Hospitality Labor and Employment Law Blog : Hotel, Restaurant, Resort & Spa Lawyers & Attorneys: Epstein Becker & Green Law Firm: Hospitality Law

Epstein Becker Green is pleased to announce the availability of a Wage and Hour Division Investigation Checklist, which provides hospitality employers with valuable information about wage and hour investigations and audits conducted by the U.S. Department of Labor (DOL). Like EBG’s first-of-its kind Wage and Hour App, which provides detailed information about federal and state laws, the Checklist is a free resource offered by EBG.

The Checklist provides step-by-step guidance on the following issues: preparation before a Wage and Hour Division investigation of the DOL; preliminary investigation issues; document production; on-site inspection activities; employee interviews; and back-wage findings, and post-audit considerations.

“The multitude of wage and hour claims and lawsuits that workers have filed under the Fair Labor Standards Act and its state law counterparts have made wage and hour law the nation's fastest growing type of litigation. And federal and state agencies are investigating and pursuing wage and hour claims more aggressively than ever,” said Michael Kun, the national Co-Chairperson of the firm's Wage and Hour, Individual and Collective Actions practice group. “We hope that our Checklist will serve as an important resource for hospitality employers to use when confronted with an audit – and perhaps help them avoid an audit altogether.”

               Click Here to Download EBG's Wage and Hour Division Investigation Checklist

By: Kara Maciel

Hurricane Sandy is approaching this weekend, so hospitality employers along the East Coast should refresh themselves on the wage and hour issues arising from the possibility of missed work days in the wake of the storm.

A few brief points that all employers should be mindful of under the FLSA:

• A non-exempt employee generally does not have to be paid for weather-related absences. An employer may allow (or require) non-exempt employees to use vacation or personal leave days for such absences. But, if the employer has a collective bargaining agreement or handbook policies, the employer may obligate itself to pay through such policies.
• An exempt employee generally must be paid for absences caused by office closures due to weather, if he/she performs work in that week. The Department of Labor has stated that an employer may not dock a salaried employee for full days when the business is closed because of weather. Partial day deductions for weather related absences are not permitted.
• If certain employees are required to be on-call (such as public safety, IT, or other essential personnel) during the storm, and the employee cannot use the time effectively for his or her own purpose, the on-call time is compensable and the employee must be paid. However, if the employee is simply at home and available to be reached by company officials, then the time is not working time and an employer does not have to pay for that time.

Policies and procedures to keep in place:

• Decide whether your company will offer “weather days” for non-exempt workers who are absent because of disasters.
• Ensure that your payroll systems are prepared for employees working from home, longer shifts, or not taking lunches.
• Decide whether employees absent because of weather will be allowed / required to use vacation or PTO time.
• Ensure safety of payroll records and ability to process payroll from alternate location if needed.

Natural disasters pose a myriad of employment and HR issues from wage-hour to FMLA leave and the WARN Act. The best protection is to have a plan in place in advance to ensure your employees are paid and well taken care of during a difficult time. Our reference tool contains answers to common questions, and while aimed at employers in the Gulf Coast, if you have operations anywhere along the East Coast, you should find it helpful.

By:  Kara M. Maciel

In April of 2011, the U.S. Department of Labor (“DOL”) changed its rule defining the general characteristics of tips in an attempt to overrule the U.S. Court of Appeals for the Ninth Circuit’s decision in Cumbie v. Woody Woo, Inc. ruling that the FLSA does not impose any restrictions on the kinds of employees who may participate in a valid tip pool where the employer does not claim the “tip credit.”

DOL’s Recent Position on Tip Pool Participation

The DOL’s amended rule provides that tips are the property of the employees, and may not be used by the employer for any purpose other than as a tip credit or in furtherance of a valid tip pool, regardless of whether the employer actually uses the “tip credit.”  Accordingly, the DOL will now find a tip pool to be invalid if it includes employees who do not “customarily and regularly receive tips” – a requirement that the DOL generally interprets to limit tip pools to employees who provide direct service to customers.

Earlier this year, the DOL issued a memorandum stating that it would be enforcing its new rules on tip pools uniformly throughout the country.  Accordingly, employers who have established mandatory tip pools but who do not use the tip credit may find themselves faced with DOL enforcement actions if they permit employees who do not provide direct service to participate in the tip pools.  Those businesses faced with such enforcement actions may find it in their interest to challenge the validity of the DOL’s position on tip pools and argue that it conflicts with the plain language of the FLSA. 

Legal Arguments to Challenge DOL’s Interpretation on Tip Pools

For those businesses seeking to challenge the DOL’s new rule on tip pooling, the Ninth Circuit’s opinion in Woody Woo, provides useful guidance.  Specifically, the Court concluded that that the plain language of Section 203(m) of the FLSA imposes limitations on mandatory tip pools only when the employer takes a “tip credit,” and does not state freestanding requirements for all tip pools.  Further, under the U.S. Supreme Court precedent, when a federal statute addresses a particular issue, courts must apply the plain language of the statute and may not rely on a federal agency’s interpretation of the law, particularly if the agency’s interpretation conflicts with the plain language of the statute.  Based on this case law, an employer could argue that the DOL’s position on tip pools is invalid because it conflicts with the plain language of Section 203(m) of the FLSA.  Specifically, the DOL has attempted to extend to all tip pools a restriction that Congress clearly limited to tip pools involving workers for whom the employer claims the “tip credit.” 

