Low-Cost Meals, High-Cost FLSA Mistakes: Lessons From the DOL’s Fining of a Minnesota Pizza Restaurant for Wage and Hour Failures

Quick Hits

• The DOL recently fined a Minneapolis pizza restaurant for multiple wage and hour violations, including failure to pay overtime and improper tip pooling practices.
• The DOL found the restaurant in violation of the FLSA for actions such as not combining hours worked at multiple locations, allowing employees to clock in with false identities, and employing a minor outside permitted hours.
• The restaurant was penalized for retaliating against an employee who cooperated with DOL investigators, resulting in more than $100,000 in back wages, liquidated damages, and civil money penalties.

Under the Fair Labor Standards Act (FLSA), employees must be paid for all hours they work and must receive overtime of one and one-half times their regular rate of pay for all hours worked in a workweek in excess of forty hours. According to the DOL, the restaurant failed to do that, and further, dismissed an employee who spoke with DOL investigators. Based on those findings, the DOL found the restaurant to be in violation of the FLSA for the following actions:

• “Not combining hours employees worked at more than one location, which denied employees overtime wages when they worked more than 40 hours in a workweek.”
• “Allowing at least four workers to routinely use other names and identification numbers to clock-in to avoid paying overtime.”
• “Paying two employees straight-time rates for overtime hours, instead of time and one-half their regular rate of pay as required.”
• “Not maintaining accurate employment records with employee start and stop dates and contact information and allowing individual workers to use others’ names to clock-in.”
• “Failing to distribute tips to workers or provide records showing that tips were paid to workers properly.”
• “Including managers and shift supervisors in a tip pool for servers and others allowed to receive tips, which [under the FLSA] invalidated the tip pool.”
• Allowing a “15-year-old to work outside permitted hours.”

The DOL assessed the restaurant damages and penalties as follows: $44,915 in back wages and an equal amount ($44,915) in liquidated damages, and $15,954 in civil money penalties for child labor and tip-retention violations. As a result, the restaurant will have to pay a total of $105,784 in back wages, damages, and penalties to resolve the violations.

Wage and Hour Considerations

Navigating wage and hour laws, especially in the restaurant industry, is no easy feat. Indeed, the hospitality industry, by its nature, with a high volume of part-time or temporary employees who are eligible for tips, does not make compliance any easier. Nonetheless, employers can better navigate these laws by keeping in mind several points.

First, employers may want to invest in a reliable and easy time recording system, train employees on proper time recording, and have policies in place that prohibit overtime work without proper authorization. While employees themselves may be willing to forgo the rules and work “under the table,” employee consent in this context does not cure a violation, and an employer would still be subject to assessments for noncompliance. Having a proper time recordkeeping system can prevent many wage and hour violations and ensure that employees are properly compensated in accordance with the law.

Second, employees must be paid properly for all hours worked. For example, if an employee works overtime without proper authorization, the employer can address the policy violation as a disciplinary action, but the employer must still comply with the overtime laws.

Third, federal law prohibits managers and supervisors from keeping employees’ tips, whether directly or through a tip pool. In addition, while not an issue in this case, it is important to remember under Minnesota state law, employees who perform direct services to customers must be the direct beneficiaries of any gratuities paid by customers. Thus, mandatory tip pooling—requiring employees to share tips with other employees—“may not be a condition of employment” in Minnesota. While many employers in the hospitality industry, as well as employees, may feel that tip pooling treats employees more fairly, Minnesota law does not permit employers to require employees to do so.

Restaurant operators may want to ensure they have clear policies in place that no one at the restaurant, including management, can require employees to share their tips. Direct service employees may engage in tip pooling voluntarily, but employers may want to proceed with caution, as the “voluntariness” of a policy may be difficult to prove. In addition, Minnesota law provides that gratuities received through cards or electronic payment must be paid in full to employees by the next pay period.

Finally, employees who report wage and hour violations to employers or government agencies, or who participate in wage and hour investigations, are protected from retaliation. Employers may not dismiss or otherwise retaliate against employees who engage in such protected conduct. Employers in Minnesota may want to be especially careful, as the state’s whistleblower statute protects all employees who make good-faith reports of violations of law (including wage and hour), and the statute provides for additional damages for employees.

Key Takeaways

Employers may want to ensure they have a good time-recording system in place and make sure that employees are paid for all hours worked and paid at the overtime rate when appropriate. In addition, the recent matter may serve as a reminder of several points:

• Employers would be well served to remain cognizant of laws that limit the hours and duties of employees who are minors.
• Hospitality businesses may not allow managers to keep employees’ tips, including participation in tip pools.
• Minnesota law prohibits employers from requiring employees to share their tips or contribute to tip pools.
• Minnesota law requires that gratuities received through cards or electronic payment be paid in full to employees by the next pay period.