Articles Posted in Tip Pools

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Although the federal Fair Labor Standards Act (FLSA) requires employers to pay all their workers no less than the standard, federal minimum wage (currently set at $7.25 per hour) the FLSA does provide exceptions to that rule. One of those exceptions covers employees who receive tips by working directly with customers. This category most commonly includes servers and bartenders, but it can also include barbers, drivers and delivery personnel, depending on their employment situation.

Because tipped employees are expected to receive most of their compensation directly from the customers they work with, the legal minimum wage for tipped employees is just a fraction of the standard minimum wage, although the FLSA does require employers to make up the difference if the combination of wages and tips earned by tipped employees is less than the standard minimum wage.

In order to prevent employers from taking advantage of the lower minimum wage for tipped employees, the U.S. Department of Labor (DOL) requires employers to make sure their tipped workers are spending no more than 20% of their time on un-tipped labor (cleaning, restocking supplies, etc.) If an employee does spend more than 20% of their work hours performing work in which they are not in direct contact with customers, then the FLSA requires their pay to be raised to the standard minimum wage. Continue reading

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It is common in the US for certain types of workers to be paid in tips, as well as wages. These workers are usually those in the service industry who work directly with customers, such as waiters, bartenders, and delivery drivers. Some companies operate with tip pools, so that all the tips get collected and then distributed among the service staff. Sometimes these tip pools include employees who don’t normally receive tips, such as dishwashers and bouncers.

The Fair Labor Standards Act (FLSA) is the federal law that provides regulations for things like minimum wage, overtime, and how tipped employees get paid. The federal minimum wage is currently set at $7.25 per hour, but there is a lower minimum wage of $2.13 per hour for employees who receive tips. If the worker’s tips and wages combined do not add up to at least the federal minimum wage, the employer must pay the worker the difference. Continue reading

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Under the federal Fair Labor Standards Act (FLSA), employers are required to pay all hourly employees a minimum wage of at least $7.25 per hour, assuming that this wage, combined with the tips the employees receive, add up to at least $7.25 per hour.
Employers are also allowed to create a tip pool into which all of the employees put their tips. The total is then to be divided evenly among the employees who are part of the tip pool. However, only certain employees are eligible to participate in tip pools. On its website, the U. S. Department of Labor states that employees who do not usually receive tips, such as “dishwashers, cooks, chefs, and janitors” re ineligible to participate in tip pools.

A recent class action lawsuit has been filed in federal court against Gusano’s Chicago-Style Pizzeria for allegedly using an illegal tip-pooling policy and paying its waiters less than the federal minimum wage. Jacqueline Conners, a former server at Gusano’s, alleges that she was forced to add her tips to a tip pool which allegedly included cooks and other kitchen employees who do not typically receive tips. Conners alleges that, as a result of the illegal tip pool, she and other servers at the restaurant were paid less than minimum wage for the hours that they worked there.

One of the attorneys representing Conners in the wage and hour lawsuit stated that it is common for some companies to include additional employees in a tip pool in order to reduce the company’s overall labor costs. The lawsuit points out that the FLSA allows employers to take a “tip credit” which is equal to the difference between the restaurant’s cash wage and the federal minimum wage. However, because Gusano’s allegedly illegally included employees who should not have been able to participate in the tip pool, the complaint says that Gusano’s “is not eligible to take the tip credit.”

Gusano’s has seven locations in three states. Although each location is “normally owned by a separate corporate entity,” the lawsuit alleges that the restaurants are operated as a single enterprise and that the company uses the same employment practices at all of the restaurant’s locations. Therefore, all employees, at all of the restaurant’s locations, who were forced to participate in the illegal tip pool, are eligible to participate in the class.
Conners is seeking minimum-wage back pay and the return of all owed tips for herself and all other situated employees who worked at the restaurant for three years before the lawsuit was filed.