The DOL has attempted to get around this argument by claiming that Section 203(m) of the FLSA left a “gap” in the statutory scheme regarding the treatment of tips which the DOL may fill through its interpretation of the law.  Under Woody Woo, the problem with the DOL’s argument is that it mischaracterizes Congress’ clear intent to limit the FLSA’s restrictions on mandatory tip pools to those involving employees for whom the employer claims the “tip credit” as “silence” on the issue of whether those same restrictions apply to other kinds of tip pools.  However, a legislative decision to limit a particular rule’s application to one situation does not create a “gap” for a federal agency, like the DOL, to then apply that rule to other situations.  Indeed such an expansion of the rule would conflict with the limitations on its application that were expressly established by Congress.

While a federal agency, like the DOL, can fill “gaps” left by a statute it enforces, the agency does not have the power to simply make new law.  To the extent that the FLSA is “silent” about the restrictions on mandatory tip pools in situations in which the employer does not claim the “tip credit,” that is because the statute does not address the subject matter at all.  Rather, as the Ninth Circuit noted in Woody Woo, it regulates tip pools only to the extent that they are comprised of employees for whom the employer claims the “tip credit.”  A rule or enforcement position that imposes restrictions on such tip pools does not fill a “gap” left by Congress; it is nothing more than an attempt to create new law – something the DOL cannot do.

Review Tip Pool Practices

In light of the DOL’s enforcement efforts, all hospitality employers should review their tip pooling practices to ensure compliance with both federal (and state) laws.  While the safest approach to administering a tip pool may be to comply with the DOL’s current interpretation, and restrict participation to non-management employees who provide direct service to customers, hospitality businesses that are faced with enforcement actions based on their past practices may find it useful to raise these challenges to the DOL’s position.  A successful challenge to the DOL’s enforcement position can allow hospitality businesses to avoid significant monetary penalties and preserve valid tip pool arrangements that promote cooperation and harmony among their employees.

By Matthew Sorensen

Wage garnishment can pose a number of potential problems for hospitality businesses. This is particularly true where the employee whose pay is subject to garnishment receives tips. 

Garnishment is a legal procedure in which an employee’s earnings must be withheld by an employer for the payment of a debt under a court order. When faced with a garnishment order involving a tipped employee, the employer must determine whether all or part of the employee’s tips must be included in the amounts withheld under the garnishment order. This question turns on whether or not the employee’s tips may be characterized as “earnings” under the applicable garnishment statute. A mistake by the employer could lead to significant liability. Many state and federal laws concerning garnishment contain provisions that allow for direct employer liability for failing to timely respond to or follow a garnishment order. On the other hand, federal and state wage and hour rules can create liability for wrongfully withholding an employee’s tips. A recent Tennessee Appellate court ruling provides some additional guidance in this area that will likely have broader application to hospitality businesses around the country. 

In Erlanger Medical Center v. Strong, the Tennessee Court of Appeals relied on guidance found in the U.S. Department of Labor’s Field Operations Manual and a Wage and Hour Opinion Letter to hold that tips are not “earnings” that may be garnished. Specifically, the Court noted that “garnishment is inherently a procedural device designed to reach and sequester earnings held by the garnishee (usually the employer).” The Court went on to note that tips paid to an employee by a customer (including those paid by means of a credit card) are not “earnings” that may be garnished because they do not pass to the employer (the garnishee). Rather, tips are direct payments from customers to employees and are the property of the tipped employee. 

This ruling is consistent with a recent decision by the Appellate Division of the New Jersey Superior Court which held that tips are not “earnings” subject to garnishment under New Jersey law. It is also bolstered by the U.S. Department of Labor’s 2011 amendments to its rules defining the general characteristics of “tips.” In those revised rules, the Department of Labor has stated that the Fair Labor Standards Act prohibits employers from using an employee’s tips for any reasons other than as a credit against the minimum wage or as part of a valid tip pool.

Although each state’s garnishment laws are different, many states have defined “earnings” that may be subject to garnishment in a manner that is similar to the Tennessee statute at issue in Erlanger Medical Center v. Strong. As such, the Tennessee Court of Appeals’ decision and the U.S. Department of Labor guidance documents on which it relied may serve as strong persuasive authority in other jurisdictions. Nevertheless, hospitality employers should remain mindful that some states, including Colorado, expressly include tips in their definitions of “earnings” subject to garnishment. 

