The Unspoken Reason That the Hospitality Industry is Moving Away From Tips

Joe's Crab Shack made headlines yesterday when it announced that it is doing away with "tipping," and raising its wages for all traditionally "tipped" employees. Joe's became the first chain restaurant company in the country to make this change. However, Joe's is not the first to do away with tipping.  In fact, there has been a movement quietly making a push across the country.  Last month, Danny Meyer's Union Square Hospitality Group in New York City did away with tipping.  In recent years, Thomas Keller’s Per Se in New York and French Laundry in Yountville, Calif., Alice Waters’ Chez Panisse in Berkeley, Calif., and Grant Achatz’s Alinea in Chicago all did away with tipping.


There are many reasons that restaurants and bars are moving away from the traditional tipping model. Any number of articles on the subject point out that there are arguable benefits for the employee, the employer, and the customer. For example, restaurants that shift the compensation model away from tipping, pay the employees a higher hourly wage.  This provides for a more stable, consistent, and meaningful living wage for employees - who do not have to be concerned with the risks of customers failing to tip.  For the restaurant itself, it increases menu prices 10-15%  to offset the higher labor costs. Additionally, the prevailing thought is that employee retention would increase, creating lower turnover rates that result in lower labor costs.  The customer also benefits as it would ultimately pay a lower total for the bill because standard tipping has become 18-20% of the total bill.  


However, noticeably absent from the news reports and press related to the shift away from the traditional tipping model, is that the shift may actually be driven in large part as a response to the aggressive focus on the restaurant industry by plaintiffs' attorneys and the United States Department of Labor.  This phenomenon is supported by statistics.  According to Department of Labor ("DOL") statistics, from 2009-2013  Fair Labor Standards Act ("FLSA") investigations into hotels and restaurants increased from approximately 4,500 investigations to approximately 7,300 investigations. In 2013, investigations into restaurants and hotels made up approximately 53% of all DOL investigations. In 2014, that percentage remained above 52%.   As part of the DOL's P3 initiative (Plan/Prevent/Protect), nearly 2,000 investigators have been added in the last three years. On top of DOL investigations, each state and many local municipalities regulate wage and hour violations.


So the question is, why is the industry shifting the whole model of compensation, as opposed to merely complying with the tip credit provisions and regulations?  The problem is three-fold.  First, compliance is not as easy as it sounds. The regulations associated with "tipping" and payment of employees are vague and unclear at best.  The FLSA and DOL fail to set forth regulations that provide a restaurateur with straightforward and easily comprehensible guidelines on how to comply with its regulations. For example, restaurants have been forced to defend the "dual job" regulation by proving that servers actually spend 80% of their time waiting tables or doing other tip producing work, and less than 20% of time doing other tasks like cleaning, making coffee, and rolling silverware. It is nearly impossible to prove, and impractical to try to regulate. Further, each state and local municipality also attempts to regulate minimum wage, tipping, and enforcement of wage and hour violations.  Navigating through these waters is truly a legal mine trap.


Second, the Fair Labor Standards Act provides for a plaintiffs' friendly way to get into court, to plead a violation, and to turn the case into a collective or class action.  The law has evolved in this area to include allowing for violations that arguably drop servers below minimum wage (knowing that the vast majority underreport tipped earnings) because of employees being charged for walkouts or breakage, improper employees sharing in the tip pool, improper service charges, employees working dual jobs (such as servers also acting as hosts, or food runners also preparing desserts), employees being charged for uniforms, and many other violations.  The Act provides for harsh penalties for employers, including liquidated damages in the amount of two times the backpay, and provides for recovery of attorneys' fees and costs. The law also provides for a mechanism to bring a quasi-class action, called a collective action, that allows notice to be sent to all employees no matter the size of the employer.


Third, many employment practices insurance liability policies  actually carve out coverage for wage and hour violations because of the high frequency that restaurants are hit with lawsuits. Most insurance carriers will offer wage and hour coverage, for a substantial additional cost, and with the limitations that the insurance coverage (1) would not apply to government investigations, (2) only provides for defense costs up to a certain point, and (3) would not cover any type of monetary settlement. It is not exactly bang for your buck.


The benefit of shifting away from the traditional tipping model is that by paying "tipped" employees above minimum wage and doing away with tips, tip sharing, and tip pooling, restaurants can avoid the costs of complying with the additional regulations that come with the tip credit.  There would be substantially less risk and less concern about investigation or litigation involving improper employees sharing in the tip pool, employees working dual jobs employees' wages falling under the minimum wage, the reporting requirements associated with taking the tip credit, documenting and reporting amount of tips received, and calculating the proper amount of overtime wages.


It is clear that the trend has been increased litigation, regulation, and governmental oversight in tipped occupations - with a focus on the restaurant industry.  Many in the industry actually call the tip credit - a tip penalty.  It is clear that the trend of switching away from tipping is, at least in part, a well-thought out reaction to these trends.  The costs and risks associated with taking the tip credit  outweigh the benefit of taking the tip credit for many. For this reason, without significant clarification and amendments to the Fair Labor Standards Act and its enforcement for the restaurant industry, it is likely that the industry will continue its shift away from tips.