In addition to the wage and hour lawsuit, Conners has also filed a separate lawsuit against the pizza chain alleging that she was wrongfully terminated. According to the complaint, Conners called the police when she saw a woman drinking alcohol while breastfeeding a baby. The mother was arrested, but Conners was allegedly reprimanded by her employer for “not taking the business into consideration”. Conners’s employment at Gusano’s was terminated six days after the incident.

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Because tips are usually paid in cash, they often go unreported on tax forms. Employees frequently see this as a huge benefit to working low-paying jobs in which tips are customarily included. Waiters and bartenders are the first two groups that usually come to mind as employees who rely heavily on their tips for their income. However, an employer that adds wages to an employee’s pay stubs, allegedly to make up for the unreported tips, is acting against the law. Particularly when it results in the employees receiving less than minimum wage for each hour that they work.

Such is allegedly the case for Starbucks employees. A recent lawsuit alleges the company discourages employees from reporting their tips. Instead, the employer adds a “phantom wage” to the employees’ pay stubs, allegedly to make up for the tips which are going unreported. According to the lawsuit, Starbucks allegedly adds 50 cents for each hour that the employees work to employees’ pay stubs and W-2 forms. The end result is that the employees are paid less than minimum wage for the work that they perform for the coffee giant.

Rather than having a system to determine or calculate the amount of tips that each employee receives, the complaint alleges that “Starbucks just makes up that phantom number out of thin air.” The lawsuit also alleges that the gourmet coffee company “willfully filed fraudulent information” to the IRS.

The class action lawsuit was filed in a federal court in Oregon. The plaintiffs are filing for claims under the federal Fair Labor Standards Act which specifically prohibits employers from deducting wages from an employee’s pay if that deduction brings the employee’s total hourly wage to less than minimum wage. According to the lawsuit, the deduction of the “phantom wage” on Starbucks employees’ pay stubs allegedly did just that.

The plaintiffs are seeking an injunction which would prevent Starbucks from ever again participating in these or similar illegal business practices. They are also seeking damages for wage and hour violations amounting to at least $5,000. Should the court decide to rule in their favor, such an amount would most likely be in addition to attorneys’ fees and costs. If the case is allowed to move forward and the plaintiffs are granted class action status, the total damages which Starbucks would have to pay would be dependent on how many employees choose to participate in the class. Most likely, all current and former employees of the coffee company within a certain time frame would be permitted a chance to join the class.

According to Jon Egan of Lake Oswego, an attorney representing the plaintiffs in the wage and hour lawsuit, Starbucks is not required by either Oregon state law or federal law to withhold taxes from unreported tips.

Far from feeling contrite about the issue, the company is defending their policy. Laurel Harper, a spokeswoman for Starbucks, has said that the company is “in full compliance with state and federal laws on how tips are taxed.”

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When we talk about wage and overtime lawsuits, many people do not consider the fact that tips are included in that category. However, tips can be a very contentious issue, especially because employees who earn tips are, in most states, subject to a lower minimum wage than other employees. This is where the attorneys at Chicago Overtime Law Center are here to help.

A recent case involving tips was filed by Diamonde Grant, who worked as an exotic dancer at the Oasis Nite Club in Baltimore, Maryland. The lawsuit alleges that Grant was required to pay a portion of her tips to other employees who do not normally receive tips, such as DJs and security guards. The amount she ended up paying them could be as high as $80 on weekend nights before she was permitted to take her own share of the money. The lawsuit, filed in U.S. District Court, is seeking $200,000 for the money she was forced to pay other employees between 2009 and 2012.

In Maryland, as in many other states, service employees who receive tips must have received enough money from those tips to at least meet state minimum wage requirements.

In general, courts do not look favorably upon cases of tip pooling. Not only is it unfair to the employees who work hard to earn their tips, but it is also deceptive to the patrons who believe that the entirety of the gratuity they choose to pay is going to the person who served them. Other common cases of tip pooling, which have made it to the courts in recent years, include restaurants where waiters are made to share their tips with busboys, chefs, and even shift managers.