When served with a garnishment order, hospitality employers should act promptly to determine their obligations under both state and federal law, particularly where the order involves a tipped employee. Garnishment orders often set out specific timelines for the employer to respond and comply. Failure to appropriately or timely respond to the order can put the employer on the hook for its employee’s debt. To avoid such undesirable consequences and ensure that no improper deductions or withholdings are made from an employee’s tips under applicable wage and hour laws, it is best practice to consult with an attorney immediately upon receipt of a garnishment order.

By:   Jordan Schwartz

Like many attorneys, I spend a significant amount of time traveling, whether it is to meet with clients, take depositions, or conduct training sessions. Business-related travel certainly is not unique to the legal industry. In fact, more and more employees in other industries, including the hospitality industry, are spending a greater amount of time traveling for work than ever before. Such travel typically includes attending out-of-state trade shows, recruiting visits, job fairs, and sales calls. As an exempt employee, compensation for travel time is cut and dry – an employee simply continues to receive his or her salary. For non-exempt employees, however, determining proper travel-time compensation is not nearly as straightforward.

The Fair Labor Standards Act (“FLSA”) governs the payment of wages, and requires that employees be compensated for all work performed. Yet, two common questions surface routinely concerning the compensability of travel time:

(1)   Is a non-exempt employee’s travel time for business-related events, whether as a passenger on an airplane, train, boat, bus, or automobile, compensable?; and

(2)   If so, and as a result the travel takes them over 40 hours in a workweek, must that employee be paid overtime for those additional hours?

The answer, as is often the case in the legal profession, is “it depends.” Under the FLSA, time spent traveling during normal work hours is considered work time. Therefore, since a non-exempt employee is essentially substituting travel for other duties he or she would have been performing, that employee must be paid for travel time occurring during his or her normal work hours. The employee is not, however, entitled to be paid for time traveling outside of regular working hours. Thus, if an employer requires an employee who typically works from 9:00 am to 5:00 pm Monday through Friday to travel to a conference and such travel occurs on Wednesday from 3:00 pm to 7:00 pm, the employer is only required to pay the employee for a typical eight hour day ending at 5:00 pm. Because the additional two hours of travel are not “working time,” no additional pay (and thus no overtime) would be required. 

Where this gets confusing, however, is that an employee’s “normal working hours” also applies to corresponding hours on weekends or other non-working days. Thus, if the same hypothetical employee is required to travel back home on Saturday from 3:00 pm to 7:00 pm, he or she must be compensated for two additional hours (corresponding to 3:00 pm to 5:00 pm), even though that employee would not otherwise have been required to work on a Saturday. Assuming that employee had already worked a full 40-hour workweek, he or she would thus be entitled to overtime for these additional two hours. 

There are several other important issues employers should keep in mind regarding travel time:

·         Employees are not entitled to be paid just for the time they are “in the air” on a flight. Rather, time spent in the airport on layovers also constitutes travel time. 

·         Generally, travel time on work-related day trips is counted as time worked, except for meal times, which may be deducted.

·         Typically, time spent commuting is not work time. Just as employees are not compensated for the time it takes to drive to and from work on a typical non-traveling work day, the time spent commuting to and from the airport or train station does not constitute work time. Rather, the work time would start when the employee arrived at the airport, train or bus station.

In this day and age, with business travel becoming the norm as opposed to the exception, it is essential for hospitality employers to recognize and be aware of these rules relating to travel time. Indeed, it would be a shame if an employee’s otherwise productive business-related trip resulted in a major expense due to non-compliance with the FLSA. 

By:  Casey Cosentino

A hotel management company was recently hit with a putative class action in federal court for allegedly failing to compensate hotel employees overtime pay at one and one-half times their regular rate of pay for all hours worked over 40 hours in a workweek. As the chief engineer, the lead plaintiff was classified as an executive employee and, thus, was exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”). The lead plaintiff asserts, however, that he was misclassified under the Executive exemption because he “regularly and routinely performed non-exempt tasks . . . including but not limited to, upkeep of the hotel and its grounds, and building and property maintenance; and supervised no more than one other employee.” As such, the complaint contends, among other things, that he and other similarly situated employees unlawfully worked between 50 and 60 hours per week without receiving overtime pay. 

As evidenced by this case, a constant issue challenging the hospitality industry is the proper classification of employees as exempt under the Executive exemption when those employees regularly and routinely perform non-exempt duties. By way of background, the FLSA requires employers to pay employees at one and one-half times their regular rate of pay for hours worked in excess of 40 hours; however, there are exemptions from overtime pay for an employee employed as bona fide executive, professional, administrative, outside Sales, and computer professional. Specifically, to qualify for the Executive exemption, employees must meet all of the following requirements:

1.              The employee must be compensated on a salary basis at a rate not less than $455 per week;

2.              The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

3.              The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

4.              The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

A “primary duty” under the Executive exemption is the “principal, main, major or most important duty that the employee performs.” 29 C.F.R. § 541.700(a). Notably, an executive employee is not precluded from exempt status for performing non-exempt work when his/her primary duty is to perform managerial duties such as interviewing, directing work, appraising work performance, and delegating assignments. Determination of an employee’s primary duty is based on all the facts in a particular case, and not solely on the amount of time spent on a particular aspect of the employee’s job. Indeed, “[e]mployees spending less than fifty percent of their time on managerial aspects can nonetheless satisfy the primary duty requirement under other relevant facts of the case,” including:   

·         Importance of exempt duties as compared with other types of duties;

·         Amount of time spent performing exempt work;

·         Employee’s relative freedom from direct supervision; and

·         Relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.