New Happy Hour Law - Are your servers trained?

It has been widely publicized that the Illinois Liquor Control Act (235 ILCS 5/1-1, et seq) has been amended in Illinois by way of the Culinary and Hospitality Modernization Act.  The Act allows, among other things, for the return of happy hour to Illinois.  However, what has been lost in the celebration is that the law added the requirement of additional training for those employees that serve alcohol.

For those in Cook County, all employees serving alcohol must pass a certified Beverage Alcohol Sellers and Servers Education and Training (BASSET) course by July 1, 2015, or within 120 days of hire.  For those in other counties with population over 200,000 people, the employee serving alcohol must take the course by July 1, 2016, or within 120 days of beginning employment.  Smaller counties with population of 30,000 to 200,000 must have employees serving alcohol take the course by July 1, 2017, or within 120 days of hire, and the same provisions apply for under 30,000 but the time is extended to July 1, 2018.

For owners, managers, investors, and license holders, this requirement is extremely important. The liquor license holder can be cited, fined, and sanctioned by the Illinois Liquor Control Commission and the local municipality for failing to produce records.  Further, failure to comply could be grounds for liquor license suspension. Additionally, the failure to comply with the law can be prima facie evidence of negligence in a dram shop type proceeding, which could be enormously costly.

Best practices are to require all new employees to complete the training and produce evidence of the certification, and to maintain such records in the personnel file. The Illinois Restaurant Association offers a comprehensive, and affordable course here.  While celebrating the return of happy hour, please also heed this warning and double check compliance.

The End of the Saga - What's Michael Jordan's Likeness Worth? 8.9 million

One of my very first blog posts - from June 2013..... 
http://lawforfoodies.blogspot.com/2013/06/jordan-and-dominicks-beef-cautionary_21.html


Finally - the story has come to an end... and the final price tag for Dominick's?  8.9 million dollars!  A federal jury awarded Michael Jordan that amount of money after a protracted battle about Dominick's use of Jordan's likeness in a congratulatory ad in a commemorative edition of Sports Illustrated.  The ad offered a discount for the purchase of Rancher's Reserve Steaks.  Dominick's used his name, trademark number 23, and Air Jordan emblem and admitted that they did not receive Jordan's permission.  It was a clear violation of the Act.

The question came down to damages - that is what was Jordan's likeness worth? Safeway argued it was worth $126,900, and emphasized that only two coupons were redeemed.  Jordan put forth an expert witness that set his damages around $10 million dollars, citing his net worth, and contracts with other advertisers.  The jury returned a verdict much closer to Jordan's value - $8.9 million.   It should be noted that Jordan is donating the entire award to charity.  Further, the award was less than 1% of his 1.1 billion dollar net worth.

Many are asking the question - why did Jordan prosecute this so vigorously if it wasn't about the money?  Well, legally - he may have had to.  His name is worth A LOT of money, and allowing Dominick's to use it without compensating him sets precedent around the world.  

The law has built several doctrines that punish the failure to police likeness or marks, or failure to assert rights.  The doctrine of laches states that if a party waits too long to enforce a right, that party might be prevented from asserting the right at a later time because the delay was prejudicial to the defendant. Additionally, courts have held that the failure to police the use of a mark by unauthorized users can result in a court ruling of abandonment. If Jordan did not act, he could have lost his right to compensation down the line.  Not only did he act, but he set a monetary value on his liking. Count it as another victory for Jordan. 

Breaking Down Illinois' Proposed "Happy Hour" Amendment

As news sources have been reporting the last twenty-four hours, it appears that Happy Hour is coming back to Illinois. Yesterday, the Illinois Senate overwhelmingly passed The Culinary Hospitality and Modernization Act. If Governor Rauner signs the bill, the new law will go into effect.

While the majority of the public is rejoicing Happy Hour's re-emergence (especially through social media blasts), it is important to understand that this bill goes much further than allowing your after-work half-price beer. Not only does the law allow for discounted drinks (beer, wine, spirits) for up to 4 hours per day and capped at 15 hours per week, but it has many other provisions that bring the Illinois Liquor Control Act into the 21st Century. Some of those provisions include:

* While "happy hour," as we all know it will be allowed, the State has placed some restrictions that bars/restaurants must be aware of, including: No discounted drinks after 10pm, no changes in pricing during the discount time, and that notice of the discount must be made public at least 7 days in advance of the discounted period.

* The Act defines and permits, with requirements, meal/entertainment/and party packages that were previously restricted except for private events.

* The Act allows for liquor license holders to create "infusions," or spirits are infused with fruits, spices, or nuts. The "infusion" must be stored on premises, have a lid, and destroyed within 21 days.

