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March 28th, 2017
Wage and hour disputes are on the rise in the restaurant industry, leaving restaurant owners faced with a variety of concerns, such as overtime violations, withholding tips, and falsifying records. These claims are driven by a successful worker-organization movement, increased attention by plaintiffs’ attorneys, and complicated labor laws that leave employers confused.
According to the Department of Labor (DOL), more than “23,000 restaurants, bars, and fast food establishments have been prosecuted by the Department of Labor for wage and hour violations” and the “food service industry has paid more than $247 million in back wages and civil money penalties”. These numbers only cover government prosecutions, and the number of private prosecutions is staggering, up 450% within the last 20 years.
Just last year, five Houston-based restaurants agreed to pay more than $334,000 in back pay to 154 current and former employees after the DOL found minimum wage and overtime violations of the Fair Labor Standards Act (FLSA). Per the Wage and Hour Division (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.
In western Michigan, owners of five restaurants were ordered to pay more than $2 million in minimum wage and overtime pay owed to 129 employees after an investigation by the DOL.
There are several steps employers can take to ensure their restaurant is protected against wage and hour violations. Classifying employees correctly is key (employee vs contractor, exempt or non-exempt), as is keeping accurate time records and conducting periodic wage and hour audits. Don’t pay your employees in cash, if possible, and be sure to report all wages, including tips, to the IRS.
Retain an experienced labor attorney who understands your business, and whether you employ a dedicated HR team or just a single HR representative, be sure they are trained and well-versed on current employment laws and regulations. Providing employees with job descriptions and an employee handbook detailing polices is also recommended.
In addition to incorporating into practice the steps above, purchasing Employment Practices Liability Insurance (EPLI) is crucial. Investing in an EPLI policy adds an extra layer of protection to your business. EPLI covers against many types of employee lawsuits, including claims of sexual harassment, discrimination, wrongful termination, and breach of employment contract. It may also be a mechanism for providing coverage on wage and hour claims, but understand that many EPLI policies exclude wage and hour coverage and policies that do cover it, oftentimes, may offer a sublimit for defense coverage with a high, separate deductible. Sublimits can also vary from state to state so it’s important to consult with your insurance broker to verify your coverage.
Typically, no two EPLI polices are the same and many times these polices are sold on price rather than on a detailed coverage comparison. Your broker should be expected to explain Employment Practices Liability Insurance in detail, tailor your premiums and deductibles, provide a comprehensive review of your risks, and adapt coverage to your individual business needs.
By having an awareness and understanding of employment wage regulations, establishing and implementing proper employee practices, and investing in comprehensive insurance coverage, you will be taking the necessary steps to ensure your restaurant business is protected and compliant with current laws.