Can a restaurant employer deduct from an employee’s paycheck when a customer leaves without paying the bill? If a glass is broken during a shift, can a server be charged to replace it? These are common practices in the restaurant industry and it is unclear whether it is a violation of Massachusetts employment law.
Recently, the International House of Pancakes in West Springfield, Massachusetts, reached a settlement with servers who claim their rights were violated because the company reduced their pay for walkouts, breaks that were never taken, and employee meals that were never provided. The settlement, which totaled more than $100,000.00, provides relief to the aggrieved IHOP employees, but it is unclear what employment laws were broken, if any.
Under federal labor standards, employers may reduce employee pay for uniforms and meals that are provided to employees, unless the deduction causes the employee’s wages to fall below minimum wage, which is especially likely in the restaurant industry where employees usually receive very low wages and the bulk of employee payment comes in the form of tips.
The Fifth Circuit has held that an employer is not entitled to the minimum wage exception, known as the “tip credit,” for employees who receive gratuities unless they pay their employees at least $2.13 per hour in addition to ensuring that employee tips plus wages is at least the federal minimum wage of $7.25 per hour. By deducting for broken glasses, the court held that the employer failed to be eligible for the tip credit because the deduction brought employee wages below $2.13 per hour. Therefore, if employer deductions cause an employee’s hourly wage to fall below the minimum $2.13, then the employer is in violation of federal law, whether or not tips bring the employee’s wages above minimum wage. Chisholm v. Gravitas Rest. Ltd., 2008 WL 838750 (S.D. Tex. Mar. 25, 3008).
A municipal law in Washington, D.C., prohibits even the voluntary payment by employees for “breakages, walkouts, mistakes on customer checks, and similar charges,” whether the employer deducts from employee wages directly or accepts payment separately. D.C. Mun. Regs. tit. 7, § 915. This protection is not afforded by statute to Massachusetts employees. But the IHOP settlement implies that an employer may be vulnerable to a claim by disgruntled employees who feel their rights were violated.
Employers can take several steps to mitigate the risk of being held in violation of labor laws. Most importantly, an employer should never deduct from an employee’s paycheck if it causes the total employee income to fall below minimum wage. Moreover, a restaurant employer should not deduct below $2.13 per hour, even where tips are sufficient to bring total income above minimum wage. An employer may also wish to consider avoiding deductions from employee pay where the cause of the deduction is outside the direct control of the employee, like a customer who leaves without paying. Finally, an employer would be wise to make sure that all employees are informed of the policy of deductions upon hiring the employee, in addition to specifically notifying employees of the basis for deductions as they occur.