* The Act redefines a hotel, which allows for the streamlining of licenses for hoteliers that operate more than one alcohol serving establishment on its premises.

* The Act requires mandatory Beverage Alcohol Sellers and Servers Education Training ("BASSET") for all bartenders and servers in the State of Illinois.  Cook County already requires it, but, under this proposed legislation - all servers will require to complete training, and maintain compliance.

* The Act would maintain a ban on 2 for 1 drinks, or giving away any alcohol for free. It further maintains the prohibition on increasing the volume of alcohol in a drink without proportionately increasing the price such as in a "double."

*  Maintains the home rule jurisdiction, allowing for local municipalities to regulate alcohol service and provide for alcohol related ordinances.

* Prohibits the issuance of a liquor license within 100 feet of a church, school, institution of higher learning, hospital, or military or naval station - with exceptions.

* Allows for product sampling (1/4 oz spirit, 1 oz wine, and 2 oz beer to one consumer/day)  - including by retailers, distributors, and importers at licensed retail locations. Only 3 samples are permitted. On-premises retail licensees may also offer sampling, with certain restrictions.

If you have any questions regarding the intricacies of the proposed Amendment, please contact Jonathan Boulahanis of Clark Hill PLC's Food and Beverage Team.

The full proposed amendment can be found at this link: http://www.ilga.gov/legislation/fulltext.asp?DocName=09900SB0398ham002&GA=99&SessionId=88&DocTypeId=SB&LegID=84359&DocNum=0398&GAID=13&Session=

Money and the Law Podcast - Affordable Care Act

Jonathan Boulahanis provides some insight and topics regarding the Affordable Care Act and how it affects small employers.

Clark Hill Chicago health care attorney Jayme Matchinski and David Kleifield from The Horton Group will join us to discuss some of the practical things your clients should be doing. 

April 20, 2015: Jonathan Boulahanis & Jayme Matchinski Speak on the Affordable Care Act for Small Business

http://www.starworldwidenetworks.com/index.php/Audio/darra_speaks#73

State of Illinois Passes Law Requiring BASSETT Training in Cook County Starting July 1, 2015

The State of Illinois has long had regulations in place recommending training for people both selling and serving alcohol.  The program, Beverage Alcohol Sellers and Servers Education ("BASSET") has been codified in the Illinois statutes, Title 77, Chapt. XVI, Part 3500.  Some of the goals of the program are to train and educate sellers and servers about responsible alcohol service, prevent DUI's, spot signs of intoxication, provide methods to cut off over-served patrons, and to educate owners and staff on the laws and ordinances in place.

While the Illinois Liquor Control Commission has always encouraged the voluntary participation in this program, it historically has been left to local ordinances to require such training.  However, the General Assembly in Illinois recently passed Public Act 098-0939, which is set to go into effect on July 1, 2015.  Pursuant to the Act,  all servers and bouncers in Cook County bars and restaurants will need to complete a four-hour BASSET class within 120 days of employment.  Those that are currently employed must have a BASSET training certificate dated on of after July 1, 2012 to be compliant.  The BASSET certification must be renewed every three years.  The Illinois Liquor Control Commission will be charged with enforcing the BASSET training requirements.  During the first six months, enforcement will be limited to education and notification.  Starting January 1, 2016, penalties for non-compliance include fines up to $500 per violation, license suspension, or revocation.

Cook County Institutes Law Providing Harsher Penalties for Failure to Comply with Wage and Hour Laws

On February 10, 2015, the Cook County Board of Commissioners passed an ordinance providing for stiff County penalties for "wage theft." The ordinance provides penalties for companies that either receive tax benefits from the County, or do business with the County. The ordinance also requires all companies that want to do business with the County to attest under oath that they have not violated any wage and hour laws within the last five years.

Specifically, the new ordinance provides for the County to remove any property tax incentive awarded to a business for up to five years if it has a conviction, entry of a plea, administrative finding or admission of guilt of violation of any state or federal wage laws. Additionally, if the Company was receiving a property tax incentive for the year, the County may demand repayment of incentive monies that the business received for the current tax year.

The ordinance also allows for the County to disqualify a business from entering into a contract with the County for up to five years if it has a conviction, entry of a plea, administrative finding or admission of guilt of violation of any wage laws. A finding of a violation of a wage law can also result in ineligibility for business licenses and automatic default under existing County contracts.

The ordinance contemplates any violation of the following statutes of the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq., the Illinois Minimum Wage Act, 820 ILCS 105/1 et seq., the Illinois Worker Adjustment and Retraining Notification Act, 820 ILCS 65/1 et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101 et seq., the Employee Classification Act, 820 ILCS 185/1 et. seq., and the the Fair Labor Standards Act of 1938, 29 U.S.C. 201, et seq. as a basis for such penalties. It also broadly encompasses “violation of any state or federal” wage law as a basis for a penalty.

