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Alaska Minimum Wage, Tip Credit, and Overtime Rights Ruling: Gallo's and Taco Kings

On Dec. 12, 2016 the Alaska Wage and Hour Division announced a settlement with a small chain of restaurants local to Alaska in the amount of $835,000.00.[1] Considering this is a small locally owned business this a staggering amount.  To put this in perspective there are a total of only 9 eating establishments involved, three Gallo’s and six Taco Kings. Gallo’s are traditional sit down restaurants with full service.  Taco Kings are small walk up and order off a menu board establishments with self-serve soda fountains and condiments and no wait staff.

In conversations with persons at both Gallo’s and the Alaska Wage and Hour Division it became clear that the overtime issues had been ongoing for several years.  The current settlement was related to an audit conducted by the Alaska Wage and Hour Division and covered the period of Nov. 2013 to Dec. 2015.[2]  Prior to the recent settlement, dating back to 2011, Gallo’s/Taco King had settled six previous complaints for a total of $50,000.[3]  It was this systemic abuse of the Alaska overtime law that led to the audit which revealed overtime being owed to 159 employees.[4]

Alaska law requires workers be paid minimum wage (currently $9.75/hr. and increasing to $9.80/hr. on Jan.1, 2017) with time and a half paid for overtime over 40 hours in a week.[5]  Alaska does not allow for a tip credit[6] and as such this was a straight overtime case.[7] 

Despite this being an overtime violation case, a settlement of this significance will tend to catch the attention of restaurant workers around the country.  Add to that the recent nationwide injunction issued by Judge Mazzant with respect to the Final Rule,[8] there is likely to be heightened awareness of minimum wage and overtime rights among workers in general.  As such it is probably worthwhile for practitioners to remind their clients and perhaps update policies with respect to tipped employees.

Federal wage law as it relates to wait staff allows for a tip credit, but still requires that wait staff earn at least minimum wage when the hourly wage and tips are added up for the hours worked.[9]

One of the requirements of the tip credit often overlooked is the requirement that the employer inform the employee of the tip credit.  According to DOL Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act, employers must inform tipped employees of the following before the tip credit can be applied:

1) The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

2) The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

3) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

Failure to properly inform the tipped employee of the credit entitles the worker to receive both the Federal Minimum Wage of $7.75 and all of the tips received.[10]  Although the notification can be either verbal or written, it is advisable that employers have their employees sign a formal notification that the tip credit allowed under Federal law is being utilized by the employer to ensure minimum wage requirements are being met.

Cases like Gallos/Taco King are becoming more frequent as workers become more educated about their rights.  While many employers are taking advantage of employees’ ignorance of employment laws, in particular minimum wage/overtime, many more are making innocent mistakes which could result in significant violations. Now is the perfect time to be proactive to make sure employers who have tipped employees are not hit with significant wage violations for not having informed their employees of the tip credit. 


[1] Press Release No. 16-45 - State of Alaska Dept. of Labor and Workforce Dev., Heidi Drygas, Commissioner http://labor.alaska.gov/news/2016/news16-45.pdf

[2] Conversation with Commissioners office of the Alaska Wage and Hour Division on Dec. 14, 2016. 

[3] Id

[4] Above Note i

[5] Alaska Statute Sec. 23.10.065.

[6] Id.  According to the DOL 6 other states (California, Minnesota, Montana, Nevada, Oregon and Washington) and Guam also do not allow for a tip credit.  https://www.dol.gov/whd/state/tipped.htm#Alaska

[7] Above Note ii

[8] Nevada et al. v. U.S. Department of Labor et al., ---F.3d---, 2016 WL 6879615 (Civil Action No.4:16-CV-00731) U.S.D.C (E.D. Tex. Nov.22, 2016).

[9] 29 U.S. Code Sec. 3(m)

[10] DOL Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (Revised July 2013)

© 2020 University of Alaska Fairbanks

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About this Author

Jim Arkell, Assistant Professor, Business Administration, University of Alaska Fairbanks
Assistant Professor, Business Administration

Jim is a licensed attorney (Texas) who, prior to entering the academic field, spent several years as a trial attorney and as corporate counsel.

Education

Bachelor of Arts – Texas Tech University, 1986
Juris Doctorate – Texas Tech University School of Law, 1989

Professional Licenses and Memberships

  • Licensed to Practice Law by Texas Supreme Court; Fifth Circuit Court of Appeals; U.S.D.C. for the Western, Northern, Southern & Eastern Districts of Texas
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