Minimum Wage Violations in the Restaurant Industry

By Marjorie Obod Attorney, Dilworth Paxson LLP | October 28, 2008

The hospitality industry is particularly susceptible to minimum wage violation because of the unique compensation methods used industry wide. Minimum wage violations can result in potential civil litigation which can be both costly and time consuming for an employer. As a result this article attempts to highlight various issues surrounding minimum wage compliance.

Generally, the Fair Labor Standards Act (FLSA) establishes minimum wage regulations affecting both full-time and part-time employees. Workers covered under the act (which includes bartenders, servers, valet personal etc.) are entitled to a minimum wage rate of $5.15 an hour.

Typical compliance issues include: (1) failure to maintain records, (2) illegal deductions from pay for items like cash register shortages, uniforms, errors, bad checks etc. (3) insufficient tips to make up the difference between the employer's direct wage obligation and the minimum wage (4) employees receiving tips only and (5) sharing a portion of tipped employees' tips with employees who are not eligible because they do not normally receive tips.

Consequence of a Violation

Where an employee has been underpaid in violation of federal law, the Department of Labor has the authority to recover back wages administratively or through court action. Violations may result in either civil or criminal action. In 2005, the Employment Standards Administration's Wage and Hour Division (WHD) recovered more than $166 million in back wages for over 241,000 employees- a 26% increase over 2001. WHD specifically monitors low-wage industries (restaurants, hotels and motels, janitorial services etc.) because of a history of chronic violations. Specifically, last year, 4,829 cases were handled regarding restaurants resulting in $13,800,956 in back wages awarded. Hotel employees were awarded $2,847,607 and custodial engineers were awarded $3,408,819. These awards can have devastating effects on some employers particularly mid to small sized restaurants.

For more information regarding compliance, contact the nearest WHD office of the United States Government Labor Department.

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