The County Ordinance comes just two years after the City of Chicago passed an ordinance, 2012-8533, that punishes businesses that have violated state or federal laws as they relate to payment of wages.  The City Ordinance gives the City the power to revoke or suspend a business license issued to a company that has violated wage and hour laws within the last five years.

The statutory language opens the door to heightened scrutiny for companies doing business with the County. With Cook County following the City of Chicago’s lead, the Chicago metropolitan area has some of the toughest wage and hour laws in the nation, and businesses face incredible risk if they fail to comply with existing wage and hour laws. 

Given the climate in the Chicago metropolitan area, as well as the increased risk of losing a license to do business, companies should audit their existing pay structure to ensure compliance with all state and federal laws.  Clark Hill attorneys are available to help with any questions or to perform such audits. Please contact Jonathan Boulahanis with questions related to compliance with the new County and City Ordinance.

The full text of the County Ordinance can be found here:
https://cook-county.legistar.com/LegislationDetail.aspx?ID=2129131&GUID=147181E9-9697-4894-97EA-76A413D5CE1F&Options=&Search=&FullText=1

The full text of the City of Chicago Ordinance can be found here:
https://chicago.legistar.com/LegislationDetail.aspx?ID=1255893&GUID=51F770CC-7694-4063-A62A-F4B0E9F553C2

The Legal Implications Surrounding "Palcohol"

On March 10, 2015, the Alcohol and Tobacco Tax and Trade Bureau ("TTB") approved a controversial product called Palcohol for sale in the United States.  Palcohol is a powdered alcohol that is meant to be mixed with water or other liquids and will have the same alcohol content when mixed with the appropriate amount of liquid. Think instant coffee, only replace the coffee with vodka, rum, or a tequila/margarita mix.

There is immediate uproar surrounding the approval.  Sen. Charles Schumer has already introduced legislation to ban powdered alcohol on a federal level. Based upon the wording in the 21st Amendment to the Constitution, the states also have the power to regulate alcoholic beverages. Many delegate that right to local government.  Several states have already taken action to prevent the distribution - Alaska having outright banned it, and Louisiana, Nebraska, Pennsylvania, South Carolina, Vermont and Virginia having taken regulatory action against it. 

Concerns over the safety of the product are abundant.  Many are concerned about the potential for individuals to snort it, to mix it with the wrong quantity of liquid making drinks extremely potent, the ease to conceal the product, the potential for underage use, and the potential to mix with other illicit drugs.

Besides safety, the regulation of this new technology will be incredibly difficult to coexist with existing laws and regulations for alcohol.  While many state and local governments ban open containers, it will put a whole new responsibility on those enforcing open container laws. Drinking and driving laws may also be implicated, as it would be even more difficult to identify illegal activity with a dry and scentless powder.  Many states have regulations for bars and restaurants to enforce underage drinking, but imagine how difficult that would be when an individual merely orders a water or coke, and mixes their own cocktail. Would insurance companies have to account for this and raise premiums for Dram Shop insurance?  Likely so. It will also certainly be easier to sneak into establishments, public events, concerts, or other places where bringing your own alcohol is currently not permitted.

In the next few months, it will be interesting to watch how state and local governments react to the federal approval of powdered alcohol.  If it's not on their radar, it should be as it could really shake up all of the existing laws and regulations they have put in place to prevent the abuse of alcohol.

Enforcement Has Begun - Illinois Food Handler Certification

All establishments serving food in Illinois must have their employees that handle food complete an Illinois Food Handler Certification course.  As of January 1, 2015, the Food Handling Regulation Enforcement Act is in effect and being enforced by Public Health Inspectors. All employees that handle food, food equipment, or food utensils, must be certified by an accredited program within 30 days of hire.  See 410 ILCS 625/1, et seq.  .  Illinois Public Health Inspectors have already begun citing establishments for failing to have certified employees, and the fine is $250/violation. Businesses are required to maintain records of certification, and the certifications must be renewed every three years.  

The Illinois Restaurant Association is providing courses to those that need certification - please visit http://www.illinoisrestaurants.org/?page=FoodSafetyChangesHdl

Illinois Pregnancy Accommodation Act Now In Effect!

The Pregnancy Accommodation Act went into effect in Illinois on January 1, 2015.  The statute protects women who are pregnant or have recently given birth from violations in the workplace in six general areas:

1. Failing to make requested reasonable accommodations that pose no undue hardship to the employer;

2. Denying employment to pregnant applicants;

3. Taking adverse action based on the need to create reasonable accommodations;

4. Forcing pregnant women to accept unrequested accommodations;

5. Forcing leave if reasonable accommodations can be provided for; and

6. Failing to reinstate the employee to an original or equivalent position, pay, seniority, and benefits

The Act applies to pregnant women, those who have recently given childbirth, and those with medical or common conditions related to pregnancy.  The statute has a requirement that the employer post information about the Act along with the other required notices.

The poster can be found here: http://www2.illinois.gov/dhr/Publications/Pages/Pregnancy_Rights_Notice_Requirement.aspx

If you have any questions regarding the statute, its effect, or how to comply with it, please contact me.

