Two class actions were filed in 2024 against Jeff Ruby Culinary (“JRC”) for violations of the Fair Labor Standards Act (‘FLSA”). The classes were made up of over 700 former employees and the claims asserted that JRC had violated FLSA through illegal tipping practices. The cases were eventually consolidated in the Middle District of Tennessee, and JRC settled the cases for $1.55 million.
The class was made up of former employees alleging that JRC had violated specific rules regarding tipped employees and how they are paid. The allegations were that JRC had a mandatory tip pool with back of house employees who had no interaction with clients; employees had to spend a substantial amount of time doing work at a reduced tip rate for non-tipped work; and employees spent time before or after their shifts working without being clocked in. In doing so, JRC violated very specific rules of the FLSA because it took a tip-credit for tipped workers but did not follow specific rules.
All servers roll silverware, clean the floor, and wipe down tables as normal practice, don’t they? Serving staff split tips with back of the house employees, correct? Bar keeps receive a portion of the tips from wait staff too, right? No, no, and no. There are very specific laws for those employees who are paid at the federal tip level, and those who are paid at minimum wage rate. If the rules are not followed for tipped employees, a costly mess begins.
So what went wrong here? JRC had a mandatory tip pool (which is legal if it is done properly) and took the “tip credit.” The tip credit permits an employer to pay “tipped employees” less per hour than non-tipped employees. An employee can be paid at $2.13/hour by the employer, but the tips that employee makes must make up the difference between minimum wage ($7.25) and the lower hourly rate ($5.12/hour) in tips for every hour worked in a week. The FLSA permits this lower wage.
JRC also had a mandatory tip pool along with taking the tip credit. They shared this tip pool with back of house employees who had no contact with tipping customers, and these employees made minimum wage. Mandatory tip pools are permitted, but only in specific circumstances, and only if the employer informs the employees of the following: it is taking a tip credit, how much the cash wage is, all tips belong to the employee except for valid pooling, and the tip credit will not exceed tips taken. Additionally, employers can only include those employees entitled to the tips in the ordinary course of business (servers, bartenders, bar attendants, bussers), but never cooks, dishwashers, prep staff, managers/supervisors (aka back of house employees). So JRC allegedly took the mandatory tip pool money from employees making a lower wage and shared it with employees making a minimum wage with no customer contact.
JRC also allegedly required tipped employees to perform work that wasn’t within the tipped capacity; menial jobs like rolling silverware, cleaning tables, cleaning the floors, and stacking plates. The employees were working for a lower wage without making tips while doing these jobs.
Finally, JRC allegedly required employees to work prior to clocking in. While this seems harmless, employees get in before their shift and help others with stacking, rolling silverware, putting things away or out. The employees are working without being on the clock, and this isn’t permitted under the FLSA. Employees, if they do anything work related prior to his/her shift, must clock in, and must be paid at minimum wage, unless the early (or after shift) work is customer-facing and in the tipping capacity.
Important terms to keep in mind:
Mandatory Tip Pool when taking the tip credit:
- permissible if the employer informs employees a tip credit is being taken;
- how much the cash wage is;
- tips belong to the employee except valid tip pooling;
- tip credit will not exceed tips taken.
*Common defensible rule of thumb is 15-30% total tips.
Voluntary Tip Pool: Employees agree to share tips to level slow versus busy shifts.
- Employees must agree.
- Only includes tipped employees.
- No supervisors/managers permitted.
The FLSA is a goldmine for plaintiffs if they can prove violations by employers. The damages assessed can really sting, as they include:
- Back wages x 2
- Attorneys’ fees and costs
- Can lose tip credit ability.
- Can face civil fines for the violation.
Accepting the tip credit for an employer can be tricky. Mundane tasks can cost the employer far more than the task was worth. The best rule of thumb is when in doubt, make sure the employee is on the clock, is paid minimum wage if not working in a “tipped capacity,” and avoid mandatory tip pools, if possible.
Updated policies help prevent problems before they escalate, protect your company when issues arise, and reinforce accountability in the workplace. Contact Bricker Graydon Wyatt’s Labor and Employment team to discuss giving your handbook a spring refresh.
