Restaurant employers, beware! Restaurants are the target of a highly successful, U.S. Department of Labor Wage and Hour Division (WHD) restaurant enforcement and compliance initiative that WHD already has used to nail a multitude of restaurants across the country for “widespread violations” of Fair Labor Standards Act (FLSA) minimum wage, overtime, child labor and other wage and hour laws (WH Law).
Having reportedly found WH Law violations in “nearly every one” of the WH Law investigations conducted against restaurant employers during 2016 and recovered millions of dollars of back pay and penalties from restaurants caught through investigations conducted under its WHD Restaurant Enforcement Initiative, WHD Administrator Dr. David Weil recently confirmed WHD plans to expand the restaurant employers targeted for investigation and other efforts to punish and correct WH Law violations under the Restaurant Enforcement Initiative through 2017 in an October 5, 2016 WHD News Release: Significant Violations In The Austin Restaurant Industry Raise Concerns For Us Labor Department Officials (News Release).
The News Release quotes Administrator Weil as stating:
“The current level of noncompliance found in these investigations is not acceptable …WHD will continue to use every tool we have available to combat this issue. This includes vigorous enforcement as well as outreach to employer associations and worker advocates to ensure that Austin restaurant workers receive a fair day’s pay for a fair day’s work."Given the substantial back pay, interest, civil or in the case of willful violations, criminal penalties, costs of defense and prosecution and other sanctions that restaurant employers, their owners and management can face if their restaurant is caught violating FLSA or other WH Laws, restaurants and their leaders should arrange for a comprehensive review within the scope of attorney-client privilege of the adequacy and defensibility of their existing policies, practices and documentation for classifying, assigning duties, tracking regular and overtime hours, paying workers and other WH Law compliance responsibilities and opportunities to mitigate risks and liabilities from WH Law claims and investigations. See also: Boston Furs Sued For $1M For Violations of Fair Labor Standards Act Many Restaurants Already Nailed Through Restaurant Enforcement Initiative Even before the planned 2017 expansion of its Restaurant Enforcement Initiative, WHD’s enforcement record shows WHD’s efforts to find and punish restaurants that violate WH Laws are highly successful. Restaurant employers overwhelmingly are the employers targeted by WHD in the vast majority of the WH Law settlements and prosecutions announced in WHD News Releases published over the past two years, including aggregate back pay and penalty awards of more than $11.4 million recovered through the following 31 actions announced by WHD between January 1, 2016 and October 31, 2016:
- US Labor Department Investigation Finds Thundercloud Subs Owes Nearly $128K In Back Wages, Damages To Austin Restaurant Workers (October 20, 2016);
- US Labor Department Announces Hotline To Offer Updates To Capitol Hill Cafeteria Workers Owed Back Wage Payments (October 20, 2016);
- US Labor Department Recovers More Than $570K In Back Wages, Damages For 55 Workers At Johnny Rockets Restaurants In Washington Metro Area (October 11, 2016);
- Portland, Texas, Restaurant Settles Worker Retaliation Allegation After US Labor Department Finds Nine Employees Owed $25K In Back Wages (October 06, 2016);
- Providence Restaurant, Owner To Pay $567K In Back Wages, Damages To 104 Employees Denied Minimum Wage, Overtime Pay (September 23, 2016);
- US Labor Department Investigation Finds Capitol Hill Cafeteria Workers Illegally Denied More Than $1M In Wages By Federal Food Service Contractors (July 26, 2016);
- El Azteca Restaurant Group To Pay $700K In Back Wages, Damages To 129 Workers At Four Wisconsin Eateries (July 26, 2016);
- Historic Oklahoma City Restaurant Pays Workers $52K In Back Wages, Damages After Labor Department Investigation (June 22, 2016);
- Kissimmee, Florida, Restaurant To Pay Nearly $41KIn Back Wages To 15 Employees After US Department Of Labor Investigation (June 15, 2016);
- Court Orders Buffet Restaurant, Owners To Pay $128K In Back Wages, Penalties To Resolve Allegations Of Federal Minimum Wage, Overtime Violations (June 09, 2016);
- Grand Rapids Restaurant, Owners Agree With Court Order To Comply With Federal Record-Keeping Rules After Department’s Wage And Hour Investigation (May 31, 2016);
- Court Judgment Orders Four Phoenix-Area Federico’s Mexican Food Restaurants To Pay Workers $202KIn Overtime Back Wages, Damages (May 24, 2016);
- US Labor Department Investigation Finds Child Labor, Minimum Wage And Other Violations At Street’s Seafood Restaurant (May 17, 2016);
- US Labor Department Initiative Finds 14 Lawrence Restaurants Owe More Than $112K In Back Wages To 130 Workers (May 17, 2016);
- US Labor Department Obtains Order To Stop Arlington Restaurant Owners From Intimidating Workers Who Cooperate With Federal Investigators (May 16, 2016)
- Charleston Restaurants’ Minimum Wage, Overtime Violations Result In Nearly $217K In Back Wages For 26 Employees (May 9, 2016);
- Las Investigaciones Dieron Como Resultado Casi $1.2 Millones En Salarios Retroactivos Y Daños Y Perjuicios Para Más De 100 Trabajadores En 13 Restaurantes En El Área De Charleston and Investigations Result In Nearly $1.2M In Back Wages, Damages For More Than 100 Workers At 13 Charleston Area Restaurants (April 19, 2016);
- Clairmont Diner Will Pay $213K In Back Wages, Damages And Penalties After Federal Wage And Hour Investigation (March 30, 2016);
- Tampico Restaurants Agree To Pay $190K In Back Wages To 67 Workers (March 26, 2016);
- S. Labor Department Lawsuit Seeks Back Wages And Damages For Austintown, Ohio Restaurant Workers (March 16, 2016);
- Popular Cajun Food Enterprise Will Pay More Than $138K In Back Wages, Penalties Following U.S. Labor Department Investigation (March 07, 2016);
