybody was just there standing around and I was the only person there grabbing pizza. So there is a lot of that kind of thing going on if you’re not keeping track of this and that. These drivers aren’t killing it with tips. You got to bring them up to that level. So, it’s just something to keep an eye on.

Lisa: Yeah, absolutely. Well I guess this is a wrap for this topic then.

 

 

 

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