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Knowledge Center Items The Rise of Wage-and-Hour Disputes for Restaurants

The Rise of Wage-and-Hour Disputes for Restaurants

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We’re seeing more employees across the country taking employers to court over wage violations, particularly those in the hospitality industry including restaurant owners – from fast food operations to upscale eateries. In fact, the number of wage-violation lawsuits nationwide has doubled over the last 10 years due to a successful worker-organization movement, an active Department of Labor’s (DOL) Wage & Hour Division (WHD) in conducting investigations and audits, increased attention by plaintiffs’ attorneys, and increasingly complicated labor laws that leave some employers confused. Claims include overtime violations, cash payments that do not withhold proper taxes to the government, and workers that are misclassified as independent contractors or as exempt employees.

Moreover, employers should expect wage-and-hour disputes to continue to rise along with heightened scrutiny and enforcement from the DOL. It’s imperative therefore that employers are fully aware of employment-related regulations pertaining to wage violations, and remain in compliance with the various laws. It’s also critical that employers understand the extent of their coverage under a restaurant insurance product and how responsive it will be in the event of a suit.


Recent Examples of Wage Violations

Let’s take a look at the type of lawsuits filed in the recent past:

  • Five Houston-based restaurants agreed to pay more than $334,000 in back pay to 154 current and former employees after the Department of Labor found minimum wage and overtime violations of the Fair Labor Standards Act (FLSA). According to the WHD, non-exempt employees entitled to “time-and-a-half” pay for overtime under the FLSA “were being paid straight time for all hours worked, including those who worked over 40 in a work week.” The federal agency also claimed the companies did not maintain the required records.
  • Workers at an upscale Manhattan restaurant filed a suit claiming the restaurant’s owners violated the FLSA by not paying overtime, withholding tips, and falsifying records.
  • Owners of five restaurants in western Michigan were ordered to pay more than $2 million in minimum wage and overtime pay owed to 129 employees after an investigation by the DOL.


How to Minimize Exposure to Claims

Given the complexity of wage-and-hour laws, it is easy for most employers to be non-compliant in one area or another in paying their employees. There are steps employers should take to minimize the potential for wage violation claims, including:

  • Maintaining current job descriptions. Job descriptions are roadmaps of the detailed responsibilities of each position in the operation.
  • Classifying workers properly. All too often employers think that all salaried employees are automatically considered “exempt” employees. There are positions that are questionable, and this should be reviewed carefully.
  • Implementing consistent policies when classifying employees as independent contractors. It’s best to seek counsel if there is any doubt.
  • Training managers and human resources personnel on the FLSA. Be sure HR knows how to deal with issues they may come across including unauthorized overtime, breaks and travel time. When the staff is trained to handle all sorts of wage problems, they'll be better able to resolve situations before attorneys get involved.
  • Not paying cash. There are too many issues that can arise in paying cash, and the risks are never worth the benefit.
  • Maintaining accurate time records. Make sure there is a solid time tracking system. Have employees “punch out” for lunch.  
  • Ensuring paystubs contain the required detail. The following information should be included in a paystub: the dates of work covered by the paystub; employee name; employer name; address and phone number of the employer; rate or rates of pay; whether the employee is paid by the hour, shift, day, week, salary, commission or other; gross wages; deductions; allowances (if any); and net wages.
  • Conducting a wage-and-hour audit. Have a law firm audit pay practices both to employees and to individual independent contractors. A confidential audit is an inexpensive way to review current practices, pinpoint any deficiencies, and take steps to become fully compliant.
  • Obtaining solid preventive legal advice. Trusted counsel can save an organization thousands of dollars in legal fees and unnecessary settlements.


Review an Insured’s Employment Practices Liability Policy

In addition to having strong procedures in place, it’s imperative that restaurant insurance includes a well-designed Employment Practices Liability Insurance (EPLI) plan. Bear in mind, however, that EPLI coverage is not without its limitations, and coverage varies from one policy to the next with regard to terms and exclusions. This lack of uniformity requires a careful assessment of the most frequent or likely employment-related claims an insured may face.  Be sure to discuss what type of claims are typically covered under a policy, including allegations of discrimination based on race, age, gender or national origin, as well as claims alleging sexual harassment and wrongful termination.

Moreover, be sure to address exposures that are only covered through endorsement to the EPLI policy. For example, some EPLI policies may provide coverage for claims alleging breach of employment contracts, defamation, failure to promote or negligent evaluation, wrongful discipline, and workplace torts. In addition, wage-and-hour claims may only be covered by endorsement while other policies may have a sublimit for such claims. Furthermore, these endorsements may only cover defense costs, not indemnification. Although coverage of defense costs is of great value, insureds need to understand the scope of exactly what type of coverage they are purchasing for wage-and-hour class action lawsuits.

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