29 C.F.R. § 541.700(b).

Most industries have experienced the tidal wave of wage and hour class action suits with respect to misclassifying exempt employees, and the hospitality industry is no exception. Because it is common for exempt employees in the hospitality industry to perform non-exempt duties, hotels classifying or planning to classify employees under the Executive exemption should ensure that their primary duty is managerial functions. Moreover, as a best practice, prudent hotel operators should regularly review their wage and hour practices to ensure compliance with federal and state laws. In doing so, hotel operators should: (1) review and update employee classifications and job descriptions; (2) audit their payroll practices with an emphasis on overtime calculation, meal and rest break periods, and salary deductions; and (3) determine whether “preliminary” and “postliminary” job tasks are compensable work time. Identifying and correcting wage and hour mistakes before plaintiffs collectively march to the courthouse is vital to defending class action wage and hour suits and reducing legal liability.

by:  Matthew Sorensen

 1.      Deadline For Compliance With New ADA Accessibility Rules Approaching:

 On March 15, 2012, hospitality establishments will be required to be in compliance with the standards for accessibility set by the Department of Justice’s final regulations under Title III of the ADA (2010 ADA Standards). The regulations made significant changes to the requirements for accessible facilities, and will require additional training of staff on updated policies and procedures in response to inquiries from guests with disabilities. Among the most significant changes for hospitality businesses are:           

·         New structural and communication-related requirements for automatic teller machines (“ATMs”);

·         Accessible means of entry for pools and spas – for pools, a sloped entry or a pool lift is required for the primary method of entry, and for spas, the means of entry may be a pool lift, transfer wall, or transfer system;

·         At least 60% of public entrances must be accessible as compared with 50% under the former standards;

·         A new requirement to modify hotel policies to ensure that individuals with disabilities can make reservations for accessible guest rooms during the same hours and in the same manner as individuals who do not need accessible rooms;

·         Golf facilities must have either an accessible route or golf cart passages with a minimum width of 48 inches connecting accessible spaces of the golf course.

2.      Tip Credit and Tip Pooling Lawsuits Remain The Lawsuit Du Jour:

 In recent years, the number of individual and collective action lawsuits involving allegations of tip credit and tip-pooling violations by hospitality businesses has significantly increased. Given the ever changing web of state, federal and local laws regarding tip credit and tip pooling arrangements, it is important that hospitality employers with tipped employees periodically audit their pay practices to ensure compliance with all applicable rules. To minimize the risk of tip credit and tip pooling violations employers should ensure that:

·         They inform tipped employees of any tip credit claimed against their wages;

·         Employees report their tips and that proper records of tips are maintained; and

·         Management and other categories of workers who are precluded from participating in tip pools by federal, state or local law do not participate in such pools.

3.      Increase In Organizing Efforts By UNITE HERE:

The NLRB’s new rule amending the procedures for union election cases introduces a number of union-friendly changes to the election process, including the elimination of the right to seek NLRB review of regional directors’ pre-election rulings. These changes increase the risk that unions will seek approval of smaller units for elections that are based on the extent to which employees in such units support union representation. 

In addition, the NLRB has also announced that its new rule requiring employers to post a notice describing employee rights under the NLRA will go into effect on April 30, 2012. The notice has the potential of generating more discussion of unionization among employees as well as more employee and union-initiated representation campaigns. 

It is anticipated that groups like UNITE HERE will likely attempt to capitalize on these recent changes to increase unionization in the hospitality sector.

4.      Social Media Remains A Hot Topic With The NLRB:

As the use of social media has steadily grown among restaurants and hoteliers, so too has the NLRB’s interest in cases involving social media policies and social media-related discipline. While employees do not receive protection under the NLRA merely by posting a work-related complaint on a social media website, under some circumstances employee complaints made using social media may be found to constitute protected concerted activity. 

As such, hospitality employers need to remain cautious when crafting social media policies and any time they contemplate taking adverse action against an employee for social media activity. 

5.      U.S. Supreme Court to Address The Patient Protection and Affordable Care Act (PPACA):

The U.S. Supreme Court is scheduled to address the challenges to the constitutionality of PPACA in 2012 and it is possible that the Court will issue an opinion on the matter before its June break. If the statute, or at least the portion of the statute that applies to employers and insurance companies, is found to be constitutional, hospitality employers with more than 50 employees will be required to provide certain mandated levels of healthcare coverage to all employees who regularly work more than 30 hours per week by 2014, or face penalties. 

