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Tips, Service Charges, Credit Card Charges, Customer Walk-outs: What Restaurant Workers Need To Know

Tips, Service Charges, Credit Card Charges, Customer Walk-outs: What Restaurant Workers Need To Know

Restaurant workers are often cheated out of their wages by unscrupulous employers. In the past three months alone, Lebau & Neuworth attorneys have helped more than 25 Maryland-based waiters and waitresses get back wages owed to them by their restaurant employers. In all of the cases, Lebau & Neuworth was able also to get the individual owners and managers personally liable for the wages, which motivated the restaurants to settle more quickly.

A very recent court decision from the federal court in Maryland involved a restaurant that violated several wage rules for wait-staff. In Rivera v. Mo’s Fisherman Exchange, Inc., the court highlighted several common wage violations, including:

  • Restaurants must provide wait-staff with notice of the tip credit rule: The federal wage law for overtime and the minimum wages, the Fair Labor Standards Act (“FLSA”) requires covered employers to pay “nonexempt employees” a minimum wage for each hour worked, 29 U.S.C.§ 206(a), but allows employers to pay less than the minimum wage to employees who receive tips, 29 U.S.C. § 203(m). Such tipped employees are required to receive at least the minimum wage, but their employers are permitted to pay a direct wage of $2.13 per hour and then take a ‘tip credit’ to meet the minimum wage requirement. BUT, there are two conditions for an employer to be allowed to take the tip credit. The first is that tipped the workers must be informed by the employer of the provisions of this tip credit rule. The second is that “all tips received by such employee [must] have been retained by the employee.” 29 U.S.C. § 203(m)(2). The employer must prove that it that satisfied the FLSA’s tip credit notice requirement by, for example, by providing employees with a copy of the tip credit rule and informing them that their tips will be used as a credit against the minimum wage as permitted by law. In Rivera, the employer could not establish that all the waiters had received notice of the tip credit rule.
  • Service charges that are really tips:  An employer can only get away with claiming that an additional charge is not a tip but rather a service charge if the employer includes the additional charge, often called a “service charge,” is included in the employer’s gross receipts. This means that the employer would have to pay taxes on the charges received. In Rivera, the employer did include the service charges in its gross receipts; so, the employer was not allowed to claim that the additional charges were not tips owing to the waiters and waitresses.
  • Deductions from tips for credit-card processing costs: Courts have held that an employer may deduct a fixed percentage amount from credit card tips, so long as that amount does not the total expenditures on credit card issuer fees, and still maintain a tip credit. Stated differently, the employer must prove that its total deductions from employees’ tip incomes did not enrich it, but instead, at most, merely restored it to the approximate financial posture it would have occupied had it not collected tips via credit card. In Rivera, the court held that a 3-percent credit-card processing fee deduction from tips may be excessive, the actual credit card fees were as low as 1.55%.
  • Customer walk-outs: Restaurants cannot require tipped employees to pay for customers who walk out of the restaurant without paying. In Rivera, the workers claimed that they had to do so, and the court ruled that if they proved that such a practice existed, then the employer could not have the benefit of using the tip credit rule. This means that the workers could be entitled to the full amount of the minimum wages and not the far lower amount that an employer can use when having a valid tip credit rule.

If you or someone you know works in a restaurant and thinks he or she has been short-changed by an employer, call Lebau & Neuworth at 1-888-456-2529 or We only represent employees!

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