Article Featured in Bar Business Magazine

A full article is printed on page 25 of this month's Bar Business Magazine, my article entitled "Time & Money, Is a Wage & Hour Class Action Secretly on Your Menu" is featured in the How To Section. 

http://issuu.com/barbusinessmagazine/docs/january_2015_bar_business/1

Congress Introduces Bill to Lower Tax Burden on Craft Brewers

A bill was recently introduced in Congress that would substantially reduce the tax burden on small and craft brewers that produce less than 6 million barrels of beer in a calendar year.  Currently, the TTB taxes all barrels at the rate of $18/barrel. The proposed amendment would lower the tax to $3.50 for the first 60,000 qualified barrels, and then to $16 for 1,940,000 barrels.  The first 2 million barrels would be taxed at the substantially reduced rate. The bill was introduced by bipartisan members of Congress who admitted that the federal excise taxes are outdated and put a substantial burden on small brewers.  The hope is that the tax relief will help the continued expansion of the craft brewery boom and help the small businesses add jobs and grow.


The text of the proposed bill can be found here: http://paulsen.house.gov/uploads/Small%20BREW%20ACT3.pdf

Qui Tam - Illinois' New Form of Ambulance Chasers Targeting the Wine Industry

An Illinois Plaintiff's lawyer has recently been targeting the wine industry in qui tam class action suits alleging that wineries with direct ship sales have been breaking the law by deliberately disregarding the Illinois tax code. The Illinois False Claims Act (IFCA), formerly known as the Whistleblower Reward and Protection Act, derives from the Federal False Claims Act. 740 ILCS 175/1, A provision allows a private citizen to bring a civil suit on behalf of the government in the name of the government to recover damages for the government.

The Plaintiff in this case is the lawyer himself, Stephen Diamond of Chicago. Diamond is suing on his own - claiming he made the purchases and discovered the act - and thus not sharing in any recovery. Diamond has filed over 300 suits against out of state retailers.  Some of those claim that Illinois wine retailers are defrauding the Illinois government because they do not charge tax on the shipping and handling portion of the sales. The Illinois Department of Revenue has addressed the shipping charges, and does not require shipping charges if the shipping charges are separate from the price of goods or if the shipping charges are equal to the cost to the retailer of using the common carrier. Ill. Dept. Rev. Reg. Title 86 Part 130 Section 130.415. The shipping charges are taxable if the shipping charges exceed the cost to the retailer of using the common carrier, or if the shipping charges are included in the price. 

So if the Code is pretty clear, how does the Plaintiff have a leg to stand on? The Illinois Supreme Court held in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, (Illinois 2009) that the tax on shipping charges was part of the “selling price” according to 35 ILCS 105/3-10 (2006), and 35 ILCS 120/1 (2006).  The Court concluded that because internet purchases must be delivered, that shipping was an inseparable part of the transaction. The court held that “under the Retailers Occupation Tax Act, that the shipping charge is inseparable of the Internet “selling price,” and tax must be assessed on the shipping charge.

While there are defenses, the litigation has been costly to those affected. Because Diamond is filing on his own behalf, he is actually making purchases himself.  Most of the cases have settled on terms favorable to Diamond as opposed to litigating the defenses.  The Illinois Attorney General has not yet gotten involved to make a determination, and the legislature has not yet addressed the disparity in the tax code and the Supreme Court ruling.  Until then, if you're a direct to consumer seller, it is advisable to beware and take precautions to avoid being a target of the suit. 

The Clark Hill Food and Beverage Team is well-equipped to help if you have questions about these actions, or how to avoid these actions. Please contact Jonathan Boulahanis, jboulahanis@clarkhill.com if you have questions.

Chicago Bars Face De Ja Vu This New Year's As Crackdown on Happy Hour Violations Continue

The City of Chicago Department of Business Affairs and Consumer Protection has investigators racketing up to enforce the Illinois Happy Hour Law of 1989 again this New Year's Eve.  Last year, the City cited over 80 establishments for violations of the Happy Hour Law by promoting open bar packages. The Happy Hour Law only allows an open bar during a set period of time for a private event like a wedding or private fundraiser.  It came as a surprise to many of the establishments, as the State of Illinois Liquor Control Commission previously had been the exclusive regulatory authority for all intents and purposes until that point.   The establishments faced fines from the City in the range of $5,000, and included threats to revoke their liquor license for repeat offenders.  It is expected that the City will again cite establishments, and that the City has already started investigating establishments that are advertising such packages on social media. 

If your bar or restaurant has questions about your event, or compliance with the Illinois Happy Hour Law, Clark Hill's Food and Beverage Team is ready to assist.  Contact Jonathan Boulahanis at jboulahanis@clarkhill.com


http://chicago.eater.com/2014/12/17/7410623/new-years-eve-chicago-liquor-crackdown-open-bar

http://www.cityofchicago.org/city/en/depts/bacp/supp_info/top_tips_for_liquorlicensees.html

Quote from San Diego Union Tribune Article Re: "Handmade" Label Suits

Attorney Jonathan Boulahanis, co-leader of the food and beverage team with the law firm Clark Hill PLC, who is not involved in any of these cases, agrees.

