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

Chipotle Wins in Court Limiting Wage and Hour Class Action Class

Chipotle, which has faced similar wage and hour suits nationwide, was able to stem off a nationwide putative class action. Judge Susan Nelson, a federal judge in the District Court of Minnesota, ruled that a nationwide class action was improper given the allegations.  The allegations allege that a manager in Crystal, Minnesota, would make employees continue working after the clock in computer system automatically clocked them out at a certain time.  The Plaintiffs argued that the clocking system was nationwide, and likely affecting the entire country.  Chipotle successfully argued that the allegations should be properly limited to that store. Judge Nelson agreed.

Wage and hour litigation has seen some of the biggest upticks in the nation, and the restaurant industry has been one of the biggest targets.  Please be aware of your policies and technology, and if you have any questions, speak with an expert to help limit your risk of this type of litigation.

Nat'l Restaurant Association Continues Fight to Lower Debit Card Fees

The Nat'l Rest. Association continues its fight to lower debit card swipe fees for merchants by appealing a case that allows for swipe fees up to 21% to the Supreme Court.  The NRA argued that " the 21-cents-per-transaction limit the Fed imposed on debit-card swipe fees violates the 2010 Durbin Amendment passed by Congress that called for fees that are “reasonable and proportional” to the cost of the transaction."  After winning the battle in the district court, the appellate court overturned the ruling and allowed the Fed Rule for up to 21% fees on debit card transactions. As quoted in the article, "[t]he Fed’s own research has shown that 90 percent of debit-card transactions cost less than two cents to process." This rule is affecting small businesses immensely, and costs the industry approximately $4 billion per year in swipe fees.

The Foodie Law Blog will keep you updated as the case moves through the Supreme Court.

http://www.restaurant.org/News-Research/News/NRA-merchants-take-swipe-fee-case-to-Supreme-Cour