Ms. Grant is not the only exotic dancer to file a lawsuit against her employer for tip pooling. Another similar case has been discussed on this blog and other exotic dancers have begun filing similar cases in Maryland, as well as other states.

Another difficulty that exotic dancers face is the fact that their employers often misclassify them as independent contractors. As this blog has discussed, many employers implement this in order to avoid paying their employees overtime wages. However, in order to be classified as an independent contractor, employees must fit certain requirements. These requirements include being able to choose their own hours and having control over what they wear while they are at work. In order to qualify as an independent contractor, an employee must also have a certain level of control over the environment in which they work.

However, this is rarely if ever, the case with exotic dancers. They are frequently told when and where to work and, according to Grant’s lawsuit, she was regularly required to attend meetings at the Oasis Nite Club. Such regular meetings would never be required of an independent contractor. Similar cases involving misclassification of employees have pointed out that independent contractors would not face any disciplinary action as a result of their contracts. As one might expect, such is not the case with tipped employees.

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Many servers, including waiters and bartenders, earn a very low hourly wage and they depend on the tips they receive from patrons to earn a living. Some employers though, illegally withhold gratuity from their employees’ pay. This is allegedly the case with Mallozzi Group, the Rotterdam-based restaurant and catering empire.

The Mallozzi family first entered the food industry in 1965 when they opened the Villa Italia bakery in Schenectady. They then began opening restaurants and catering operations all over the area until they expanded into an empire.

A former server for the Mallozzi Group has filed a 12-page class-action complaint against the company in Albany County Supreme Court. The lead plaintiff, Ryan Picard, worked as a server for Mallozzi Group for most of 2011 and all of 2012. He alleges that a mandatory 20% “service personnel charge” was added onto customers’ bills, but that money was never distributed to him or the other servers. Allegedly, the servers were paid a flat hourly rate and were instructed by Mallozzi Group that, when a customer asked if they received tips, they were to reply that they did.

The lawsuit focuses on the fact that the restaurant and catering chain did not make it reasonably clear to customers that the extra charge was not a gratuity. Had Mallozzi Group done so, the servers would have no claim upon the money.
The lawsuit is seeking to represent everyone who worked as a server for Mallozzi Group in the past six years. Picard and his attorneys believe that the damages could exceed $1 million, plus interest, costs, and attorneys’ fees. Nine defendants were named in the suit, including co-owners John and Joseph Mallozzi.

The complaint cites New York Labor Law which states that “A charge purported to be a gratuity must be distributed in full as gratuities to the service employees or food service workers who provided the service.

Bobby Mallozzi, one of the owners of the restaurant chain, insists that the company has not done anything wrong. He maintains that “Mallozzi’s and all of our companies adhere to all of the New York Labor Law and its guidelines in its utmost strictness”. He dismisses Picard’s claims as the “wrongful accusations” of a disgruntled employee. He also says that “this lawsuit has absolutely no merit, and we will vigorously fight it.”

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Tip pooling can be an effective way to make sure that everyone who helps customers gets a share of the tips given, particularly in coffee shops where customers are often helped by multiple people to get a single cup of coffee. However, as this blog has mentioned, companies need to be careful to make sure all managers are excluded from the tip pool.

Starbucks has been dealing with a class action lawsuit filed by and on behalf of its Massachusetts baristas. The lawsuit claims that shift supervisors cannot legally be included in a tip pool because they are managers which are, by definition, excluded from tip pools under Massachusetts law.

According to Starbucks though, the shift supervisors are wait staff, rather than managers, and that the only substantial difference between shift supervisors and baristas is that baristas are part-time hourly employees while shift supervisors are full-time salaried employees.

These claims were rejected however and the baristas were granted class status in February of 2011 when a judge ruled that shift supervisors have at least some managerial responsibilities. Because of these duties, they are ineligible for the tip pool under the Massachusetts statute. The class includes everyone who worked as a barista at Starbucks in the state of Massachusetts from March 25, 2004 to February 8, 2011.