Buzzwords like “small batch” and “handmade” are starting to get challenged in consumer fraud cases more frequently, he said.

He said the underlying idea of the lawsuits has some novelty to it, in that consumers are paying attention to those catchwords in deciding what to buy.

Whether the suits have merit is a different question, he said.

The full article can be viewed here:

http://www.utsandiego.com/news/2014/dec/11/lawsuits-handmade-liquor-label-makers-mark-tito/?#article-copy

Chicago Panera Decides Not to Renew Lease in Part Because of Wage Hike

A Panera Bread Co. in the Chicago neighborhood of Beverly has advised that it will not renew its lease in Chicago after the City passed an Ordinance increasing the minimum wage in the City limits. Panera is about 100 feet from nearby suburb Evergreen Park. The Illinois Restaurant Association, and several of its members, made emotional appeals to the City Council that warned of these ramifications and lobbied for a reasonable, statewide increase. It will be interesting to see how many other establishments bordering a suburb will look to relocate in the coming years.

http://www.dnainfo.com/chicago/20141204/beverly/beverly-panera-bread-closing-alderman-says-minimum-wage-hike-played-role

City of Chicago Approves $13 Minimum Wage Phased In By 2019

After much debate, and strong opinions on both sides, the Chicago City Council approved a minimum wage hike to be phased in over the next five years.  The City Council voted 44-5 today approving an increase to $13 per hour minimum wage by July 2019. 

Some key provisions of the new ordinance include:

- Increases in the minimum wage to $10.00 an hour in July 2015.  Minimum wage is currently set at $8.25 per hour.

- Future increases of the minimum wage to $10.50 in July 2016, $11.00 in July 2017, $12.00 in July 2018, and $13.00 in July 2019.

- After July 2019, annual increases will take place based on the Consumer Price Index and capped at a 2.5% increase per year.

- Employers utilizing the tip credit will also see a hike in minimum wage. Starting in July 2015, those employers will be permitted to utilize the tip credit allowed for in the Illinois Minimum Wage Law, but will need to add $0.50 per hour.  In July 2016, tipped employees will be paid according to the tip credit allowed in the Illinois Minimum Wage Law, but will need to add $1.00 per hour.  Starting in July 2017, and every July thereafter, tipped employees will be paid the amount from 2016 plus an increase tied to the Consumer Price Index and capped at 2.5% per year.

- If the federal government or Illinois passes a minimum wage increase above the City’s minimum wage at any time, the federal or state minimum wage will supersede the City’s.

- The City will require an additional poster regarding the City’s Minimum Wage to be posted in a conspicuous place.

- The City has authorized the Department of Business Affairs and Consumer Protection to enforce City violations, and violations range from $500-$1,000 per employee, per day.

- The Ordinance also allows for private suits by the employee to recover damages up to three times the amount of any underpayment, plus attorneys’ fees and costs.

Proponents of the Ordinance touted the increase as a way to lift thousands of families above the poverty line, and increase spending power in communities.   They also lamented the fact that no action had been taken in Springfield or Washington, and action needed to be taken now. The Raise Chicago Coalition called the Ordinance a major victory and celebrated the profound impact the raise will have on minimum wage workers.  The State of Illinois voters also passed a referendum this November calling for a $10 minimum wage by 2015 with a 66% vote.

Opponents have criticized the action as devastating to small businesses.  Governor elect Bruce Rauner warned that the minimum wage could make the city less competitive, and cause it to lose business  nearby communities and Indiana. The Illinois Restaurant Association, Chicagoland Chamber of Commerce, and Illinois Hotel and Lodging Association favored a lesser, statewide increase to allow for a level playing field.  Business owners testified that the increase will be devastating to their businesses. They further testified that small and mid-sized businesses, already feeling the impact of the Affordable Care Act, will be forced to lay off more employees. Additionally, the  increase will lead to higher demand for City of Chicago jobs, which may lead to even higher unemployment.

The new ordinance will have vast legal implications for Illinois businesses.  To discuss the impact the ordinance has on your business, please contact your attorney at Clark Hill PLC.  

The entire Ordinance can be found here:

https://chicago.legistar.com/LegislationDetail.aspx?ID=2077010&GUID=587B8AC5-864F-4C12-BB9D-4A0B58D84BC0&Options=&Search=

Liquor Industry Targeted by False Advertising Class Actions

One of the new hot trends in class action litigation is to bring suit against products for false advertising.  Both federal laws, like the Lanham Act, and state laws protect consumers from deceptive practices in advertising.  A recent target of these suits is the liquor industry, which is surprising because the the Federal Alcohol Administration Act gives the Alcohol Tax and Trade Bureau ("TTB") the authority to regulate advertising of liquor products.

