Amendments to the District of Columbia's Accrued Sick and Safe Leave Act of 2008 Affect Tipped Restaurant Wait Staff

By Brian W. Steinbach

Since 2008, the District of Columbia’s Accrued Sick and Safe Leave Act (“ASSLA”) has required D.C. employers to provide employees with paid leave (i) to care for themselves or their family members, and (ii) for work absences associated with domestic violence or abuse. Specifically, ASSLA provides covered workers with the ability to earn and take from up to three to up to seven days of covered paid leave each year, depending on the size of the employer.

On January 2, 2014, Mayor Vincent C. Gray signed the Earned Sick and Safe Leave Amendment Act of 2013 (“Amendment”), which significantly amends ASSLA. Among other things, the Amendment eliminates the prior exclusion of tipped restaurant wait staff and bartenders and adds a new provision requiring that restaurant and bar employees, for whom the tip credit is claimed, be provided with at least one hour of covered paid leave for every 43 hours worked, up to a maximum of five days per calendar year, regardless of the size of the employer. (This is the same level as is currently required for employers with 25-99 employees.) However, these employees need only be paid the regular District minimum wage while on leave, without taking into consideration the amount of tips that they may have received if working.

For a more detailed description of the Amendment, please review our recent client alert

Take 5 Views You Can Use: Wage and Hour Update

By:  Kara M. Maciel

The following is a selection from the Firm's October Take 5 Views You Can Use which discusses recent developments in wage hour law affecting the hospitality industry.

IRS Will Begin Taxing a Restaurant’s Automatic Gratuities as Service Charges

Many restaurants include automatic gratuities on the checks of guests with large parties to ensure that servers get fair tips. This method allows the restaurant to calculate an amount into the total bill, but it takes away a customer’s discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer’s voluntary act, the Internal Revenue Service (“IRS”) will begin classifying automatic gratuities as service charges, taxed like regular wages, beginning in January 2014.

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor automatic gratuities into the hourly wage of the employee, meaning the employee’s regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount that its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit.

Considering that the IRS’s ruling could disadvantage servers as well, restaurants may now want to consider eliminating the use of automatic gratuities. Otherwise, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday.

Some restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or increased food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure that employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.

The New DOL Secretary, Tom Perez, Spells Out the WHD’s Enforcement Agenda

On September 4, 2013, the new U.S. Secretary of Labor, Tom Perez, was sworn in. During his remarks, Secretary Perez outlined several priorities for the U.S. Department of Labor (“DOL”), including addressing pay equity for women, individuals with disabilities, and veterans; raising the minimum wage; and fixing the “broken” immigration system.

Most notably, and unsurprisingly, Secretary Perez emphasized the enforcement work of the Wage and Hour Division (“WHD”). Just last year, the WHD again obtained a record amount—$280 million—in back-pay for workers. Employers can expect to see continued aggressive enforcement efforts from the WHD in 2013 and 2014 on areas such as worker misclassification, overtime pay, and off-the-clock work. In fact, Secretary Perez stated in his swearing-in speech that “when we protect workers with sensible safety regulations, or when we address the fraud of worker misclassification, employers who play by the rules come out ahead.” By increasing its investigative workforce by over 40 percent since 2008, the WHD has had more time and resources to undertake targeted investigation initiatives in addition to investigations resulting from complaints, and that trend should continue.

Federal Court Strikes Down DOL Tip Pooling Rule

In 2011, the WHD enacted a strict final rule related to proper tip pooling and service charge practices. This final rule was met with swift legal challenges, and, this summer, the U.S. District Court for the District of Oregon (“District Court”) concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013).

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the U.S. Court of Appeals for the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other “back of the house staff,” so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). According to the Ninth Circuit, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA.

In 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back-of-the-house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its final rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

Shortly after the issuance of the DOL’s final rule, hospitality groups filed a lawsuit against the DOL challenging the agency’s regulations that exclude back-of-the-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the District Court granted the plaintiffs’ summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The District Court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit.