- US Labor Department Initiative Finds Ames Restaurants Owe Nearly $100K In Back Wages To More Than 150 Workers (March 02, 2016);
- S. Labor Department Sues To Recover Unpaid Minimum Wage, Overtime Plus Additional Damages For Akron Restaurant Workers (February 25, 2016);
- Paying To Work? Sophia’s House Of Pancakes Resolves Allegations Servers Made To Pay $2 Per Hour To Work At Restaurants (February 16, 2016)($245K);
- Two Hawaii Restaurants Found In Violation Of Overtime Pay Requirements (February 10, 2016)($81,294);
- Labor Department Launches West Coast Sweep To Investigate Pay Practices At Fast Food Establishments To Ensure Fairness, Compliance (February 4, 2016);
- Sushi And Ramen Restaurants Pay $621K In Back Wages, Damages And Penalties After US Labor Department Investigation (January 25, 2016)
- Federal Judge Overturns Jury Verdict, Orders El Tequila Restaurants And Owner Carlos Aguirre To Pay $2.1 Million In Back Wages And Damages To Workers (January 14, 2016);
- Taqueria La Herradura En Pharr, Texas, Paga Más De $33 Mil En Concepto De Salarios Retroactivos Y Daños Al Personal De La Cocina Después De Una Investigación Del Departamento De Trabajo De Ee.Uu.(January 12, 2016);
- Investigations At 10 North Carolina Restaurants Find More Than $510K In Back Wages Owed To 125 Workers (January 12, 2016);
- Restaurant Enforcement Initiative Finds More Than $2.27M In Back Wages, Damages Owed To More Than 3,000 Georgia Workers (January 05, 2016).
- The News Release identified some of the common violations WHD uncovered in these investigations included employers:
- Requiring employees to work exclusively for tips, with no regard to minimum-wage standards;
- Making illegal deductions from workers’ wages for walkouts, breakages, credit card transaction fees and cash register shortages, which reduce wages below the required minimum wage;
- Paying straight-time wages for overtime hours worked.
- Calculating overtime incorrectly for servers based on their $2.13 per hour base rates before tips, instead of the federal minimum wage of $7.25 per hour.
- Failing to pay proper overtime for salaried non-exempt cooks or other workers;
- Creating illegal tip pools involving kitchen staff;
- Failing to maintain accurate and thorough records of employees’ wages and work hours.
- Committing significant child labor violations, such as allowing minors to operate and clean hazardous equipment, including dough mixers and meat slicers.
- Required minors to operate, dismantle, clean and reassemble a meat slicer and a dough mixer.
- Required a 17-year-old to operate a motor vehicle to transport food to catering events.
- Required a 15-year-old to work more hours than allowed by law.
- Paid some workers only $6 per hour, below the required federal minimum wage of $7.25 per hour.
- Paid employees straight time for overtime when they worked more than 40 hours in a week, instead of paying them time-and-one-half, as the law requires.
- Failed to maintain proof of age of minors.
- Failed to maintain required time and payroll records.
“Employing young people provides valuable experience, but that experience must never come at the expense of their safety …Additionally, employers have an obligation to pay employees what they have legally earned. All workers deserve a fair day’s pay for a fair day’s work. Unfortunately, Street’s Seafood violated not only child labor laws, but has also shorted workers’ pay. The resolution of this case sends a strong message that we will not tolerate either of those behaviors.”Restaurants Must Act To Minimize Risks Beyond WHD's direct enforcement actions, WHD also is seeking to encourage private enforcement of WH Law violations by conducting an aggressive outreach to employees, their union and private plaintiff representatives, states and others. Successful plaintiffs in private actions typically recover actual back pay, double damage penalties plus attorneys' fees and costs. The availability of these often lucrative private damages makes FLSA and other WH Law claims highly popular to disgruntled or terminated workers and their lawyers. When contemplating options to settle claims WH Law claims made by a worker, employers need to keep in mind that WHD takes the position that settlements with workers do not bar the WHD from taking action unless the WHD joins in the settlement and in fact, past settlements may provide evidence of knowingness or willfulness by the employer in the event of a WHD prosecution. The substantial private recoveries coupled with these and other WHD enforcement and other compliance actions mean bad news for restaurant employers that fail to manage their FLSA and other WH Law compliance. Restaurant employers should act within the scope of attorney-client privilege to review and verify their compliance and consult with legal counsel about other options to minimize their risk and streamline and strengthen their ability to respond to and defend against audits, investigations and litigation. Beyond verifying the appropriateness of their timekeeping and compensation activities and documentation, restaurants and staffing or management organizations working with them also should use care to mitigate exposures that often arise from missteps or overly aggressive conduct by others providing or receiving management services or staffing services. All parties to these arrangements and their management should keep in mind that both parties participating in such arrangements bear significant risk if responsibilities are not properly performed. Both service and staffing providers and restaurants using their services should insist on carefully crafted commitments from the other party to properly classify, track hours, calculate and pay workers, keep records, and otherwise comply with WH Laws and other legal requirements. Parties to these arrangements both generally also will want to insist that these contractual reassurances are backed up with meaningful audit and indemnification rights and carefully monitor the actions of service providers rendering these services.