You found the perfect space. You invested in state-of-the-art equipment. You assembled a stellar work force. But there is one thing you might have overlooked – something with the potential to put your entire business at risk. You never invested in making sure that your restaurant’s wage and hour practices are fully compliant with the complicated (and often confusing) state and federal regulations that apply to hospitality industry employers.
Every day, throughout the United States, restaurant owners are being hit with class action lawsuits for violating wage and hour laws. In fact, there is now an entire segment of the legal industry devoted exclusively to suing restaurants. These lawsuits, which can be filed by a single, disgruntled former employee on behalf of everyone who ever worked for you, generally claim failure to properly pay overtime, improper tipping practices, failure to provide adequate meal and rest periods, and other wage and hour violations. In New York State alone, restaurant wage and hour lawsuits have nearly tripled over the last six years, rising from 652 in fiscal 2009 to 1,738 in fiscal 2015. No restaurant is immune from the recent rash of wage and hour lawsuits. They have been directed at all sizes of employers — from the neighborhood diner to some of the largest restaurant chains in the world.
The consequences of being the target of a wage and hour lawsuit can be devastating, particularly to a small business. First, the legal fees required to defend such a lawsuit can amount to hundreds of thousands of dollars. Second, even a relatively minor wage and hour violation can expose your restaurant to crippling back pay liability if it affected multiple employees over a period of years. A major violation can force a restaurant to close its doors. Unfortunately, when it comes to wage and hour practices, the law makes little distinction between intentional and inadvertent violations. Even an innocent mistake or a good faith misinterpretation of wage regulations can result in a damages award that will throw you into bankruptcy. For these reasons, many restaurant employers feel compelled to agree to hefty settlements rather than risk going to litigation.
Because wage and hour class lawsuits can be company-killers, undertaking a comprehensive review of your restaurant’s wage and hour practices is one of the most important investments of time and resources you can make. Furthermore, given the legal complexity of federal and state wage and hour regulations applicable to the hospitality industry, auditing your compensation policies should not be a DIY project. Rather, you should seek out a qualified employment attorney who specializes in restaurant wage and hour law to assess your practices for legal compliance. An experienced wage and hour attorney will be able to evaluate:
- Whether you properly classified your employees as “exempt” (not entitled to overtime) or “non-exempt” (entitled to overtime).
- Whether you are paying your employees the appropriate current minimum wage or tipped minimum wage.
- Whether you are properly applying the appropriate current “tip credit” when paying your tipped hourly workers.
- Whether your tipping practices are legally structured, including, e.g., how your tip sharing or tip pooling arrangements were implemented, who is allowed to share in tips, who is allowed to participate in the tip pool, how tips are allocated and distributed, etc.
- Whether you are correctly paying overtime to eligible employees, and, if so, whether you are properly calculating their overtime rate.
- Whether you are providing legally required meal and rest periods.
- Whether you are properly providing any required uniform allowances, and how those allowances interact with the minimum wage.
- Whether you are complying with any miscellaneous state wage regulations applicable to restaurant employers (such as New York State’s “spread-of-hours” pay requirement).
- Whether you are providing your employees with all legally-mandated wage notices.
- How to correct your wage and hour practices so they comply with all state and federal wage and hour regulations.
Many attorneys are willing to provide this service at a reasonable, flat rate commensurate with the size of your business. Certainly, the worthwhile investment you make in ensuring wage and hour compliance will pale in comparison to the cost of defending a future lawsuit or Department of Labor audit. In the case of wage and hour practices, an ounce of prevention is worth several pounds of cure.
Michael Pappas is a guest blogger here at RZ and is the principal and founder of the Michael P. Pappas Law Firm, P.C. (www.pappaslawfirm.com), specializing in employment law for the hospitality industry. Mr. Pappas is also the President and C.E.O. of Employment Compliance Advisors (www.eca-legal.com), a legal consulting firm that helps businesses comply with federal and state employment regulations, provides assistance drafting employment policies and handbooks, and conducts comprehensive wage and hour practice reviews on behalf of employers.
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