Restaurateurs' role as employer has become far more complicated, with regulators collecting bounties for labor-law infractions that weren't treated as transgressions in the not-so-distant past. And restaurants seem to be at the top of the hit lists:
- In 2015, the U.S. Department of Labor won $38 million in back wages for nearly 47,000 employees—more than double the numbers for 2010.
- Restaurants account for 51 percent of the money the DOL has won from all low-wage industries.
Even well-intentioned owners can step on the legal land mines concealed in regulations and fine print. Here are six areas where operators may be vulnerable without even realizing it—and what they can do to avert the risk before they explode.
If you don't want to make your lawyer rich, we suggest you give it a careful read.
Don’t get punched by the clock
It seems simple: Pay workers for all the time they work. But your records may not reflect every task an employee performed, from taking out trash to forgetting to punch in. Whatever the cause, unpaid hours can add up. In a 2014 settlement, Ruby Tuesday had to pay $3 million to more than 4,000 servers for work off the clock.
To be sure workers get paid for every minute, review time entries on a weekly basis, advises Washington, D.C., lawyer Barbara Cusumano. And don’t be afraid to correct your records, she adds. But make sure the worker signs off on each change, to leave a paper trail.
Another potential time bomb: rounding down to the nearest half-hour. Federal law permits rounding, but only if records are rounded up to the nearest half-hour.
Put on the breaks
You’re short-handed, and the lunch rush is frantic. You ask a server to get up from their break and help out. It could turn out to be an expensive lunch.
In a 2014 settlement, Brinker International, parent of Chili’s and Maggiano’s Little Italy, agreed to pay up to $56 million to 120,000 workers at its California chains. Under state law, hourlies were supposed to get a 30-minute meal break after working five hours. But staffers claimed they’d been told to work through their breaks, and were owed an hour of back pay for each one skipped.
An easy remedy is to set up a separate break area and direct workers to use it, says Mays. “One place is for not working and the other is for work,” he says.
Defray drivers fully
For delivery drivers, wear, tear and fuel can take a bite out of their earnings. If car expenses drive hourly earnings below minimum wage, drivers can sue for the difference. To steer clear of wage violations, Gerstein recommends compensating drivers for expenses at the rate set by the Internal Revenue Service, currently 54 cents a mile. Or check with AAA, which publishes the cost per mile of various-size vehicles.
Those rates aren’t cheap, but neither is a lawsuit, she notes. Several pizza chains have settled class-action suits, most for confidential amounts. In 2012, Pizza Hut franchisee NPC International paid a reported $8 million to 4,500 drivers, who alleged they were falling short at least $1.50 an hour. NPC did not respond to a request for comment.
Make time to review overtime
Under federal law, to be exempt from overtime, a manager's primary duty should be managing, not sharing the same tasks as hourly workers. Starbucks has settled multiple overtime cases, costing it as much as $18 million, with store managers and assistant managers who also did the work of baristas.
To avoid overtime claims, train your managers not to pitch in, suggests lawyer Kara Maciel of Washington, D.C. “Make sure they’re not taking on too many nonexempt duties, like running food to tables or bartending when they’re short-staffed.”
This year also is a good time to review your managers’ job descriptions, says New York City attorney Carolyn Richmond. The DOL has proposed raising the income threshold for overtime from $23,660 to more than double that amount, potentially making midlevel managers eligible for overtime pay. To get ahead, consider shortening their hours by shifting some duties to higher-level managers.
Older workers: Handle with care
As baby boomers get older and retire later, it’s getting more perilous to fire them. In Woodland Hills, Calif., for example, Cables, a casual American restaurant, filed for bankruptcy in 2014 after a jury ordered it to pay $5.7 million to four older waitresses it had replaced with younger ones.
In recent years, the Equal Employment Opportunity Commission has charged several restaurant chains with discriminating against older applicants, too. At Texas Roadhouse, the agency alleged only 1.9 percent of front-of-the-house employees were over 40. Texas Roadhouse did not reply to our inquiry, but it has stated that its application doesn’t ask about age, and workers tend to be younger because they have to wear jeans and T-shirts and line dance.
One defense against such suits is meticulous employment records, says Cusumano. Document that a worker was hired or fired for reasons other than age. “If an employee is chronically late, make sure your managers are noting that, and those notes are going into employee files,” she says.
Put up franchise firewalls
In a case some say could shake the foundations of franchising, the National Labor Relations Board has McDonald’s on its hot seat. Thirty-one of its franchisees have been charged with labor violations. In a March hearing, an NLRB judge considered whether McDonald’s should be charged along with them.
At issue is what labor law calls “joint employers.” For decades it meant that two companies shared hiring and firing. In 2014, the NLRB made the definition broader and vaguer to include employment standards a franchisor might set for its franchisees.
If the judge rules against McDonald’s, observers say, it could open up many franchisors to both lawsuits and union organizing. But franchisors can protect themselves, contends Los Angeles lawyer Rochelle Spandorf, by separating themselves from franchisees’ employment systems. Don’t provide detailed employee manuals or scripts for job interviews. If POS software includes functions such as labor scheduling, make them optional rather than mandatory. That hands-off policy should even govern store inspections, Spandorf says.
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