Nonetheless, two well-known liquor products are facing class action suits.  First, Templeton Rye Whiskey is defending a potential class action suit in Cook County, Illinois.  The class Plaintiffs have alleged that Templeton deceives consumers and violates Iowa and Illinois law by stating that it's made in Iowa, and that it is a Prohibition Era recipe. 

Tito's Vodka is also facing multiple class action suits in federal court in Florida, and state court in California, over the fact that it calls itself "hand-made" right on the bottle. The consumers claim that "hand-made" makes the purchase deceptive, because consumers believe hand-made is of a higher quality, but in reality it is manufactured similarly to most other vodkas.  In defense, Tito's notes that the TTB approved the brand’s label and that Tito’s “small-batch distillation process” differentiates it from other vodka brands.

It will be interesting how these suits play out on multiple fronts.  First, there is a question of whether individuals can maintain a suit against a company that has passed the government advertising  regulations of the TTB, and received specific approval.  Could a TTB approved label really still be a target for a deceptive practices suit?  Additionally, how are terms like "hand-made" defined?  Are courts going to define such terms for purposes of determining misrepresentations?  And, finally,  are terms like "Prohibition Era recipe" and "hand-made" just “puffery” such as “premium” or “best” that cannot, as a matter of law, be reasonably relied upon by consumers. 

Full Article: Is a Wage & Hour Class Action Secretly on Your Menu?

Many in the hospitality industry are focused on the newest trends and keeping up with the ever changing tastes and desires of their consumer base.  While restaurant and bar menus have begun changing seasonally, or more frequently, to keep up with the rapid change in tastes, the hospitality industry has been slow to keep up with workforce regulations and laws that have evolved at a frantic pace.

The hospitality industry has unquestionably had a bulls-eye on its back in recent years when it comes to Wage and Hour violations. Besides the class action lawsuits and private lawsuits targeting restaurants, bars and hotels, the Government has drastically increased its scrutiny. According to Department of Labor ("DOL") statistics, from 2009-2013  Fair Labor Standards Act ("FLSA") investigations into hotels and restaurants increased from approximately 4,500 investigations to approximately 7,300 investigations. In 2013, investigations into restaurants and hotels made up approximately 53% of all DOL investigations.  As part of the DOL's P3 initiative (Plan/Prevent/Protect), nearly 2,000 investigators have been added in the last three years. On top of DOL investigations, each state regulates wage and hour violations (in Illinois, it's the Illinois Department of Labor that enforces the Illinois Minimum Wage Law and Wage Payment Collection Act).  

Why is the hospitality industry being disproportionately targeted by wage and hour lawyers and regulatory agencies? There are a few answers.  First, attorneys are much more willing to take these cases because they allow for the recovery of attorneys' fees, and courts have been much more willing to certify class actions in recent years.  Class actions don't necessarily mean a class of 500 - in these cases the similarity of issues has let employees in small to mid-size establishments certify a class or join as many employees or former employees as is possible.  Second, there is a much more educated workforce regarding their rights.  Media coverage of high profile wage and hour suits, including against big corporations like Applebee's and Friday's, as well as against high profile celebrity owned restaurants like those owned Mario Batali and Joe Bastianich, have made employees take notice. Third, when an establishment utilizes the tip credit, it adds a layer of complicated rules and regulations that are difficult to understand, and even more difficult to navigate.  Fourth, the hospitality industry has been slow to conform to the additional regulations that have gone into place, and have been slow to institute and enforce uniform policies that comply with the regulations. 

Given that background, what can an operator in the hospitality industry do to ward off wage and hour issues?  Before highlighting some areas of concern and ways to approach them, it is essential that your establishment recognize the danger, and take steps to limit the risk. Meeting with an employment attorney familiar with the industry to audit current practices and policies is a great first step. Preparing an updated handbook documenting practices, policies, and compliance with regulations, and distributing the handbook to current employees and new hires is important as well. An operator also should have a discussion with its insurance provider to make sure that any EPL (Employment Practices Liability) insurance in place contains coverage for wage and hour litigation.  

As for potential problems and solutions - here are some of the top recurring issues that confront hospitality industry operators:

* Improperly Classifying Employees as Exempt
Very few employees in the hospitality industry actually fall into a clearly defined exception to the FLSA overtime requirements. The recognized exceptions are executive, administrative, professional, and outside sales. Any "exempt" employee must make at least $455/week.  Executive exempt employees are owners and operators, or managers if they are clearly defined as such, their primary duty is management, they supervise 2 or more employees, and have authority to hire and fire employees. The administrative exemption likely applies for bookkeepers and the like. The primary duty for those in the "administrative" category includes non-manual office work, and requires the exercise of independent judgment and discretion on matters of significance.  The "professional" exception was created for learned professionals and applies for lawyers, doctors, and accountants. It also applies to creative professionals who perform work requiring invention, imagination, and talent.  A chef could arguably be classified as such, but the case law does not clearly accept the profession yet, thus it would be best to tread carefully before classifying the chef as such.  Outside sales is someone who is primarily and regularly engaged in making sales away from the employer's business. 80% of such duties must include attempting to make those sales for the employee's benefit.

