By Felicity S. Hanks, Esq. (fhanks@hillwallack.com)

Our region’s beloved sport’s bar and Crabfries architect, Chickie’s and Pete’s has signed a consent judgment agreeing to pay $6,842,412  for back wages and damages for violations of federal minimum wage, overtime and record keeping requirements, and for improperly taking tips from its servers.  The United Stated Department of Labor (“DOL”) announced the result of its year-long investigation into the company in a News Release dated February 20, 2014.  The News Release is available on the DOL website at:  http://www.dol.gov/opa/media/press/whd/WHD20140044.htm.

The Fair Labor Standards Act (“FLSA”) sets out the federal minimum wage requirement of $7.25 per hour.  If an employee total earning with tips and its base wage do not equal the minimum wage requirement, the employer is required to make up the difference during that pay period. However, because servers typically earn tips, the restaurant owner can claim a “tip credit” and pay the employee a base wage of only $2.13.  The presumption is that the employee will receive tips that cover the difference up to the full minimum wage.

According to DOL, the company required that servers contribute between 2% and 4% of their tips to a “tip pool,” from which the owner illegally retained 60% of the funds.  At the end of each night, that 60% had to be paid, in cash, to the manager, and if all tips had been paid by credit card, servers might be required to fund the payment with their own cash.  Under the FLSA, tips are the property of the employee who earns them.

In addition to tip violations, DOL reports that at most locations the company paid servers and bartenders only $15.00 per shift.  This wage falls short of the $2.13 per hour minimum cash wage that must be paid to a tipped employee. DOL further reports that the company violated overtime requirements by failing to pay overtime wages for hours worked over the 40 hour weekly threshold under the FLSA.

The judgment amount will repay 1,159 employees at nine of the Chickie’s and Pete’s locations that were affected by the wage violations.  The sum also includes a $50,000 civil penalty, provisions for notifying and training employees on their FLSA rights, 18 month compliance monitoring, and requires the owner to write an article for a restaurant trade publications about employer obligations under the FLSA.

The penalties for wage and hour violations are severe and employers should always consult legal counsel with inquiries relating to its employees’ pay. The best protection for employers is to know and understand their obligations.