Tip Policy Nets Sports Bar Chain Employees $8.4M Wage Settlement

While the difference between a tip and a service charge may seem academic, the discrepancy has translated to a $8.4 million settlement for the employees of Chickie’s and Pete’s Inc., a company that runs an East Coast chain of sports bars.

On Feb. 13, 2014, the owners of the sports bar chain agreed to a settlement from the U.S. Department of Labor (DOL). The settlement came in response to federal lawsuit filed by their employees. The wage and hour lawsuit alleged that the chain’s practices violated the Fair Labor Standards Act (FLSA).

The lawsuit revealed that the chain was keeping 60 percent of the employees’ pooled tips. The court ruled that this violated the FLSA for two reasons. First, in the last few years, several courts have ruled that restaurants do not have the right to dip into employee tips or “service charges” unless they specifically inform customers that the money is not going to employees.

Second, the FLSA requires that companies pay their employees the minimum wage. Restaurant and other service industry employees may be paid a lower wage with the expectation that their tips make up the difference between their lower wage and the regular minimum wage. The wage and hour lawsuit alleged that the practice of keeping 60 percent of the employees’ tips pushed their wages below the minimum wage.

Above and beyond the multi-billion dollar settlements, the company agreed to more intense internal monitoring of wages and hours practices to “ensure continuing compliance with the law.” This is in addition to scrutiny from the DOL’s Wage and Hour Division. These measures are designed to discourage further transgressions.

Over the last few years, there have been a series of wage and hour lawsuits over mandatory service charges. The decline in the economy seems to have made employers more likely to push the limits of the FLSA and try and circumvent the rules in an effort to cut costs. But thousands of employees and former employees have pushed back, and the courts have explicitly set boundaries for these laws. Even relatively large and well-known companies have faced wage and hour lawsuits in recent years as employees seek to recoup illegally-withheld compensations. These legal actions have helped clarify some of the details of the FLSA. For example, a recent case in New York declared that in the service industry, a company must tell customers when a gratuity is not paid directly to the employees.

The wage and hour lawsuit is In re: Chickie’s & Pete’s Wage and Hour Litigation, Case No. 2:12-cv-06820, in the U.S. District Court for the Eastern District of Pennsylvania.

If you suspect that your employer is paying you less than the minimum wage or keeping your tips, you may be entitled to compensation. You can start to explore your options by visiting the Minimum Wage Lawsuits: Service Charge, Wage & Hour Class Action Lawsuit Investigation. Here, you can enter information about your situation for a legal review by a trained expert in this type of litigation. The initial consultation is completely free of charge and from it, you can receive additional guidance on the best steps to take in your situation.