A recent onslaught of lawsuits involving illegal tip sharing amongst restaurant employees is rocking the restaurant industry. These lawsuits are not new to the industry but they have recently increased in numbers as a result of a few recent, and very substantial, plaintiff/employee successes.

On April 4, 2008, in what will be the largest class action suit ever brought by New York restaurant employees, employees are suing Starbucks for violating a state law that prohibits management from receiving part of workers’ tips. At Starbucks, “shift supervisors” share the pooled tips with baristas, prompting a suit from a former barista, on behalf of at least 2,000 Starbucks baristas in NY who are allegedly owed over $5 million. The lawsuit comes on the heels of last month’s California ruling, where a state judge found Starbucks liable for $105 million, finding Starbucks illegally enabled shift supervisors to take a share of the tips.

GENERAL RULE: Restaurants in New York State are allowed to pay employees who receive tips as little as $4.35 — less than the federal minimum wage of $5.85 per hour and the New York State minimum wage of $7.15. However, To use this “tip credit”, amongst other things, employers are not permitted to share tips among “agents” of the employer.

This general rule seems straightforward, but it’s not. The law fails to define who constitutes an “agent” of an employer. An owner, officer of the corporation, or a general manager clearly fit this bill and cannot share in tips. But, what about a maitre‘d? a shift supervisor? or an assistant manager? The answer is . . .it depends on their job tasks and responsibilities – not their job title. The Department of Labor (DOL) has stated that an agent, “does not include a mere supervisory employee who does not have the authority to hire or fire.” And just because a maitre‘d has “supervisory” responsibilities over the rest of the dining room personnel does not necessarily mean that the maitre‘d cannot share in employee tips. The DOL will look at each situation on an individual basis, and pay particular attention to whether the maitre‘d (or another employee) “acts in the place of the owner”, by performing such functions as hiring and firing employees, or other managerial responsibilities such as disciplining and setting wages or work schedules.

In its defense, Starbucks argued in California court and again in New York that it’s shift supervisors are not managers (although they are in charge when managers are away and can evaluate baristas in performance reviews), because (i) the customers cannot differentiate between the shift supervisors and the baristas, (ii) the shift supervisors often do the same work as baristas including serving the customers, and (iii) the shift supervisors pay is only 22 cents more per hour. However, the California Court ruled that the tasks and responsibilities given to these “shift supervisors” did indeed make them “agents” of the employer and hence, they were prohibited from sharing in the tips.

Thus, the prohibition of sharing tips with an “agent” of an employer must be very carefully adhered to as the penalties can be severe. As in the Starbuck’s cases and many others, the definition of what constitutes an “agent” is presently being defined and redefined by the courts. If you are an employer and employ a Maitre’d, Assistant Manager, captain, or shift supervisor, play it safe, compensate them fairly – or even magnificently - but keep their hands out of the tip jar.

If you already have an on-Premise liquor license for your restaurant, you can serve food and liquor at an off-premise event as long as you receive a catering permit from the Liquor Authority for that event. 

GENERAL RULE: A Catering Permit authorizes a retail on-premise licensee to furnish alcoholic beverages for use at a specific function, occasion or event located off the licensed premise.

The fee for the permit is $48.00 per point of service/bar and there are restrictions/rules. For example:
(i) the function must be held indoors and not be open to the general public,
(ii) the permit is valid only for twenty-four (24) consecutive hours beginning at 8:00 a.m. on its effective date,
(iii) the applicant must be hired to serve food, in addition to alcoholic beverages, at the event (pretzels and chips do not meet the minimum requirements for “food”),
(iv) the application must be received the NYSLA at least fifteen (15) days prior to the event,
(v) a separate permit is required for each point of sale, and
(vi) no game of bingo or other game of chance may be played.

A diagram of the area to be licensed must be attached to the application along with a menu of food and alcoholic beverages to be served at the event.

The Equal Employment Opportunity Commission (”EEOC”) has targeted the restaurant industry as the “single largest” source of sexual harassment claims. With all the media attention on the subject lately, the number of sexual harassment cases filed each year against restaurants and their owners are escalating at an all too rapid pace. Restaurant owners must now take a pro-active stance to keep such complaints from damaging their operation. All employees, male and female, need to be formally informed as to what types of conduct are unlawful. Assuming that your managers and employees know how to behave without explicit guidelines could be your ticket to the courthouse. A series of Supreme Court decisions have defined what “sexual harassment” means. Those cases, and the interpretive guidelines of the Equal Employment Opportunity (EEOC), define two distinct types of sexual harassment:

• quid pro quo (a legal term meaning “this for that”), in which a supervisor demands sexual favors from an employee and threatens to fire the employee if the conditions are not met; and

• hostile environment, in which a supervisor or employee creates a work environment through verbal or physical conduct that interferes with another co-worker’s job performance or creates an intimidating work environment. A hostile environment is created when unwelcome sexual behavior is repeated. For example, an employee keeps telling off-color jokes after another staff member says they are offensive, or one employee keeps asking another employee for dates after being refused.

GENERAL RULE: An employer’s obligation with regard to sexual harassment arises before any act of harassment even occurs. As such, most lawyers practicing in this field strongly urge their employer-clients to distribute a clear and explicit sexual harassment prohibition policy and reporting procedure. Additionally, Anti-harassment training should occur on a regular basis which should educate managers and other employees as to what conduct is specifically prohibited (including a presentation of hypothetical harassment scenarios) and what to do if the employee believes they have been/are being harassed.

This policy and training is critical because under federal case law, an employer can fulfill its obligation if it takes all reasonable steps to prevent harassment before it occurs and takes effective steps to promptly remedy the harassment after it takes place. If these general principles are consistently and carefully applied, the employer can go a long way towards limiting its exposure and liability for sexual harassment.