The District Court’s decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL’s regulations. Given the District Court’s implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever. Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

Take Preventative Steps When Facing WHD Audits

In response to a WHD audit or inspection, here are several preventative and proactive measures that an employer can take to prepare itself prior to, during, and after the audit:

  • Prior to any notice of a WHD inspection, employers should develop and implement a comprehensive wage and hour program designed to prevent and resolve wage hour issues at an early stage. For example, employers should closely examine job descriptions to ensure that they reflect the work performed, review time-keeping systems, develop a formal employee grievance program for reporting and resolving wage and hour concerns, and confirm that all written time-keeping policies and procedures are current, accurate, and obeyed. Employers should also conduct regular self-audits with in-house or outside legal counsel (to protect the audit findings under the attorney-client privilege) and ensure that they address all recommendations immediately.
  • During a DOL investigation, employers should feel comfortable to assert their rights, including requesting 72 hours to comply with any investigative demand, requesting that interviews and on-site inspection take place at reasonable times, participating in the opening and closing conferences, protecting trade secrets and confidential business information, and escorting the investigator while he or she is at the workplace.
  • If an investigator wants to conduct a tour of an employer’s facility, an employer representative should escort the investigator at all times while on-site. While an investigator may speak with hourly employees, the employer may object to any impromptu, on-site interview that lasts more than five minutes on the grounds that it disrupts normal business operations.
  • If the DOL issues a finding of back wages following an investigation, employers should consider several options. First, an employer can pay the amount without question and accept the DOL’s findings. Second, an employer can resolve disputed findings and negotiate reduced amounts at an informal settlement conference with the investigator or his or her supervisor. Third, an employer can contest the findings and negotiate a formal settlement with the DOL’s counsel. Finally, an employer may contest the findings, prepare a defense, and proceed to trial in court.

In addition, employers should review our WHD Investigation Checklist, which can help them ensure that they have thought through all essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit.

Following these simple measures could significantly reduce an employer’s exposure under the FLSA and similar state wage and hour laws.

Serving Up More Taxes - IRS to Begin Taxing Automatic Gratuities as Service Charges

By: Kara M. Maciel

Many restaurants include automatic gratuities on guests’ checks with large parties to ensure servers get fair tips. This method allows the restaurant to calculate an automatic gratuity or tip into the total bill, but it takes away the customer’s discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer’s voluntary act, the IRS has decided that it will separately tax automatic gratuities.

In 2012, the IRS issued a ruling to clarify earlier tax guidance on tips, particularly automatic gratuities, but because restaurants persuaded the IRS to hold off for a year, the IRS did not immediately enforce that ruling. As of January 2014, however, the IRS will begin classifying automatic gratuities as service charges, taxed like regular wages. 

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor any automatic gratuities into the hourly wage of the employee, meaning the employee’s regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit. Finally, it will produce more paperwork and add to the already rising costs restaurants will incur due to the Affordable Care Act. 

Restaurants considering eliminating the use of automatic gratuities are unlikely to face much backlash from employees, as the IRS’s ruling could disadvantage them as well. For example, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday. For those waiters and waitresses used to coming home with money in their pockets each workday, such a delay could prove a serious financial hardship.

Some restaurants have begun moving toward the use of suggested tips on a customer’s bill instead of charging an automatic gratuity in light of this change. For example, Darden Restaurants Inc., has begun implementing a new system in some of its restaurants in which three suggested tip amounts, 15%, 18% and 20%, appear on all customer bills. This system allows the customer to exercise discretion in choosing whether and how much to tip. In its ruling, the IRS suggested that such a practice would not be subject to federal withholdings because the decision to leave a tip is still voluntary. Therefore, this practice presents a viable alternative to automatic gratuities as it provides some protection for employees without incurring increased tax penalties.

Other restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.   

Tip Pools: Challenging DOL's Amended Rule on Employee Participation

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.

10 Best Practices For Avoiding Tip-Related Liability

By Evan Rosen

Hospitality employers continue to get hit with class action lawsuits alleging that they are unlawfully taking the tip credit for their employees.  Under federal law, and the law of most states, an employer may pay less than the minimum wage to any employee who regularly and customarily receives tips.  The difference between the minimum wage and the hourly wage rate is called the "tip credit."  

This compensation system, when administered correctly, has the advantage of saving employers a significant sum of money.  But employers must implement several safeguards to avoid potential liability.  Indeed, if the employer's tip policy is unlawful, employers will be liable, not only for the amount of tips that were wrongfully distributed, but will also be on the hook for the entire tip credit for all tipped employees, and under some state laws, liquidated, punitive, and/or treble damages.

Here are some tips (no pun intended) to ensure that your company is compliant.

