While the distinction between a tip and a service charge may not seem like much, it can mean the difference between employees getting paid in accordance with the law or getting paid less than the federal minimum wage. Although employers are allowed to pay their tipped employees less than the federal minimum wage of $7.25 per hour, this holds true only so long as the employees’ tips and wages amount to at least the minimum wage. If the employees’ tips and wages together are not sufficient to reach the minimum wage, the employer is required to make up the difference.
A service charge is not a tip that gets paid directly to the wait staff. Instead the company collects the service charge to pay for things like music and set up. However, this distinction is not always made clear on the bill. Not every one is aware that a service charge is different from a tip. As a result, when a customer sees a service charge on a bill, she usually assumes that the charge is an automatic gratuity, to be paid to the wait staff, and does not provide an additional tip for the server. This loss of tips is unfair to the wait staff and usually results in the employees getting paid less than the minimum wage.
According to a recent wage and hour lawsuit, Chickie’s and Pete’s Inc., a chain of sports bars on the East Coast, allegedly included a service charge on its bills which allegedly was not clearly labeled to make customers understand that it was not a gratuity. As a result, the company allegedly collected about 60% of tips given to the wait staff and the staff received less than minimum wage for the time that they worked. The U.S. Department of Labor inspected the company’s collection and payment policies and filed the wage and hour lawsuit.
Rather than continue the lawsuit in court, the company decided to settle for $8.4 million. The company has also agreed to more intensely monitor its wage and hour practices in order to “ensure continuing compliance with the law.” The Department of Labor will also be scrutinizing the company’s employment practices more closely.
Wage and hour lawsuits concerning mandatory service charges have been on the rise lately. Although companies may not necessarily have the intention of depriving wait staff of their tips, failure to properly inform customers of the purpose of a service charge has the unfortunate tendency to do just that. As an attempt to remedy the situation, some courts have already prohibited companies from including a service charge on their bills unless the company informs the customers that the service charge is not a gratuity and will not go to the wait staff.
With the job market suffering from the latest Great Recession, many employees were afraid to do anything about the wages that their employers were denying them. Now that the economy has begun to stabilize, employees are fighting back against unfair employment practices. Hopefully, this wave of lawsuits concerning tipped employees will help to educate both consumers and employers on the importance of distinguishing between a gratuity and a service charge and the different requirements for each.
The Chicago class action lawyers at the Chicago Overtime Law Center are investigating unpaid overtime claims by waiters and bus boys and other restaurant and hotel workers against national restaurant chains including Hilton, W, Marriott, Sheraton, Holiday Inn, Best Western, Chipotle, Red Lobster, Olive Garden, Outback Steak House, Taco Bell, Burger King, Wendy’s and hotels for misclassifying employees as managers or assistant managers, forcing employees to work off the clock at business, failing to share all tips, erasing or altering time sheets or time records, pressuring workers not to report or record overtime, and otherwise failing to pay workers for overtime and other wages. If you are the victim these wage theft practices call us at (312) 869-4095 or contact us online.
The Chicago class action attorneys at the Chicago Overtime Law Center have three decades of experience fighting to help employees who are victims of wage, overtime and tip theft by their employers. We have a team of Chicago unpaid overtime lawyers who concentrate on prosecuting state and nationwide class action lawsuits. Our attorneys work out of Chicago and Oak Brook offices and pursue claims for workers all over the Chicago area including Palos Hills and Orland Park. We protect unpaid workers who haven’t received overtime throughout the Chicago area including in DuPage, Lake, McHenry, Kane and Cook Counties.
Our Cicero, Deerfield, Glenview and Northbrook overtime lawyers are intimately familiar with the issues that arise during wage claim litigation, and we know the laws that govern overtime cases well. Many employers misclassify employees as being exempt from overtime laws and pay workers salaries instead of hourly wages in order to avoid paying them overtime. Some employers mistakenly classify employees as exempt and others intentionally do so in order to circumvent the law. In either case, workers do not receive the wages they should, and a lawsuit may be the only way to recover their earned wages.
The Chicago Overtime Law Center is based in Chicago, and represents clients throughout the country who have not been paid for the overtime hours that they worked. If you believe that you are owed overtime wages, contact one of our Chicago class action attorneys by phone at (312) 869-4095 or through our online form.