Lessons Learned: 

In light of these issues, it is important that hospitality employers take action to evaluate their policies and practices, including those related to pay, social media, employee handbooks, and health insurance to ensure that they are compliant with applicable legal requirements. It is equally important that they plan proactively to address the potential business challenges posed by the NLRB’s new union-friendly election and notice rules and PPACA.

By Peter M. Panken, Michael S. Kun, Douglas Weiner and Larissa Lalor-Rosado

Hotels, restaurants and private clubs all rely on sponsored events, banquets and social soirees for the profitability of their operation.  Most employ one or more “managers” to solicit the business, work with the clients, detail the services to be provided, prepare the contract and even negotiate a price.  In most instances higher management must approve the terms the managers propose including the financial arrangements.  In other cases the basic terms are set forth in directions which can only be varied if approved by higher management. There have been a rash of recent lawsuits by such administrative employees who claim they are not exempt from overtime but must be paid time and one half for the hours they work each week over 40 hours plus liquidated damages which double the exposure.

Misclassification of employees as exempt from overtime compensation has become a cottage industry for plaintiff’s lawyers and for the United States Department of Labor (“DOL”) in the Obama years. One of the most difficult issues is whether employees meet the so-called administrative exemption to the Wage Hour laws. In Hines v. State Room , the United States Circuit Court in New England offered some clarity and help to beleaguered employers holding that former  banquet sales managers were exempt from overtime requirements under the Fair labor Standards Act (“FLSA”).

The FLSA requires overtime pay at the rate of one and one half times the regular rate of pay for all hours worked in excess of 40 hours in a seven day period unless the employee is exempt. The three pronged test for exemption for administrative employees is whether the employee is (1) salaried (paid a regular amount of at least $455 for all hours worked in a workweek) , (2) the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Plaintiffs were banquet sales managers whose job included seeking potential customers for events at the employer, developing the elements of the party or other event and submitting the proposed contract terms for approval by senior officials of the Banquet Halls.

The Court found that Plaintiffs met the first two prongs for exemption: Plaintiffs were paid on a salary basis, and their work was primarily administrative because it was ancillary to the employer’s actual business of providing banquet services.

Plaintiffs claimed that they did not meet the third prong for exemption because they lacked the authority to make any decisions of financial consequence, supervisory authority or policy-making authority.

The Court found that while the plaintiffs’ discretion in matters having significant financial impact was subject to managerial approval, such restrictions did not detract from the judgment exercised in developing a proposal for the client. Plaintiffs’ duties included maintaining primary contact with a client, tailoring an event to their needs, and overseeing the event through to execution. The Court ruled that plaintiffs exercised adequate discretion as sales people to be designated as exempt.

Other Factors Considered for Exemption

The preamble to the current DOL regulations identifies a host of factors that courts have found sufficient to demonstrate that employees exercise independent judgment. 69 Fed. Reg. at 22144. Such factors include:

·                     the ability to exercise discretion and independent judgment,

·                     freedom from direct supervision,

·                     personnel responsibilities,

·                     trouble-shooting or problem-solving activities on behalf of management,

·                     use of personalized communication techniques,

·                     authority to handle atypical or unusual situations,

·                     responsibility for assessing customer needs, primary contact to public or customers on behalf of the employer, the duty to anticipate competitive products or services and distinguish them from competitor’s products or services,

·                     advertising or promotion work, and coordination of departments, requirements or other activities for or on behalf of employer or employer’s clients or customers.

Unfortunately these factors are very fact intensive and do not provide a bright line test for exemption, But the Hines case does offer some useful precedent and guidance for employers. In any event, care must be taken to be sure that the law in a particular state or in a particular circuit does not impose a stricter limitation on the discretion and independent judgment issue.

Take-Away

An employer may retain the right to review an employee’s ability to create financial and contractual obligations and still properly classify the employee as exempt. Requiring managerial approval for these purposes does not necessarily detract from the judgment exercised by the employee at arriving at the proposal in the first place. In addition, as set forth above, there are numerous other factors that courts can consider in determining whether an employee should be designated as exempt.

By:   Jordan Schwartz

The holiday season is often the busiest time of the year for hospitality employers. At the same time, employees may appreciate the opportunity to earn more during these busy months. Consequently, there may be occasions when an employer places an employee in a dual capacity role. For example, from November through January, a hotel may permit (or require) a housekeeping attendant to also function as a front desk reservation assistant. While assigning (or permitting) an employee to work at another post with a different rate of pay is generally permissible and may be preferable to hiring additional employees for the holiday rush, there are complex “wage & hour” factors to consider prior to doing so. 

The payment of wages is governed by the federal Fair Labor Standards Act (“FLSA”) and applicable state law. Under the FLSA, non-exempt employees must properly be compensated for all work performed, including overtime at a rate of one and one-half times their regular rate of pay for all hours worked in excess of 40 in a workweek.

