Everything You Need to Know About Filing a Wage Claim in the Service Industry

In the vibrant service industry, from large restaurants to bustling hotels, understanding your rights under the wage and hour laws is not just important – it is essential.  Disputes about whether you are paid the correct amount of wages is not uncommon, given the numerous regulations that apply to workers in the service industry. With that in mind, it is crucial for employees in this sector to arm themselves with knowledge about their legal rights and the steps necessary to take action should they encounter wage violations. 

Navigating wage disputes requires a thorough understanding of the wage and hour laws. The Fair Labor Standards Act (FLSA) is the federal law that governs the payment of wages to hourly workers, like waiters and waitresses.  The FLSA establishes the requirements that employers must follow when paying wages, overtime pay, and the proper handling of tips. If you are looking to file a wage claim, see how the dedicated team of knowledgeable attorneys at Hodges & Foty, LLP can help today by calling (713) 523-0001 by using our contact form. 

What Are Your Rights As a Service Industry Worker?

Every non-exempt employee in the country is entitled to be paid at least at the federal minimum wage.  The Fair Labor Standards Act (FLSA) sets the minimum wage and requires employers to pay the minimum wage to their employees.  Even service industry workers who receive tips are entitled to the minimum wage.  

However, under the FLSA, tipped workers can be paid as low as $2.13 per hour.  At this hourly rate, the tip credit has a harmful effect on workers that threatens the health of the economy.  Adasina Social Capital, a company representing investors with more than $538 billion in assets, has issued a letter to large restaurant chains advising of the ills of using the tip credit. (See https://adasina.com/investor-statement-in-support-of-ending-the-subminimum-wage/).  The letter states as follows:

• Tipped workers are the largest group paid a subminimum wage and represent approximately six million people in the United States. The restaurant industry by far employs the largest number of tipped workers, representing 13.6 million people.
• Frozen at $2.13 per hour, a tipped subminimum wage worker can be paid as little as $4,430 per year for full-time work. As a result, in the 42 states that allow payment of a subminimum wage, tipped workers are more than twice as likely to live in poverty, and the rates are even higher for women and people of color. The subminimum wage for tipped workers has risen little since it was enacted following the emancipation of slavery, a time when employer trade associations pushed to recoup the costs of free, exploited labor.

Given the harmful effects of the tip credit, there are strict requirements that must be met by an employer who seeks to utilize the trip credit to meet its minimum wage obligations. 

Under section 206 of the FLSA, employers are required to pay their employees no less than the federal minimum wage rate of $7.25 for all hours worked. See 29 U.S.C. § 206(a)(1)(C). “The FLSA contains an exception that permits employers to pay less than the general minimum wage—$2.13 per hour— to a ‘tipped employee’ as long as the employee’s tips make up the difference between the $2.13 minimum wage and the general minimum wage.” Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186, 188 (5th Cir. 2015) (quoting 29 U.S.C. § 203(m)). “This employer discount is commonly referred to as a ‘tip credit.’” Id. (quoting Fast v. Applebee’s Int’l, Inc., 638 F.3d 872, 874 (8th Cir. 2011) ).

However, this tip credit is not automatic and the “employer [bears] the burden to prove its entitlement to the tip credit.” Steele v. Leasing Enters., Ltd., 826 F.3d 237, 242 (5th Cir. 2016).   An employer may take the tip credit only if it: (1) pays a cash wage of at least $2.13 per hour; (2) informs its employees of the FLSA’s tip credit provisions; (3) permits its employees to retain all their tips; and (4) ensures that the cash wage plus the tip credit equal at least the minimum wage each week. See 29 U.S.C. § 203(m). Kilgore v. Outback Steakhouse, 160 F.3d 294, 298 (6th Cir.1998) (citing Martin v. Tango’s Restaurant, Inc., 969 F.2d 1319, 1322 (1st Cir.1992)). If the employer fails to satisfy any of these requirements, the tip credit may not be claimed, regardless of whether employees suffered actual economic harm as a result. See Tango’s Restaurant, Inc., 969 F.2d at 1323.

