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Tipped Employees Reach $5.25 Million Settlement with Famous Chef

Celebrity Chef Mario Batali reached a settlement of alleged tip credit improprieties with approximately 1,100 tipped employees who worked in several of his restaurants including Babbo, Del Posto, Casa Mono, Bar Jamon, Esca, Lupa and Otto. The class-action suit brought on behalf of waiters, captains, servers, busboys, runners, and bartenders is similar to many others in the past several years concetrating on restaurants in New York and elsewhere. The lawsuit alleged that Batali, business partner Joseph Bastianich, and their restaurants had a policy of impermissibly deducting an amount between 4 to 5 percent of total wine sales at the end of each night from the tip pool and keeping the money.

Under the Fair Labor Standards Act (FLSA), employers may take a tip credit against the minimum wage paid to tipped employees. This tip credit reduces the hourly rate employers must pay such employees under certain circumstances. The regulations include specific requirements for employers taking advantage of the tip credit provisions. Employers must be cautious, as they are not eligible to take a tip credit unless the employer has informed its tipped employees in advance as follows:

(1) the amount of the cash wage that is to be paid to the tipped employee by the employer;

(2) the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which may not exceed the value of the tips actually received by the employee;

(3) that all tips received by the employee must be retained by the employee, except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

(4) that the tip credit shall not apply to any employee who has not been informed of these requirements.

In addition, the regulations clarify that there is no cap on the amount an employer can require an employee to contribute to a valid tip pool. Further, in order for the employee to claim the maximum tip credit, the employer must show that the employee received at least that amount in tips; if the employee did not, the employer must pay the balance so that the employee receives at least the minimum wage when wages and tips are combined. See 29 C.F.R. ยง 531.59.

Many restaurateurs expose themselves to significant liability due to the mishandling of tips when attempting to comply with the Fair Labor Standards Act and Ohio Minimum Wage laws. Consultation with your employment attorney to review current procedures and correct any errors may protect against significant fines and penalties.

By: Justin A. Morocco

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