Since overtime must be based on the employee’s “regular rate of pay,” calculating the overtime amount can be tricky when an employee works two or more jobs for which the employee is paid different rates of pay. Let us assume, first, that the housekeeping attendant position and the front desk reservation assistant position are both “non-exempt” positions. A common assumption in such a scenario is that the employee would receive overtime pay based on the rate of pay of the job at which he is working when he passes the 40-hour threshold. Absent a prior agreement between the employer and the employee, however, this assumption is false. Rather, according to the FLSA regulations, the employee’s regular rate of pay when he works two jobs is calculated as the weighted average of the different rates. Consequently, to determine the employee’s “regular rate of pay” in this scenario, his weekly earnings from his job as housekeeping attendant and his weekly earnings from his job as front desk reservation assistant are added together, and the total is then divided by the total number of hours worked at both jobs.  The employee would then be entitled to 1.5 times this rate of pay for all hours worked over 40 in a workweek.

To complicate matters further, let us assume that the housekeeping position is exempt, while the front desk reservation assistant position is non-exempt. In this scenario, the key issue that must be addressed is how this employee should be classified, since an employee may have only one FLSA designation and cannot simultaneously be classified as both exempt and non-exempt. 

According to the U.S. Department of Labor (“DOL”), to determine exempt status in such a scenario, the employee’s “primary duty” must be analyzed. The term “primary duty” means the principal, main, major or most important duty that the employee performs, with the major emphasis on the character of the employee’s job as a whole. Once this analysis is performed, the employer can appropriately determine whether the employee is exempt or non-exempt. If the combined duties would qualify the employee to remain in exempt status, there would be no requirement to pay the employee any additional salary above his normal weekly salary, although the employer could compensate the employee further for the additional work performed without compromising his exempt status.

If however, after analyzing the employee’s primary duty it was concluded that he was non-exempt, the employee would be eligible to receive overtime pay for all hours worked over 40 in a workweek. Once again, if overtime pay is required, absent a prior agreement otherwise, no attention should be paid as to which particular job the employee is performing when he crosses the 40-hour threshold. Rather, the employer will need to calculate the employee’s regular rate of pay as the weighted average of the different rates, and employee would then be entitled to 1.5 times this rate of pay for all hours worked over 40 in a workweek

As explained above, employers are not prohibited from—or required to—permit employees to work for more than one job for them, although in certain circumstances during the busy holiday season, doing do may be a prudent option for hospitality employers. It is crucial, however, to be cognizant of the “dual employment” wage and hour requirements of both the FLSA and applicable state law. Failure to abide by these requirements could remove all the cheer from the holiday season. 

By:  Ana S. Salper

With the recent surge in class action wage and hour lawsuits, hospitality employers have developed a heightened sensitivity to tip pooling arrangements, distributions of service charges to employees, and application of the “tip credit.” A case before the U.S. Supreme Court this month, Applebee’s International Inc. v. Gerald A. Fast et al., is likely to add further fuel to the fiery “tip credit” world,  as the high court will have to decide whether tipped employees should be paid minimum wage for nontipped tasks employees perform.

Under the Fair Labor Standards Act (“FLSA”), tipped employees can be paid below minimum wage – as low as $2.13 per hour – so long as employees earn enough tips to reach the minimum wage (which is $7.25 under federal law, although state minimum wages may be higher).  In the case pending before the high court, Applebee’s is asking the Court to decide whether employers can use the tip credit to pay tipped employees -- namely, waiters and bartenders -- below minimum wage even if they spend more than 20 percent of their time performing nontipped tasks. Applebee’s is challenging a U.S. Department of Labor (“DOL”) rule that requires an employer to pay a tipped employee the regular minimum wage if they spend more than 20% of their work time in a given week performing non-tipped duties. 

In April 2011, siding with the DOL’s 20% rule, the United States Court of Appeals for the Eighth Circuit affirmed a lower court ruling that Applebee’s had violated the FLSA by paying its service staff below minimum wage even when the waiters and bartenders had spent more than 20% of their time on setup, maintenance, and general preparation -- tasks for which they could not be tipped. The case originated from a class action initiated by approximately 43,000 current and former Applebee’s servers and bartenders. Notably, the Eighth Circuit’s decision is a sharp departure from the decisions of two other federal appeals courts, the Sixth and Eleventh Circuits, which have already rejected the DOL’s 20% requirement.

Applebee’s is arguing that it is entitled to take a tip credit for all the work the waiters and bartenders are performing, even if some of it involves nontipped duties. The argument suggests that the question of whether the tip credit can be applied should depend not on how much of the employees’ time is spent on nontipped tasks, but rather on whether the employees are considered tipped employees under the FLSA.

For hospitality employers, the tip credit is a useful cost-saving tool, allowing employers to pay a lower cash wage to employees who rely upon tips received from customers and guests to bring their total hourly compensation up to the minimum wage. If the Supreme Court decides to depart from the DOL’s 20% rule, the decision will have a significant impact on employers’ tip credit arrangements, and could ultimately change the entire landscape of work allocation, assignment of duties, and distribution of pay for tipped employees in the hospitality industry. 

