Foodie Law Blog: February 2014

Tuesday, February 25, 2014

Q&A: TABLES WALK OUT, WHO IS RESPONSIBLE?

By: Jonathan Boulahanis

February 25, 2014

Q: My servers dropped two trays of expensive wine glasses, and I had three tables walk out on my restaurant last night. What am I supposed to do? Can I have the servers pay for these mistakes out of their tips?

A: First, deep breath and remember everyone has those kinds of days. When serving, I once tripped and fell dropping an entire tray of food and standing up covered in cheeseburgers and chili. The 3 year old at the table loved it, but my boss sure didn’t. You shake it off (literally when it comes to chili in your shirt). In my case, my boss wrote it off as an accident. That being said, those “accident” costs add up to management. Remember, restaurants make the smallest profit margin of any business in the country.

When these situations happen to your employees, it is tempting to try to make them share in the loss. This is a dirty little secret in the restaurant industry – some employees are made to pay for the mistakes out of their pockets. However, it is illegal to dock the server’s tips for the walkouts or the broken dishes. While the Fair Labor Standards Act, doesn’t flat out say this practice is illegal, courts have interpreted the language of the statute to determine that the practice is illegal. A federal district court in Texas* held that a restaurant violated the FLSA by improperly deducting servers’ wages for unpaid checks and cash register shortages, and a federal district court in Miami** agreed. Some states, like California, Massachusetts, and New York specifically prohibit charging employees for spoilage, breakage, cash shortages, or losses.

So what is an employer to do? Remember, First, avoid the tip docking practice. Aside from the wage and hour issues outlined above, the practice could also open up the establishment to liability for discrimination or retaliation if some employees are treated differently. The safer way to handle the situation is to have a progressive discipline policy in place, with the same punishment for employees that are repeat offenders, such as changes to the schedule, loss of a shift, or in extreme circumstances - termination.

Jonathan

* Bernal v. Vankar Enters., 579 F. Supp. 2d 804, 810 (W.D. Tex. 2008).

** Brennan v. Haulover Shark and Tarpon Club, Inc., No. 74-1276-Civ., 1986 WL 587 at *16 (S.D. Fla. Jan. 27, 1986).

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team. Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.

LEGAL DISCLAIMER:

The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.

*This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.

Friday, February 14, 2014

Shiftgig Q&A: Does Server have to pay for credit card processing fees?

Q: Who is responsible for paying the credit card fees charged by credit card companies – the business, the employee, or the customer?

A: As the days of “Cash Only” signs in the windows are dying out and the world is becoming more and more reliant on credit cards to pay for goods and services, this question is becoming increasingly asked. Credit cards make money in several ways, including usually on a percentage fee per transaction. Most people don’t think about the credit card’s cut from each purchase, but it ends up being a huge amount. Using a food analogy, it’s like the little corner piece of a pizza cut into square pieces. With all the pizzas sold around the world, those little corner pieces add up to a gigantic piece of the pie pretty quickly.

As for who is responsible for paying that percentage, the credit card companies have a contractual relationship with the business providing the good or service, i.e. the restaurant, bar or hotel. However, legally, the business can choose to pass the charge on to its employees or to the consumer.

Increasingly, restaurant and bar employees are seeing their employer subtracting the credit card percentage fee against their tips on credit card transactions. That action is permitted under the Fair Labor Standards Act (but may violate state law, depending what state you are in). Under the FLSA, for example, where a credit card company charges an employer 2 percent on all sales charged to its credit service, the employer may pay the tipped employee 98 percent of the tips. The caveat is that the reduction may not reduce the employee's wage below the required minimum wage.

The businesses are also now allowed to pass the charge onto consumers based upon the settlement of a class-action lawsuit in 2013. Prior to that, most credit card companies did not allow the practice. Now, a business can add a disclosed surcharge fee for credit card purchases to the final cost of a good or service.

As has been a theme so far in the Weekly Legal Bites column, the “can they?” and “should they” questions result in different analysis. If the business charges the credit card processing fee against the tipped employees, it could be an accounting nightmare. The business likely pays a different percentage fee on each type of credit card, and must deduct the correct amount from each charge against each employee. It could require overhaul of existing systems and require substantial bookkeeping changes. If the business passes the charges to the consumers, they may lose a competitive edge on prices, as many big box retailers refuse to pass that charge on to customers.

Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team. Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.

LEGAL DISCLAIMER:

jboulahanis@clarkhill.com

Thursday, February 6, 2014

Batali Settlement (Shiftgig Q&A)

This Q&A series is presented weekly on shiftgig.com/articles - check it out for the latest installment in the Weekly Legal Bites series.

Q: I read that Mario Batali and Joe Bastianich settled a lawsuit for 5.25 million dollars with their employees. What happened and why was the settlement so much money?

TV celebrity chefs Mario Batali and Joe Bastianich must have thought they walked out of the TV shows that they regularly appear on, and onto the set of Gordon Ramsay’s Kitchen Nightmares when they signed the settlement papers. Batali and Bastianich were the targets of a class-action suit brought by almost 1100 employees from seven New York area restaurants that they own. According to the complaint filed in federal court in New York, Batali and Bastianich’s restaurants retained 4.5% of the tips from the server/bartender’s nightly wine sales. The restaurant said it was using the money for training, research on wine, and replacing wine glasses. Honestly, it didn’t matter the reason, the policy on its face likely violated the Fair Labor Standards Act.

Restaurants and bars are one of the trickiest industries for payment of wages because of the unique phenomenon of the tipped employee. The government allows for tipped employees to be paid less than the normal minimum wage. If you’re a server or bartender, you probably notice that your hourly rate is lower than the $7.25 federal minimum wage (higher in some states). That is called the “tip credit,” and employers get to reduce the minimum wage by over $5. However, the Fair Labor Standards Act makes clear that a tip is the sole property of the employee, and prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. The only recognized exceptions are tip pooling/sharing arrangements amongst tipped employees.

So what happened with Batali and Bastianich’s restaurants? The alleged policy to keep 4.5% of the employees’ tips from nightly wine sales was illegal on its face, which put them in a very undesirable legal situation. The penalties for taking the tip credit when deducting wages from over 1100 employees is what got the settlement amount up around the nightclub tab for a Miami Heat NBA Championship party. The lesson? Tips are employee property, and the wage and hour protections of the Fair Labor Standards Act have some bite to them.