Starbucks continues to dispute this ruling, saying that, unlike managers, neither baristas nor shift supervisors have the authority to compel obedience if a co-worker disobeys a direction or request. Starbucks has also pointed out that the representatives of the class do not properly represent those employees who were baristas during the class period but have since been promoted to shift supervisors and are currently reaping the benefits of the tip pool.

Despite these arguments, Judge Gorton of the District of Massachusetts awarded $14.1 million to the class. Starbucks has recently appealed that decision in the U. S. Court of Appeals for the First Circuit where it is awaiting review.

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Tip-pooling is a touchy subject, and a complicated one. The owner of Wynn Casinos in Las Vegas is learning this the hard way as he faces a lawsuit from his dealers.

Traditionally, dealers have been among the most prosperous casino employees as they have direct access to customers. Because of their large tips, dealers frequently go home with more money than their supervisors. The owner of Wynn Casinos looked to remedy this by allegedly forcing the dealers to share their tips with their supervisors. The reason for this is, supposedly, because supervisors also directly impact customer satisfaction. Therefore, giving them a share of the tips would motivate them to provide better customer service.

Enraged by the new policy, which was put in place in 2006, the dealers joined the Travel Workers Union and filed a complaint with the labor commissioner’s office of Nevada. The labor commissioner’s office sided with the casino, saying that, because the casino did not directly benefit from the new tip-sharing policy, it did not violate Nevada labor laws.

An employment lawsuit was also filed in the Clark County District Court, where the labor commissioner’s decision was overruled. Judge Kenneth Cory decided that the casino did, in fact, directly benefit from the new tip-sharing policy by using the tips to substitute higher salaries for the managers.

Wynn has appealed the decision and the Culinary and Bartender unions have joined in the fight on the side of the casinos. There has been some speculation that this allegiance is due to the face that Wynn signed a generous 10-year contract with the unions in 2005.

They deny these allegations however, saying they are afraid that, if the court sides with the dealers, it could affect tip-sharing policies with bartenders, busboys, and dishwashers, which are currently standard practice all over Nevada

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This blog has previously discussed the need for employers to make sure they are properly classifying their employees. Many cases get brought to court over this issue, particularly when the employers classify their employees as independent contractors, even when the employees don’t fit any of the requirements. Another such case has just settled between 15 nightclubs and more than a dozen of their exotic dancers.

The nightclubs, including Spearmint Rhino, allegedly classified their dancers as independent contractors. Not only did they allegedly not pay the dancers any wages or salary, but they allegedly required the dancers to pay a “stage fee” and to pay a certain amount of their tips in “rent”. Additionally, the dancers were allegedly required to contribute to a tipping pool which included employees who would not normally receive tips, such as managers, checkers, disc-jockeys, and bouncers.

Rather than being able to control their business, clients, and work environment (as an independent contractor would), the dancers relied on the nightclub owners for everything. The club required dancers to work a certain number of shifts per week, the shifts needed to be a certain number of hours, and there was a minimum number of drinks they were required to sell. If they did not meet their drink quota, they were punished.

Moreover, one can consider an economic realities test to determine whether an employee might fit the requirements of an independent contractor. This test looks at whether an employee is truly independent or if she relies on others to provide her business. Because the nightclub did all of the marketing to bring in customers, the dancers were entirely dependent upon the club for their business and, therefore, were not economically independent and did not fit the requirements of independent contractors.

The defendants allegedly attempted to have their employees sign contracts to give up their FLSA and California Labor rights. However, this cannot legally be done. Even if the dancers signed contracts to that effect, they cannot be enforced in a court of law.

In addition to suing for unpaid minimum wages, the lawsuit was also filed to recover minimum wages for meal breaks, which the dancers were never given.

A federal judge recently approved a settlement of $12.9 million. Additionally, the clubs are now required to pay wages to their dancers, to properly classify them as employees, and the dancers are no longer required to pay stage fees to the clubs.

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