Strict compliance with the law in this area is difficult given the myriad of laws that pertain to employee’s wages and tips in the restaurant industry. As such, some NY lawyers have taken aim at the industry and, as a result, eateries have paid out over $70 million in settlements over wage and tip complaints in the past few years alone.

The city’s biggest names, including Nobu, Jean Georges, Sparks, Mesa Grill, Pastis, Balthazar, BLT, and the 21 club have all faced similar lawsuits and have forked over millions of dollars as a result. Others have been forced to close as a result of such lawsuits, including Geoffrey Zakarian’s Country and Chris Cannon’s Alto and Convivio.

At least one of NYC’s top restaurateurs has had enough. Joe Bastianich, co-owner of Eataly, Del Posto and Babbo, who has been sued twice in NY with wage and tip complaints, vowed that he will no longer be opening any more restaurants in this state. . . and he hasn’t. Rather he has since opened three establishments in Chicago and California giving those states the substantial tax revenue and 1000+ jobs created by the establishments. This loss of revenue and job creation is not something that even our relatively wealthy city can afford.

So what’s the solution? Comply with the law and you won’t have anything to worry about. If you are not positive that you are presently in compliance, consult with an experienced attorney immediately and have them review your wage and tip policies and procedures. Sure they will charge you for you the service . . .but you’ll get it right going forward and avoid the extremely costly fate of getting sued for a wage and/or tip violation.

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.

A class action suit brought by New York restaurant employees, employees sued Starbucks for violating a law that prohibits management from receiving part of workers’ tips. At Starbucks, “shift supervisors” shared 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 was commenced almost immediately after a 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 $5.00 — 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 Starbucks 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.

Pursuant to the New York State Wage Theft Prevention Act, effective February 1, 2012, New York employers are now required to give annual notice to their employees of wage information, including:

His or her regular rate(s) of pay and overtime rates of pay (if applicable);
The basis of the employee’s wage rate (i.e. hourly, weekly, salary, commission, other);
Any allowances claimed against the minimum wage (tip credit, meal credit, lodging allowances, etc.);
The employer’s principal place of business, and mailing address (if different);
The employer’s telephone number; and
Additional employer information, such as the official name of the business and all “doing business as” names.
Employers are also required to obtain signed acknowledgements from each employee which memorialize the employee’s receipt of his or her wage notice. These signed acknowledgements must be retained by employers for six years.
This Notice requirement is an important law with significant penalties for non-compliance. Any new employee not provided with the notice within 10 business days of his or her start date may bring a claim to recover $50 for each workweek that a violation occurs and may recover up to $2,500, plus attorneys’ fees. For statutory violations relating to a current employee, the employer may be liable for damages of up to $100 per week and may recover up to $2,500, plus attorneys’ fees.

Since the effective date of the new New York state wage regulations in January of 2011, the rules regarding tip sharing in restaurants and hotels have been the subject of much confusion. This article sets out to clarify the new tip sharing rules with hopes that you then will not unwittingly violate them.

GENERAL RULE: The new regulations now specify the job categories that are eligible to share tips from the dining room: food service workers only, including waiters, bartenders and bussers, as well as sommeliers and hosts, provided they are not managers or acting as such.  Excluded are owners, managers and all office and kitchen staff.

The new rules allow restaurants to dictate both the system and the percentage allocated to each job category. Gratuities can be combined in a pool, to be divided by all the staff members according to a set percentage of allocation or individual servers can collect their own tips and give portions, or shares, to members of their specific team.

The Labor Department requires that employers keep records of tip pools and shares; the records could be examined during investigations undertaken by the department on its own or in response to complaints and the Labor Department can compel a restaurant to pay money owed to employees going back six years. In addition, failure to comply with the rules can make a restaurant vulnerable to a lawsuit, something restaurateurs are especially wary of these days, given how aggressively some lawyers are pursuing these cases.

The way restaurants currently share tips varies widely. Some restaurants spread the wealth by percentage at the end of the night while others assign a number of points to each job, calculate the value of each point depending on the total amount of tips and then distribute the money accordingly.

There are also different ways of including the bar; at some restaurants, bartenders collect their own tips as well as a share of those from the dining room, while at others they do not. And some places have waiters tip others based on a percentage of their sales, rather than their gratuities.

Higher-end, full-service restaurants tend to favor the pooling of tips, because it fosters less disputes over stations and shift assignments, provides an incentive for teamwork and encourages the servers to monitor their own performance.

The New York City Mayor’s Office published a terrific guide that should be read by all individuals that own, or plan to own, a restaurant in NYC.  It’s a terrific resource for the basics of NY restaurant ownership.  Here’s the link to the guide:

http://www.nyc.gov/html/records/pdf/govpub/2737nycrestaurantguide-81606.pdf