1) Provide written notice to all employees for whom your company is taking a tip credit.  Among other things, the notice should inform the employees of their hourly wage rate, the amount claimed by the employer as a tip credit, and that all tips received by the employee are to be retained by the employee (except for a valid tip pooling arrangement).

2) Regularly audit your payroll to ensure that that all employees for whom your company is taking a tip credit is earning at least minimum wage when tips are included into their overall compensation.

3) Ensure that all tipped employees are earning at least $30 a month in tips.

4) Do not allow tipped employees to spend more than 20% of their shift performing non-tipped related work (i.e. side work, room set up, etc.).

5) Employees with managerial responsibilities should not participate in the tip pool.  Keep in mind it is the individual's actual duties that are dispositive, not their job title.

6) Back of the house employees (expeditors, dishwashers, stewards, cooks, etc.) should typically not receive tips.

7) Be mindful of state law.  Some states, like Massachusetts, have their own unique tips law.  Other states, like California, prohibit employers from taking a tip credit.

8) If you reduce tips by a percentage paid to a credit card company, be sure that such reductions only occur for credit card tips and not for cash tips.  Likewise, ensure that any such reductions do not bring the employee below minimum wage.

9) If your company is taking a tip credit, the regular rate for calculating overtime payments of a tipped employee should be based on the minimum wage, and cannot be based on their lower hourly wage rate. 

10) Train your managers and audit your policies and procedures at least once a year.

Texas Roadhouse, Inc. Settles Its Beef With Wait Staff For $5 Million

By  Kara Maciel and Casey Cosentino

The restaurant and hospitality industries are no strangers to the tidal wave of wage and hour class action lawsuits. Restaurants and hotel operators located in states with employee-friendly laws like Massachusetts, New York, and California, are particularly vulnerable. This vulnerability was recently confirmed on April 30, 2012, when Texas Roadhouse, Inc. agreed to pay $5 million to settle a putative class action suit filed by wait staff employees from nine restaurants in Massachusetts.

In Crenshaw, et. al, v. Texas Roadhouse, Inc. (No. 11-10549-JLT), the plaintiffs alleged that Texas Roadhouse violated Massachusetts Tips Law by retaining and distributing proceeds from their gratuities to managers and other non-wait staff employees, including hosts/hostesses. Additionally, because the plaintiffs did not receive all of their gratuities, they asserted that Texas Roadhouse improperly claimed the tip credit against the minimum wage in violation of Massachusetts Minimum Wage Law. As such, Texas Roadhouse allegedly paid the plaintiffs less than minimum wage. The plaintiffs, therefore, argued that they were entitled to full minimum wage for all hours worked.

Under Massachusetts law, employees who receive at least $20 per month in gratuities may be paid $2.63 per hour (“tip credit”), provided that the gratuities and hourly pay rate when added together are equal to or greater than the state minimum wage of $8.00. If the employee does not receive the equivalent of the minimum hourly wage with his or her tips, the restaurant or hotel must pay the difference. Although restaurants and hotel operators are prohibited from retaining employees’ gratuities, they may distribute properly pooled tips. Accordingly, when the tip credit is claimed to satisfy the minimum wage, only employees who customarily and regularly receive tips are eligible to participate in the tip pool. These employees include wait staff employees (e.g., banquet servers and bussers); service employees (e.g. baggage handlers and bellhops); and bartenders. Conversely, employees not eligible for tip pool arrangements include kitchen staff, cooks, chefs, dishwashers, and janitors. Also, under no circumstances are employers, owners, managers, or supervisors permitted to share in the tip pool.  

The Texas Roadhouse settlement illustrates the importance of adhering to state and federal minimum wage laws. A violation of a tip pool arrangement can lead to high exposure for restaurants and hotels, not only with respect to money wrongfully withheld from employees, but also with potential tip credit violations. With the flood of class action suits, restaurants and hotel operators must continue to make compliance with wage and hour laws a top priority. As a best practice, restaurants and hotel operators should conduct regular self-audits of their wage and hour practices, in consultation with legal counsel. Identifying and correcting wage and hour mishaps before plaintiffs collectively seek action is the first defense to preventing class action suits and reducing legal liability.

Are Your Employees' Tips Subject To Garnishment?

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.

Top Legal Issues for the Hospitality Industry to Watch in 2012

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.