Top Employment Law Myths Every Restaurant Owner Needs to Know
Owning and operating a successful restaurant requires compliance with a myriad of employment laws. Failing to comply with these laws can result in an expensive lesson. There are many employment law myths restaurant owners face in the context of overtime and minimum wage laws that can lead to serious consequences, but there are also steps that restaurant owners and managers can take to avoid those repercussions.
The federal overtime law applies to employers regardless of the number of employees. Moreover, employees cannot waive their right to overtime—period. In the unlikely event that a waiter, for example, signs a contract agreeing that he will not be paid overtime, he can still sue for the unpaid overtime. In fact, this is why employees sue employers for unpaid overtime or minimum wage violations more often than for any other reason.
Many restaurant managers wrongly assume that if an employee works overtime without advance approval, in violation of a written policy, they do not have to pay for that overtime. This is not the case. A supervisor who knows that the employee is working overtime is liable and must pay for that overtime. Disciplining the employee for violating the policy may be in order, but not paying is not an option. Many restaurant owners, especially those who own or operate family-owned restaurants or smaller diners do not maintain accurate time records. In the overtime context, it is the employer’s obligation to keep and maintain accurate time records (a work schedule does not constitute an accurate time record).
If, for example, a hostess sues for overtime because of an especially busy or crowded time, and there are no accurate time records, the law allows the employee to merely estimate the number of hours worked. This could be as simple as the employee stating that she worked an average of “X” number of hours per week. Moreover, if she recovers even one penny in unpaid overtime, the owner more than likely will be required to pay double that amount as a penalty. The overtime law also requires the employer to pay the employee’s reasonable attorney’s fees if the employee wins. If the employer wins, in most cases the costs cannot be recouped.
The federal overtime law is an extremely unforgiving law for employers and is almost entirely skewed in favor of the employee. For example, even if a busboy is an illegal immigrant, and therefore has no right to work in this country, he can still sue for unpaid overtime and the law requires the owner to pay him for that overtime. The restaurant may also be subject to penalties for hiring an illegal worker in the first place, and liable for unlawful retaliation if the owner reports this worker to the immigration authorities.
Moreover, whether or not they are owners, individuals who have the authority to hire, fire, and set pay rates and/or work schedules can be held liable for unpaid overtime and minimum wages, regardless of whether the restaurant is an LLC, S corp., etc. Additionally, successor companies are often substituted in after the fact. So closing down the restaurant or bankrupting it is not an effective solution.
Another problem area is misclassifying employees as exempt from the overtime laws, an issue that is not uncommon among restaurant owners “Classifying” employees as exempt does not guarantee that the law will see them as such. Paying an employee a salary or giving him or her the “title” of manager does not mean the employee is not entitled to overtime. Being paid a salary simply changes how to calculate the overtime rate. Likewise, only certain types of jobs are exempt from the overtime requirements. An executive chef or sous chef must be paid a minimum salary in order to be exempt; however, being paid a salary alone does not make the chef exempt from the overtime law. Exemptions focus on the employee’s actual day-to-day job duties and responsibilities, and not the job title.
3. Tip Credits and Pools
Finally, one of the biggest problem areas for restaurant owners are tip credits and tip pools. First, it is imperative to post the required notices in order to properly take advantage of the tip credit. Second, if a tip pool is utilized, only those employees who customarily and regularly receive tips, such as waiters, waitresses, hostesses, bussers and service bartenders, may participate in the tip pool. A valid tip pool may not include employees who do not regularly receive tips, such as dishwashers, cooks, chefs and janitors. Third, the overtime rate for employees paid via a tip credit is calculated on the full minimum wage, not the lower wage payment (i.e., 1.5 times the full minimum wage, minus the tip credit). And, fourth, where tips are charged on a credit card and the restaurant incurs a fee from the credit card company for each sale, it is permissible to deduct that percentage from the employee’s tip so long as this charge on the tip does not reduce the employee’s wage below the required minimum wage.
Restaurant owners can also choose to deduct a flat percentage amount equivalent to the average credit card fees from the employees’ tips, rather than the actual percentage charged for a particular sale, so long as the total amount collected reasonably reimburses for no more than the total amounts charged by credit card companies and does not exceed the aggregate fees imposed by the credit card companies.
The best thing restaurant owners, managers and supervisors can do to protect themselves is to maintain accurate time and pay records and consult with an attorney who is experienced in labor and employment law.