Overtime Advisor : New York Employment Lawyer & Attorney : Greenwald Doherty Law Firm : NY Wage & Hour & Discrimination : Overtime Advisor Law Blog

Recently there has been a spate of multi-million-dollar wage and hour lawsuits and an increasing number of audits by the NYS Department of Labor targeting New York City restaurants.  Among the restaurants hit are Club 21 (filed March 17, 2009), the Saigon Grill  (judgment in October 2009 for $4.6 million), and, most recently, Iron Chef Bobby Flay’s  Bar Americain and Mesa Grill (filed January 9, 2009).  On March 18, 2009 NY Labor Commissioner M. Patricia Smith announced a $2.3 million settlement with Ollie’s Noodle Shop and eight other restaurants owned by Tsu Yue Wang. This comes on the heels of the DOL’s January 2009 announcement that it would partner with community groups in its continuing effort to crackdown on wage violations.

Such announcements are symptomatic of a nationwide crackdown on an industry with significant exposure to overtime claims, due to some of the industry’s most common practices.   In the food service sector, where many workers accept long hours in order to increase their earnings (which are based primarily on tips), poor recordkeeping, cash payments, failure to handle tips correctly, improper distribution of tips, tip pooling, deductions from pay for costs such as the laundering of uniforms, and various other wage and hour issues place employers at heightened risk.  The laws governing eateries are often complex, and most restaurant owners are unaware of their legal obligations to pay their workers properly.  Unfortunately, many restaurant owners are following follow long-established (but illegal) industry practices, which is resulting in the type of actions cited above. Today, workers are being educated as to their rights by attorneys and workers’ rights groups, and are much less hesitant than in the past to participate in claims against their employers. Until a fundamental change is made by restaurants in general, there is no reason that this wave of lawsuits and audits will subside anytime soon. 

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In the current economy, it is essential for employers to avoid paying out unnecessary overtime compensation. While getting a handle on overtime is certainly a worthy goal, it can only be achieved through skilled management – not by unilaterally denying overtime pay for overtime that was legitimately worked. In Chao v. Gotham Registry, 514 F.3d 280 (January 2008)  the U.S. Court of Appeals for the Second Circuit resoundingly reaffirmed the U.S. Department of Labor’s long-held position that any work that is “suffered or permitted”  by an employer must be compensated.  It also created a standard for evaluating time worked by off-site employees, whose decisions about when to start and stop work cannot always be monitored by employers.

Gotham Registry is a placement agency that provides nurses to fill temporary vacancies at hospitals. As a consequence of a consent judgment issued in a 1994 DOL enforcement action against the company, Gotham’s nurses are considered employees. Since the nurses work away from Gotham’s site, Gotham does not have the ability to directly supervise their activities. The hospitals that are Gotham’s clients sometimes ask Gotham’s nurses to stay beyond their agreed-to shifts. Despite a policy requiring nurses to call in before accepting work that will put them over the 40-hour mark for a single work week, the nurses are not always able to get timely approval from Gotham due to the 24-hour nature of hospital work. Gotham cannot always recover its costs from hospitals for overtime when rates are not negotiated in advance. Gotham was generally paying nurses who worked overtime without getting approval straight time for hours worked in excess of 40.  Despite the fact that Gotham may neither control nor always benefit from this overtime work, the Chao court reasoned that Gotham had “imputed knowledge” of the work (albeit after the fact when it got the nurses’ time sheets), and that “work is work” and must be compensated.

The Chao decision puts Gotham between a rock and a hard place, since a nurse in Gotham’s employ could literally have to choose between saving a life and notifying Gotham of a hospital’s request that s/he stay on the job on an overtime basis, generating costs that may not be recompensed by Gotham’s client. In most other industries, however, there is no reason why an employee cannot be expected to seek authorization before working overtime. An employee who fails to do so has to be compensated for the work, but can be disciplined in other ways.

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You can’t have it both ways – that was the opinion of a federal district court judge who recently awarded summary judgment to the more than 400 former and current department heads and co-managers who filed suit against New York supermarket chain Gristedes for unpaid overtime (Torres et al. v. Gristedes Operating Corp, 2008 WL 4054417). As noted by the New York Times,  most partial day deductions from pay invalidate an argument that employees are paid on a salary basis. This was Gristedes downfall. 

