C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since 1946 The Tipping Point: Legal Considerations Regarding Tips That All Restaurant Employers Should Know October 5, 2010 Maureen R. Knight Constangy, Brooks & Smith, LLP Fairfax, Virginia

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip-Related Laws  Federal Wage Hour Law  Fair Labor Standards Act (FLSA) Minimum Wage ($7.25) Overtime (time-and-a-half for hours over 40)  State Wage Hour Laws  Minimum Wage and Overtime  Tip-specific Laws

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Federal Wage Hour Law  Fair Labor Standards Act  Applies to most companies  $500,000 in revenue and  Interstate commerce

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since State Wage Hour Laws  No federal law preemption  Employers must comply with the more restrictive law  Virginia  Mirrors federal wage hour law and exempts employers covered by federal law  D.C. and Maryland  Is more restrictive than federal law regarding tips

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since The Tip Credit  FLSA and almost every state provides for tip credit  Tip credit – a credit against minimum wage obligations for tips received

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since The Tip Credit Amounts  FEDERAL and VIRGINIA  The difference between $7.25 MW and $2.13 (currently $5.12): YOU PAY $2.13  D.C.  The difference between $8.25 MW and $2.77 (currently $5.48): YOU PAY $2.77  MARYLAND  50% of the $7.25 MW (currently $3.62): YOU PAY $3.63

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since The Tip Credit Requirements  Three Requirements  Receive more than $30 a month in tips  Be informed of tip credit law  Retain all tips (except for valid tip pools)  Note: tip credit cannot exceed tips actually received.

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since The Tip Credit Notice Requirement  Employees must be “informed by the employer about the provisions” of the law  Information to be given:  Tips will be used to cover some of the MW obligation.  Best practice: Tell them amount of credit.  Inform before credit is taken

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Notice Requirement  How to provide notice:  Best practice: Something in writing  During interview  At orientation  Through poster  Line-item on paycheck  Note: It is employer’s burden to prove entitlement to tip credit.

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since The Tip Credit Retention Requirement  Cannot use tips to cover shortages  Cannot use tips to cover walk-outs  Cannot use tips to cover breakages  Can reduce tips paid on credit card by amount paid to credit card company  Can implement valid tip pool

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools  Can the employer mandate a tip pool?  Contribution amount?  Who can participate?

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Can Be Mandatory  If otherwise permissible, yes, can mandate  Some states require tip pools be voluntary, but not Virginia

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Contribution Amount  DOL says that the percentage contribution can’t be more than is “customary and reasonable.”  DOL will not question contribution level that is 15% of tips received (translates roughly to 2% of sales).  At least two courts have rejected this restriction.

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Contribution Amount  Amounts held not invalid:  3% of total gross sales, which at times was 37.5% of tips [federal appellate court covering KY, MI, OH, and TN]  5% to 7% of total gross sales, or 40% of tips [Arkansas federal court]  10% of tips [Indiana federal court]  Amounts held invalid:  4% of sales [Arkansas federal court]

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Participants  Who can receive tip pool funds:  “Employees who customarily and regularly receive tips”  Note: they need not receive the tips directly from customers  The DOL has said that includes:  servers  bellhops  counter personnel who serve customers  busboys/girls  service bartenders

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Participants  The courts have also allowed:  hostesses  maitre d’s  senior servers  Key criteria: directly involved in table-side service

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Participants  Employees who cannot participate:  Back-of-the-house employees (cooks, chefs, dishwashers, expediters who do not run food, etc.)  Managers Even if they are involved in table-side service

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Participants  Who is a manager?  Mere supervisory responsibilities usually not enough  Someone with authority to hire and fire, set hourly wages, control payroll, control operations, etc.  But don’t chance it!  Starbucks litigation  $105.8 million judgment regarding shift supervisors (though ultimately overturned)

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Tip Pools Miscellaneous  No tip credit = no problem (maybe)  February 2010: federal appellate court held if employer is not taking a tip credit (i.e., paying servers full minimum wage), it can require servers to tip-out to whomever it chooses.  Problems  DOL does not agree  Many state laws will conflict

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Dual Jobs  Tip credit applies only when employee is engaged in tipped occupation  Dual-job employees  Tip credit only for hours spent in tipped occupation

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Related Duties  Tip credit is permissible for time spent on duties related to tipped occupation  even if duties not directed toward producing tips  General types of “related duties”  maintenance and preparatory or closing activities

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Related Duties  Examples of “related duties” (as per DOL)  Cleaning and setting tables  Toasting bread  Making coffee  Occasionally washing dishes or glasses  Requirements for “related duties”  incidental to the regular duties of the server  generally assigned to servers

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Related Duties  Example of duties not generally assigned  Servers had to arrive two hours before restaurant opened to prepare vegetables for salad bar and kitchen dishes: held, those are duties of chef  Server assigned to prepare salad for entire shift was engaged in separate job, even though servers prepared those salads when no preparer was on duty  But, server who had to answer phones and work cash register held to be engaged in related duties, even though restaurant had full-time cashier and receptionists.

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Related Duties  Excessive time  DOL guidance: related duties cannot exceed 20% of server’s shift  Some courts have rejected this limitation; some have accepted it

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Uniforms Defined  What is a uniform?  Something with a logo  Specific type and style of clothing; examples: tuxedo shirt or specific brand of blouse  What is NOT a uniform?  Ordinary street clothes (with variations in dress permitted); examples: khaki pants, white shift, black shoes

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Providing Uniforms  Cost of providing uniform cannot bring wages below minimum  Must provide uniform OR  Reimburse employees for cost of uniform  If dress is not uniform, no need for reimbursement or providing set  When no laundering reimbursement is required:

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Laundering Uniforms  Cost of laundering “uniforms” cannot bring wages below minimum  When laundering required? If uniform requires ironing, dry cleaning, daily washing, commercial laundering, or other special treatment  How much reimbursement is required? $5.15 per week or actual costs

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Uniforms: Laundering Not Required  Laundering/maintenance reimbursement NOT required if the uniforms  Are made of “wash and wear” material;  May be routinely washed and dried with other personal garments; AND  Do not require ironing or other special treatment.

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Overtime for Tipped Employees  Overtime for tipped employees  Overtime rate is NOT 1.5 times the cash minimum wage rate (i.e., not 1.5 times $2.13 in VA)  Overtime rate is 1.5 times the minimum wage, minus the tip credit (i.e., ($7.25 *1.5) - $5.12 = $5.76 in VA)

C O N S T A N G Y C O N S T A N G Y B R O O K S & S M I T H, L L P The Employers’ Law Firm, Since Questions Maureen R. Knight Partner Constangy, Brooks & Smith, LLP Fairfax, Virginia