By:  Kara M. Maciel and Jordan Schwartz

On May 10, 2011, the Southern District of New York conditionally certified a collective action against eight New York metropolitan area restaurants owned by celebrity chef Mario Batali alleging violations of the Fair Labor Standards Act. In the action, restaurant servers argue that the Batali restaurants are paying employees less than minimum wage and unlawfully retaining a portion of their tips.

The primary allegation in the lawsuit is that the restaurants deduct from the employee tip pool a portion of all credit-card tips equal to approximately 4-5% of the nightly wine sales. One plaintiff, a former server at Otto Enoteca Pizzeria, alleges that several managers told him the deducted amount went to the “wine program,” while a general manager told him it went “back to the house.” 

The restaurant owners argued that class certification was improper because there was not sufficient evidence to prove a common policy of withholding tips. The court disagreed, however, finding that there was a reasonable inference “that there was a uniform policy across the eight restaurants.” Consequently, it granted the plaintiffs’ motion for conditional certification so that they can send out notice to other tipped workers at all eight restaurants. 

This lawsuit is just one of the increasing number of nationwide and New York-based class action lawsuits alleging unlawful conduct regarding tips, gratuities and service charges. Just one day prior to the Batali decision, a group of Yankee Stadium food service workers filed a putative class action alleging that the concession operators misappropriated their tips by keeping the service charge added to the cost of food and drinks served to field-level patrons, rather than giving that money to the workers. The suit alleges that, by accepting the service charge, the companies willfully violated New York labor law, which directs that gratuities be provided to the workers who provided the service.

This flood of activity is not surprising. Problems with mandatory service charges and their distribution among waitstaff have plagued the hospitality industry for years. To add to this confusion, as of January 1, 2011, thelaws in New York regarding tips, tip credits and tip pooling, among other things, have been amended. Until restaurants implement policies consistent with these new laws, the trend of increasing lawsuits will only continue. Hotel and restaurant employers in all states, including New York, should make compliance with state and federal wage hour laws regarding tips, gratuities and service charges a top priority.

By:  Douglas Weiner  

In a recently reported case from the Eighth Circuit Court of Appeals, Applebee’s servers and bartenders alleged they spent a “substantial” amount of time performing non-tipped work, such as cleaning and maintenance, and, therefore, should be paid the minimum wage of $7.25 for the time spent performing non-tipped work, rather than the direct wage of $2.13 the FLSA allows employers to pay employees in tipped occupations See 29 U.S.C. § 203(m) and 29 U.S.C. § 203(t).

Applebee’s argued it properly applied a tip credit to the servers and bartenders’ direct wage earnings because they worked in tipped occupations, and received more than the minimum wage for all hours worked in direct wages paid by the employer plus the tips they received. Thus, a “dual job” analysis was not required, because cleaning and maintaining work areas are duties related and incidental to their tipped occupations of bartending and serving. See 29 C.F.R. § 531.56(e)

The Eighth Circuit rejected Applebee’s argument, holding there was a temporal limit to the amount of non-tipped work a tipped employee may perform to retain tip credit eligibility. Specifically, the Eighth Circuit observed that 29 C.F.R. § 531.56(e) provided employees may perform related duties in a tipped occupation that are not themselves tip producing “part of the time or occasionally.” In defining “part of the time” and “occasionally,” the Eighth Circuit affirmed the district court’s holding that Section 30d00(e) of the Department of Labor's Field Operations Handbook is entitled to deference for the requirement that where more than 20% of a tipped employee's time is spent on non tipped work, the employer cannot take the tip credit for that time, and must pay the full minimum wage for non-tipped work.

In the Hospitality industry, dual jobs may be found in many varieties. Examples include servers who perform duties as ice sculptors, pastry decorators, or floral arrangers, or runners and bussers who make salads, polish silverware, stock inventory or wash dishes.

STEPS TO MINIMIZE RISK

To avoid “dual job” claims from tipped employees, employers are well advised to keep accurate records of the time employees spend performing non-tipped duties. In a typical 6 hour shift, where the employer can demonstrate through time records that less than 1.2 hours was devoted to non tipped work, the employer’s use of the tip credit will ordinarily be upheld. Daily and weekly records allow the employer to prove the percent of time spent in tipped and non-tipped work. 

Another step to minimize “dual job” claims is to require all tipped employees to perform the same amount of incidental duties, rather than limiting the non-tipped work to designated individuals. Employers may also want to require that available non-tipped employees perform the non-tipped producing work.  

The U.S. Supreme Court’s decision in Kasten v. Saint-Gobain Performance Plastics Corp., __ U.S. __ (March 22, 2011), holds that an employee’s oral complaint of a violation of the Fair Labor Standards Act (“FLSA”) constitutes protected conduct under the FLSA’s anti-retaliation provision. 

EBG partner Frank C. Morris, Jr., discusses in an EBG Act Now Advisory the fact that the Kasten decision is merely the latest in an ever-growing series of cases where the Supreme Court has broadly interpreted protections against retaliation and for whistleblowers.  The EBG Act Now Advisory also addresses what employers should do in light of these recent decisions.