Under the FLSA (as well as New York State law), only salaried white collar positions may be “exempt,” and thus ineligible for overtime pay under most of the specific exemptions defined by these laws. The FLSA requires that salaried exempt employees be paid “the full salary for any week in which the employee performs any work without regard to the number of days and hours worked” [29 C.F.R. § 541.602(a)], with limited exceptions. While Gristedes considered its department heads and co-managers “exempt” and failed to compensate them at time and one-half for hours worked in excess of 40 in a workweek, it also made improper deductions from their “salaries” in at least 7.5% of pay periods over 10 years, according to the testimony of Gristedes own expert witness. When the court granted summary judgment to plaintiffs on this count, all of Gristedes other justifications for classifying these employees as exempt became irrelevant.

To maintain “salary basis” for exempt employees, employers must:

• Remember that salary cannot be reduced for variations in the quality or quantity of work

• Make deductions from pay only for the following reasons: 
   
  • absence from work for one or more full days due to sickness or disability in accordance with a Company plan or policy
  • absence from work for one or more full days for personal reasons other than sickness or disability, beyond any such absences that are permitted under the Company policy
  •  to off-set amounts employees receive as jury or witness fees or military differential pay
  • for unpaid disciplinary suspensions of one (1) or more full days, imposed in good faith for workplace conduct rule infractions
  •  for a penalty imposed in good faith for infractions of safety rules of major significance
  • for days not worked in the first and last weeks of employment 
•  Publish and distribute a policy (perhaps within an employee handbook) explaining the bases on which deductions from salary will be made, and providing employees with a complaint mechanism for resolving payroll error.

Gristedes argued in this case that its approach to paying the plaintiffs was consistent with “industry practice.” If so, we can expect to see a lot more overtime claims against grocers in the near future.

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The U.S. Court of Appeals for the Eleventh Circuit recently upheld a decision by the federal District Court for Southern Florida narrowly interpreting the FLSA requirement that employers notify tipped employees when they intend to take advantage of the “tip credit allowance.” The “tip credit” provision of the FLSA and many state wage laws allows employers to pay tipped employees as little as $2.13 per hour when their base pay, combined with tips, will bring their hourly rate of pay to at least minimum wage.

In Pellon, et. al. v. Business Representation International, Inc. et al. [528 F.Supp.2d 1306 (U.S. Dist. S.D. Fla. 2007)], plaintiffs, a group of 53 “skycaps” at Miami International Airport, attempted to argue that defendants (their employers), had failed to notify them that they intended to take the tip credit, in violation of 29 U.S.C. § 203(m)(2), which explains the tip credit allowance and requires employers who intend to use it to so inform employees. Had plaintiffs prevailed on this point, their employers would potentially have been liable for substantial minimum wage violations.

In granting defendants summary judgment on this count [upheld on appeal, 291 Fed.Appx. 310 (C.A. 11 Fla.)], the Court noted that defendants had notified new hires that they would be paid $2.13 per hour, plus tips, and had also conspicuously posted an explanation of employee rights under the FLSA, including an explanation of the tip credit allowance, as required by the U.S. Department of Labor.  Plaintiffs maintained that defendants owed employees a clearer explanation of the tip credit, but the Court cited precedents such as Chan v. Triple 8 Palace, Inc. [2006 WL 851749 (S.D.N.Y. 2006)] : “Employers do not have to ‘explain’ the tip credit to employees, however; it is enough to ‘inform’ them of it.”

Pellon is a welcome development for employers, since it restricts notice requirements for businesses in the hospitality and service industries with tipped employees. However, it is important to note that opinion on this point is not unanimous on the federal bench, and employers who take advantage of the tip credit should be certain that they have adequately notified employees of their procedures. Collecting signed statements from tipped employees confirming that they have received such notice is always a wise practice.

The FLSA rights poster employers are required to display can be downloaded at http://www.dol.gov/esa/whd/regs/compliance/posters/flsa.htm. A state-by-state guide to pay requirements for employers who take advantage of the tip credit allowance is available at http://www.dol.gov/esa/whd/state/tipped.htm.

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