Tips for Restaurant and Coffee-shop Owners

Violations of Wage and Overtime Laws Can Come with a Hefty Price

State and federal laws pertaining to minimum wage, tips, overtime, and employing minors are complicated. As a result, these are areas where mistakes are often made. Employers, however, cannot afford these errors because the consequence of not complying with these laws can be very costly.
In fact, in Massachusetts, there are mandatory treble (triple) damages for violations of wage-and-hour laws relating to minimum wage, tips, and overtime. This means that, if an employer is found in violation of state law, at minimum, for every dollar an employer does not pay in accordance with wage and hour laws, that employer will have to pay three times that amount. And violations of child-labor laws bring civil and criminal penalties.
Thus, in order to reduce their risk of liability, restaurant and coffee-shop owners should consult with their employment counsel and familiarize themselves with state and federal laws.
Employers, such as restaurants and coffee shops, who employ individuals who receive gratuities must be familiar with minimum-wage and tip law. In Massachusetts, employees who receive at least $20 a month in gratuities ($30 a month under federal law) may be paid $2.63 per hour, provided that their hourly pay rate and tips together are at least equal to the state minimum wage of $8 per hour.
There are two areas in particular which relate to tips that employers should be aware of: tip pooling and service charges.
Tip pooling is permitted under Massachusetts law, but proceeds may be distributed only to waitstaff employees and bartenders. Individuals with any management responsibility may never receive any portion of pooled tips. In February 2011, in Matamoros v. Starbucks Corp., a Massachusetts federal court found that Starbucks’ tip-sharing policy, which divided tips weekly among baristas and shift supervisors, violated state law because shift supervisors have some management responsibility.
Under the Bay State’s tip law, if a restaurant chooses to impose a service charge on an invoice, which serves as the functional equivalent of a tip or gratuity, all the proceeds from that service charge must be paid to waitstaff employees or bartenders as a tip.
Employers may, however, charge a ‘house fee’ or ‘administrative fee,’ which they may use or distribute at their discretion, but only if the employer provides a designation or written description of that house or administrative fee, informing the patron that the fee does not represent a tip or service charge for waitstaff employees, bartenders, or other service employees. This language informs the patron that the fee is not a gratuity that goes to employees. Thus, any fees not intended as gratuities and not paid to employees should not be labeled a service charge.
Under Massachusetts law, restaurants are exempt from paying employees overtime; however, they may not be exempt under federal law. Restaurants with annual gross sales of at least $500,000 are subject to both state and federal law, the latter in the form of the Fair Labor Standards Act (FLSA). If subject to the FLSA, employees working in restaurants must be paid 1.5 times the minimum wage (not 1.5 times $2.63 per hour) for all hours worked in excess of 40 hours per week.

Minor Concerns
Child-labor laws are designed to protect minors from hazardous jobs and allow minors to balance education with employment. They prohibit employment based on age (minors under 14 years old may not work) and the hazardousness of a job. Minors must obtain work permits. And after 8 p.m., all minors must be under the direct and immediate supervision of an adult supervisor who is located and reasonably accessible in the workplace.
Child-labor laws restrict the time a minor may work, setting rules for the earliest permissible hour, the latest permissible hour, the number of hours per day and week, and the number of days per week. Restrictions vary based on age and whether it is a school day, school night, weekend, holiday, school year, or summertime.
Two recent examples of violations of child-labor laws reveal the hefty financial consequence of non-compliance. In June 2011, the owners of five Dunkin’ Donuts franchises were fined $6,000 for violating state child-labor laws. The franchises employed minors without work permits, before the earliest permissible hour, after the latest permissible hour, and beyond the maximum number of daily hours allowed under child labor laws.
And in October 2011, the owners of two Boston-area Chinese restaurants were ordered to pay more than $129,000 in penalties and $52,000 in restitution for violations of state laws, including minimum-wage and child-labor laws. One of the restaurants was cited for employing a 16-year-old for nine months without pay and allowing her to work beyond permissible work hours and in excess of maximum work hours.
Employers who violate Massachusetts wage and hour laws are subject to mandatory treble damages for any unpaid wages. In addition, a prevailing employee will be awarded attorneys’ fees and costs of the litigation. Because the damages are mandatory, even an employer who makes an honest mistake or takes reasonable steps to comply with wage and hour laws will be subject to these hefty damages.
In contrast, under the FLSA, employers may offer a good-faith defense for violations. Under state and federal law, employers who violate child labor laws are subject to civil and/or criminal penalties, including civil citations, civil fines, criminal fines, and imprisonment.
Considering the consequences of violations, restaurant owners should regularly consult with their employment counsel to review their practices and policies to ensure compliance with state and federal law.

Karina L. Schrengohst, Esq. and Amy B. Royal, Esq. specialize exclusively in management-side labor and employment law at Royal LLP, a woman-owned, boutique, management-side labor and employment law firm; (413) 586-2288; [email protected]; [email protected]