To review the EBG Act Now Advisory on this issue, click here.

By: Kara M. Maciel and Forrest G. Read, IV

The U.S. Court of Appeals for the Eleventh Circuit’s recent decision in Diaz v. Jaguar Rest. Group, LLC underscores the importance for hospitality employers to know which job duties their employees are performing in order to assert every potentially applicable affirmative defense when answering an employee’s FLSA lawsuit for non-payment of overtime. In Diaz, the Eleventh Circuit reversed the trial court’s decision that a restaurant, which failed to raise the administrative exemption to the overtime requirement at any point until shortly before trial, was permitted to amend its Answer and include that defense at the close of its case at trial.

The jury determined that Diaz, a formerly employed bookkeeper, “was an administrative employee” who “performed numerous administrative tasks in addition to her bookkeeping duties.” Diaz “managed the cash register, distributed tips, opened bank accounts, maintained menus, processed new employees into the system, ran errands, managed liquor orders, and occasionally opened the restaurant.” However, the Eleventh Circuit concluded that those facts could not help the restaurant in the absence of its earlier assertion of the administrative exemption.

Hospitality employers should carefully track which duties their employees are performing. Armed with that knowledge, they can better assess whether a bookkeeper, a bartender, a bellhop, or any other employee who may “wear different hats” can be deemed to have performed duties involving the management of some part or function of the hotel’s operations. They should also remember that the administrative exemption is subject to a fact-intensive inquiry into job duties and not applicable based merely on job title. Even if at first blush an employee’s job title may not seem administrative, it is wise to assert the administrative exemption when answering an overtime complaint under the FLSA if the job duties actually performed can be construed as managerial or involving discretion. Otherwise, the hotel may be left wondering “what might have been?”

by Michael Kun and Doug Weiner

It is no secret that employers have been beseiged by wage-hour litigation, including wage-hour class actions and collective actions.   These lawsuits have hit the hospitality industry as hard as any other industry, perhaps harder.

It is also no secret that the persons who benefit most from these actions are often plaintiffs' counsel, who frequently receive one-third or more of any recovery.  

Now, as a result of an unprecedented new program initiated by the the Department of Labor's Wage and Hour Division ("WHD"), the WHD will be practically delivering potential plaintiffs to the doors of plaintiffs' counsel -- and the WHD has invited plaintiffs' counsel to let it know if it wants a piece of the action. 

Despite the fact that the WHD has an increased enforcement budget and has hired 350 new investigators over the last two years, the WHD has said that it is unable to handle all of the claims it receives.  Rather than seek more funding or implement new procedures to handle the claims, the WHD has made a stunning announcement that can only lead to an increase in wage-hour litigation across the country.  It has announced that it will begin referring employees directly to attorneys to assist them with their claims under the Fair Labor Standards Act ("FLSA") and the Family and Medical Leave Act ("FMLA").   The WHD's new program, which is referred to as the "Bridge to Justice," is part of collaboration with the American Bar Association. 

The Department of Labor's guidance on the "Bridge to Justice" program may be found here.  Under the new initiative, employees will be given a toll-free number to obtain referrals to attorneys in their area.  And attorneys who wish to be included on the referral list are invited to submit their names. 

For employers  -- and hospitality employers in particular --  the "Bridge to Justice" is likely to be seen as little more than the latest effort by the WHD to encourage employees to sue their employers, rather than to raise any concerns with their employers and try to resolve them amicably.  

For plaintiffs' counsel, the "Bridge to Justice" is likely to be seen as an early holiday gift from the WHD, one that they will reap the benefits of for years to come

EBG is holding its annual NY briefing for clients and friends on Oct. 28. This full-day program will feature a special, two-hour workshop just for employers in the hospitality and retail industries, updating the many recent and significant labor and employment law developments affecting the industry. We will provide real-world guidance on how to manage the risks your company faces from increasingly aggressive plaintiffs' lawyers and government investigators who have openly and unabashedly targeted the industry.

Topics on the workshop agenda include:
 

• Wage and hour class actions and government investigations: The prime targets are the misclassification of employees, the failure to provide or pay for meal and rest periods, tip pooling, and the failure to reimburse for business expenses, including uniforms. These pitfalls are eminently avoidable - learn how.
• Union organizing: UNITE HERE, SEIU, and other unions are continuing to aggressively target employees in the hospitality industry and they are newly emboldened by an increasingly union-friendly legal and political environment. Understanding why employees reach out for, or are receptive to, a union is the key to remaining union-free.
• Leave laws and other hot-button issues: ADA and FMLA requests – and, often, legal action – tend to increase during tough economic times, as do discrimination and retaliation charges.  We will address the most common issues faced by hospitality employers in these and a host of other areas, including OSHA and immigration.
   

Come for the workshop; stay for the day! The workshop for hospitality employers is part of a day-long briefing covering a wide range of labor and employment challenges all employers are facing these days. We invite you to view the full agenda and join us for the entire program.