Three Court Rulings You Should Be Aware Of

One of the most difficult facets of managing a restaurant is keeping within the limits of the vague laws regulating restaurants. Lawmakers are not doing restaurants any favors by writing laws that leave critical issue unclear. This ambiguity is often left to the courts to be clarified. The courts have handed down three very significant rulings this year that you need to be aware of. Ignorance of the law is no excuse and these recent rulings should be read with an eye towards avoiding potential lawsuits and fines.

The restaurant industry has a terrible reputation when it comes to obeying labor laws. From a level of accepted sexual harassment that would never fly in an office building to unintended applications of tips credits, the restaurant industry is ripe for lawsuits. Most managers’ understanding of these issues comes from the assumption of legality of practices they have seen at other restaurants. We as an industry have been very liberal in assuming labor laws are written in ways that allow maximum flexibility to restaurants. This assumption has been challenged in court in several high profile cases and proven to be false. This is a vital time for restaurants to end their questionable practices in order to prevent themselves from setting the next legal precedent.

Here are three cases you need to be aware of:

Fast et. al. v. Applebees Int’l Inc.: I have been telling people for a while that this case will be a “game changer” for the restaurant industry. As a class action suit, several former Applebees employees sued the company for violating the “20% rule.” This “rule” (it was prior to this ruling more of a guideline than a rule) states that a tipped employee can only be paid with a tip credit if they spend no more than 20% of their time doing non-tipped activities. This means that if an employee is working a five hour shift, they can spend no more than one hour doing activities for the restaurant that do not produce tips. Applebees argued that since the sum total of tips received by the employees allowed them to remain above the minimum hourly wage, the law had not been broken. The court sided with the employees and found that if they spend more than 20% of their shift on non-tip producing duties, the employer is not eligible to claim the tip credit.

Roussell v. Brinker Int’l Inc.: This case addresses more directly which employees can and cannot be included in a tip sharing arrangement. The Department of Labor Wage Hour Division’s Field Operations Handbook (which you need to be familiar with if you operate a restaurant) clarifies some of the positions that are eligible and ineligible for tip sharing. One position they did not clarify was the “expediter” or as they were called by Chili’s the “QA.” The court in this case ruled that the position did not meet the standard of a “customarily and regularly” tipped position. The court awarded the 55 servers covered in this case over $1.7 million according to their attorney. They also found that the burden for showing the legality of the tips sharing arrangement falls on the restaurant and not on the employees.

Davis et. al. v. Four Season Hotel Limited: This case clarifies the restaurant’s burden in charging a “service charge” as opposed to a tip or gratuity. Many restaurants have adopted the hotel and catering industry practice of keeping a percentage of the “service charge” that is interpreted by the guest as a tip for the servers. The courts ruled against the hotel here by stating that at least some of the guests were not aware that this charge was not going directly and entirely to the staff. New York has been proactive on clarifying the burden that restaurants must meet to collect a portion of this charge. Previously, the courts had lowered the standards by stating that that if no tip credit is taken, the employer could take a portion of the charge (Cumbie v. Woodie Woo Inc.). The Department of Labor has since contradicted the ruling in the recent updates stating “[t]ips are the property of the employee whether or not the employer has taken a tip credit.” (29 C.F.R. § 531.52).

These are three very specific legal issues that impact every restaurant. Most restaurants are operating in a legal grey area regarding at least one of these issues. As lawyers have success taking on some of the biggest companies in the industry, they will be looking for more clients to represent. It is imperative that you take the time to make sure you are not making yourself a target for one of these lawsuits. You must stay up to date on these rulings because the liability caused by violating the law is one you cannot afford.

One of the best places to stay up to date on these rulings is a blog called Waiter Pay. It is operated by Louis Pechman, a New York lawyer specializing in restaurant law. His blog is an incredibly valuable tool to monitor rulings that could affect your restaurant. I highly recommend checking it frequently.

One final disclaimer: I am a blogger, do not take legal opinions from me. I am not a lawyer. Seek legal advice from someone who is. My sole purpose in this post is to make you aware of recent rulings. If you feel your policies could be a liability, consult an experienced attorney.

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About David Hayden

David Hayden is a restaurant marketing and training consultant based in Kansas City, MO. He writes a series of 9 blogs collectively known as The Hospitality Formula Network and is the author of "Tips2: Tips For Improving Your Tips" and "Building Your Brand With Facebook"

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