Every other employee, whether salary or not, is entitled to time and a half for hours worked over 40 hours.  This is a very common pitfall for hospitality industry owners. 

* Tip Credit - Tip Sharing/Pooling

A common problem is allowing improper personnel to share in the tip pool.  Members of management, employers, and owners can never share in the tip pool. Kitchen and office staff also have been held to be improper.  Additionally, tip pool portions that go back to "the house" for administrative expenses or training are also improper.

Servers, bussers, bar backs, service bartenders, and food runners all may be proper.  However, their job descriptions and actual roles should be clearly defined so that there can be no argument that the employees are properly sharing in the tip pool.

* Tip Credit -Overtime

According to the FLSA and IRS regulations, employers cannot take a greater tip credit on overtime hours than they do on regular hours. Taking a larger tip credit results in underpayment to the employee and violation of the FLSA. For example, in Illinois an employer can take a 40% tip credit on the applicable minimum wage of $8.25 - so the tip credit is $3.30.  When an employee works more than 40 hours, they are entitled to 1 1/2 times the minimum wage, but the employer can only subtract $3.30.

* Tip Credit Distribution of Work

In order for a tipped employee to be paid the tip credit minimum wage, at least 80% of their work must be  in furtherance of the tipped occupation.  For example, servers, who are also bussing tables, making coffee, setting tables, and occasionally washing dishes are performing duties in furtherance of the tipped occupation.  If they have half their shift doing bar inventory, or working in the kitchen, then the tip credit is inappropriate. 

* Work Before Employees Clock In, or After Employees Clock Out

Employees must be paid for all hours performing activities for the benefit of the employer. Beware of automatic clock out systems. Establishments run into issues when they require employees to come in before their shift to prepare stations for service or set up the restaurant, or stay after to clean up. The employee should be clocked in for every minute they are performing duties that are even arguably benefiting the employer.

* Walk Outs/Breakage
Walk outs and breakage cannot be charged back to the employee.  Additionally, there cannot be a portion of the tip pool to cover walk outs or breakage. If there is a pattern with a certain employee, it is best practice to have a provision in the disciplinary policy regarding walk outs and breakage that will result in loss of a shift or termination. 

* Automatic Gratuity

Automatic gratuity, or service charges, are not considered "tipped wages" by either the FLSA or the IRS. A recent IRS ruling confirmed as much.  The employer can suggest a tipped amount by printing suggested 15%, 18% and 20% calculations, but automatic tips that are applied without an independent choice by the consumer are not considered tips.  In that circumstance, it is improper to utilize  the tip credit for the employee's hourly wage, and doing so results in underpayment to the employee.  

This is just a sample of common issues that confront employers in the hospitality industry. It is by no means a comprehensive list, and many of these issues have deeper layers that should be explored in more detail.  As an owner/operator or member of management, it is important to understand that these issues are real, continuing to evolve, and are extremely dangerous for the industry.  Look closely at your policies, talk to a professional, and please make sure that you do not have the wage and hour class action hidden somewhere on your menu.

About the Author:

Jonathan M. Boulahanis is an attorney in Clark Hill’s Litigation and Labor and Employment Practice Groups, and is one of the Chicago leaders of Clark Hill's Food and Beverage Team.  He focuses his practice on commercial, business, and employment litigation, as well as advising businesses on labor and employment issues and litigation avoidance. He also provides counsel on administrative and regulatory compliance issues that are commonplace in the food and beverage industry. Jonathan has been practicing since 2009 and has extensive trial experience in the federal courts.

Be Cautious About Who Shares in the Tip Pool

The tip credit is a land mine for employers in the service industry.  As we all know, the tip credit allows for employers to pay a lesser hourly rate to employees who receive tips as compensation as long as it can show the tips are enough to otherwise meet the minimum wage.  According to the Fair Labor Standards Act, proper tip pooling is allowed as well.  Many restaurants and service industries utilize tip pooling in order to tip out bussers, barbacks, and bartenders.  However, may establishments misuse the tip credit.

A recent class action lawsuit filed against New York restaurant Le Cirque exploits the complications of tip pooling. In the suit, the class of plaintiffs allege that they were forced to tip out captains and other management staff. The Department of Labor and Fair Labor Standards Act absolutely bar requiring tipped employees to share tips with management or the establishment itself. While busboys, hosts/hostesses, and bartenders are proper participants in tip pooling, going much further than that could land your establishment in hot water. 

If you have questions about your tip pooling arrangement, payment of wages, or your service establishment's employment policies, please contact Jonathan M. Boulahanis and the Clark Hill Food and Beverage Team.


http://eater.com/uploads/le-cirque-lawsuit.pdf