Published Date: 03/10/2014
By George Ports
Philadelphia sports bar and restaurant chain Chickie’s & Pete’s has signed a consent judgment agreeing to pay current and former employees more than $6.8 million in back wages and damages for improperly taking tips from servers and violating federal minimum wage, overtime and recordkeeping requirements. As a result of one of the US Department of Labor’s (DOL) largest tipped employee investigations in recent years, the company and its owner have agreed to pay $6,842,412 to 1,159 employees at nine of the company’s locations, plus a $50,000 civil money penalty.
Under the Fair Labor Standards Act (FLSA), tips are the property of the employee who receives them; however, restaurant operators can benefit by claiming a credit based on the tips toward their obligation to pay those employees the full minimum wage. If an employee’s tips combined with the employer’s direct wages do not equal the minimum wage, the employer must make up the difference during the pay period. An employer that claims a tip credit is required to pay a tipped employee only $2.13 an hour in direct wages provided that amount plus the tips received equals at least the federal minimum wage of $7.25 an hour. The federal minimum wage of $7.25 per hour was last increased in 2009 and the federal tip credit’s cash wage requirement of $2.13 has not been increased since 1991.
The investigation revealed that the company required servers to contribute a portion of their tips to an improper “tip pool,” or tip-sharing arrangement, which was approximately between two percent and four percent of the server’s daily table sales. In violation of the FLSA, the owner retained approximately 60 percent of the tip pool. This amount had come to be known as “Pete’s Tax” and was required to be paid to the manager in cash at the end of each shift, even if the server received all tips on credit cards and therefore did not have cash on hand. In some cases, the company required employees to use their own money to contribute to this pool by withdrawing cash from a nearby ATM or borrowing from another server.
Additionally, servers and bartenders were paid only a flat rate of $15 per shift at all locations except for Chickie’s & Pete’s airport establishment – an amount that was not sufficient in all cases to even cover the minimum cash wage of $2.13 per hour that must be paid to a tipped employee when an employer claims a tip credit under federal law. Additionally, the employer failed to pay the required overtime wages to these employees when they worked in excess of 40 hours in a week. Investigators also determined that employees were not paid for time spent in mandatory meetings and training, and were improperly required to pay for uniforms.
Under the provisions of the consent judgment filed, and subject to court approval, the company will pay minimum wage and overtime back wages and is required to return the improperly retained tips to the servers, as well as pay liquidated damages. In addition, the company has agreed to enhanced compliance, including:
- External compliance monitoring for an 18-month period;
- Internal compliance monitoring for an additional 18-month period;
- Training for all employees on their rights under the FLSA;
- Providing a statement to any employee required to contribute to a tip pool detailing the amounts that were contributed by the employee, the job categories of workers included in the tip pool and the specific percentage each category receives; and
- The owner will write an article for a restaurant trade publication that addresses an employer’s obligations under the FLSA.
For additional information about the FLSA, go to http://www.dol.gov/whd.