As detailed in our May 2011 Newsletter, employers in the hospitality and service industries face a steady stream of wage and hour lawsuits and must take certain proactive steps to minimize potential liability. Failing to take action may come with a steep price tag—a fact underscored by two recent developments, a sizable damages award resulting from a federal court lawsuit in Illinois, and a record-setting settlement of a state Department of Labor (DOL) investigation in New York.

Two Individuals Held Liable for Over $1.5 Million

In Decatur, Illinois, a sister owned and her brother managed three restaurants. A DOL investigation revealed that some servers were required to sign their paychecks over to the restaurants after they received them. The only payment they received was tips from customers.  And, because the defendants did not provide notice to the servers that part of their minimum wage would be satisfied by tips from customers, the defendants could not offset the full minimum wage owed with any tips the employees received.

Moreover, the DOL also found record-keeping violations. Employees were often directed to punch in after they started working (i.e., “off-the-clock” work), which resulted in false payroll records.

After the investigation, the DOL sued the restaurants, and the owner and manager individually, in federal court in the Central District of Illinois. The court granted summary judgment in favor of the DOL. In total, the judge ordered that the defendants pay $574,851 to 64 workers for minimum wage and overtime compensation. The judge also ordered the defendants to pay an equal amount in liquidated damages. The defendants were held liable for a grand total of over $1.5 million. The judge also held that the owner and manager were employers under the FLSA, and thus were individually liable for the $1.5 million.

Record $5.1 Million Settlement in New York

The New York State Department of Labor and the restaurant chain Lenny’s: The Ultimate Sandwich recently reached a record $5.1 million settlement for minimum wage and overtime violations at 11 restaurants, which was the largest settlement in the history of the state agency. 

The New York State Department’s investigation found that employees who worked ten to 12 hours a day, six days a week, received an average weekly salary of $275. That amount was far short of what state law mandates—the employees should have been paid at least $500 a week for the same number of hours, taking into account their overtime. The Department also found that Lenny’s failed to keep accurate time records.

These cases highlight the significant costs hospitality employers may face for failing to comply with state and/or federal wage and hour laws. It is one thing to be taken to task when a manager intentionally violates the law—often, such actions are taken in contravention of company policy and in disregard of employer-sponsored training; it is an entirely different matter when a well-meaning employer discovers that it has been unknowingly violating wage and hour laws and now has a sizable penalty to pay, despite the best of intentions. Wage and hour compliance is an area where proactive steps like audits and policy reviews can pay real dividends.