Moreover, an employer cannot pay below the minimum wage to tipped employees and require those tipped employees to perform non-tipped work that is unrelated to the tipped occupation.  See, e.g., Driver v. AppleIllinois, LLC, 739 F.3d 1073, 1075 (7th Cir. 2014) (explaining that when tipped employees perform “non-tipped duties” that “are unrelated to their tipped duties…such as, in the case of restaurant servers, washing dishes, preparing food, mopping the floor, or cleaning bathrooms, they are entitled to the full minimum wage.”); Osman v. Grube, Inc., No. 16-CV-802, 2017 WL 2908864, at *4 (N.D. Ohio July 7, 2017)(same holding). 

Similarly, an employer cannot require its tipped employees to perform non-tipped work that is related to the employees’ tipped occupation but exceeds 20 percent of the employees’ time worked during a workweek. See, e.g., See Marsh v. J. Alexander’s, LLC, 905 F.3d 610, 626-28 (9th Cir. 2018) (adopting 20% standard for dual jobs regulation and finding the DOL’s opinion on dual jobs for tipped workers to be entitled to deference); Fast v. Applebee’s Intern., Inc., 638 F.3d 872, 881 (8th Cir. 2011) (granting the DOL’s 20% standard deference); Driver v. AppleIllinois, LLC, No. 06 Civ. 6149, 2012 WL 3716482, at *2 (N.D. Ill. Aug. 27, 2012) (“An employer may take a tip credit only for hours worked by [an] employee in an occupation in which [he] qualifies as a tipped employee.”); Driver v. AppleIllinois, LLC, 739 F.3d 1073, 1075 (7th Cir. 2014) (the court indirectly cast its imprimatur on the DOL’s aforementioned dual-jobs regulation and Field Operations Handbook, citing both the “related to” standard in 29 C.F.R. § 531.56(e) and the 20% standard in § 30d00(e)); Flood v. Carlson Restaurants, Inc., No. 13 Civ. 6458 (AT), 2015 WL 1396257 (S.D.N.Y. Mar. 27, 2015) (denying defendant’s motion to dismiss explaining that the 20% standard is a reasonable interpretation of the FLSA and ultimately granting 216(b) notice); Ide v. Neighborhood Restaurant Partners, LLC, No. 13 Civ. 509 (MHC), 2015 WL 11899143, at *6 (N.D. Ga., 2015) (“. . . a reasonable interpretation of § 531.56(e) is that [Plaintiffs] would be entitled to minimum wage if she spends more than twenty percent of her time performing related but non-tipped duties.”); Crate v. Q’s Restaurant Group LLC, 2014 WL 10556347, at *4 (M.D. Fla., 2014) (“[T]he Court concludes that the 20% rule clarifies the ambiguity contained in 29 C.F.R. § 531.56(e) by delineating how much time a tipped employee can engage in related, non-tip-producing activity before such time must be compensated directly by the employer at the full minimum wage rate.”).

Underpaid or Missing Wages? Hodges & Foty, LLP Can Help 

Filing a wage lawsuit involves more than just understanding your rights; it involves navigating through a complex legal process to ensure you are fairly compensated for your labor. With the unique challenges faced by those in the service sector, precise and informed legal advice becomes indispensable. At Hodges & Foty, LLP, our attorneys excel in representing workers, offering the skilled guidance and support needed to confidently move forward with your wage claim.

Our legal team, known for its extensive experience and successful advocacy in employment law, is adept at handling the intricate aspects of wage and hour claims specific to the service industry. Whether it is unpaid wages or overtime disputes, we are here to provide the expert guidance and representation you need. Begin the journey to protect your earnings and secure the justice you are entitled to by reaching out to us today. Contact Hodges & Foty, LLP through our contact form or by calling (713) 523-0001.