Employment Law Bits

Restaurant owners and managers beware deducting servers' pay

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.

Lipsitt v. Plaud: The Wage Act does not prevent breach of contract claims for unpaid wages

The Massachusetts Wage Act provides that employees who are improperly paid, may report the violation to the Attorney General’s office and subsequently receive the right to sue their employer. Under the Wage Act, employees who win their suit are entitled to mandatory treble damages and attorney’s fees. Additionally, Wage Act claims must be brought within three years of the employee not being paid properly.

A recent case decision by the Supreme Judicial Court has found that the Wage Act is not the exclusive remedy for employees claiming wages were incorrectly paid. In Lipsitt v. Plaud, the president of a museum hired a director in 2004. They agreed in writing that the director would receive a salary of approximately $4,000 per month. Due to financial difficulties, the director was never fully paid, however, he continued to work in part because of the president’s continued representations that the arrears owed him would eventually be paid.

When the museum folded in 2007, there were still outstanding wages owed to the director. The director filed a complaint with the Attorney General’s office in September 2008, he was issued a right to sue letter in April 2010, and he filed suit in Superior Court in September 2010. His complaint alleged not only violations under the Wage Act, but also, among others, a claim for breach of contract. The Superior Court dismissed his breach of contract claim, finding that the Wage Act was the exclusive remedy for recovery of unpaid wages under Massachusetts law.

However, the Supreme Judicial Court reversed finding there is no express or implied intention within the Wage Act that it provide the exclusive remedy for employees seeking unpaid wages. The court further found that the common law breach of contract claim was wholly independent from the Wage Act. The court noted that while most employees are best served by the mandatory treble damages and attorney’s fees under the Wage Act, a claim for breach of contract allows an employee to collect unpaid wages up to six years past. Thus this decision opens the door for additional wage related claims to be brought outside the 3-year window under the Wage Act.

 

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Thurdin v. SEI Boston - Pregnancy Discrimination under MERA

In Massachusetts, employers with six or more employees are prohibited from discriminating against an employee because of her pregnancy under General Laws chapter 151B. Any employee who can sue under chapter 151B must file a complaint with the Massachusetts’s Commission Against Discrimination (MCAD) within 300 days of the act that the employee is alleging is discriminatory. After 90 days, the employee can elect to remove the case from the MCAD and pursue the claim in Superior Court.

Employers with fewer than six employees can also be sued for pregnancy discrimination, but under a different law: the Massachusetts Equal Rights Act (MERA). Complainants who file under MERA are not required to file with the MCAD first, but can proceed directly to Superior Court with their claim.

Tracy Thurdin was hired in February 2005 to work for a small information technology business, SEI Boston. Two months later, she informed her employer that she was pregnant and due in June. She told her supervisor that she could perform all the essential duties of the job. The next day her supervisor told her that he was upset that she was pregnant and requested she take voluntary unpaid leave. Ms. Thurdin refused. Her supervisor went on to chastise her that is was unethical that she had not revealed her pregnancy during her interview and that it would place a burden on the company. Ms. Thurdin telephoned her attorney, a friend, and her husband saying that she believed she was being discriminated against because of her pregnancy. This conversation was overheard by another employee who repeated it to her supervisor. Her supervisor told her to leave for the day and subsequently placed Ms. Thurdin on unpaid administrative leave because of her pregnancy.

Ms. Thurdin sued SEI Boston under MERA. The Superior Court dismissed the case, finding that chapter 151B was the exclusive remedy for pregnancy related discrimination. However the Supreme Judicial Court reversed. It found that “a party aggrieved by employment discrimination based on pregnancy who is precluded from using [chapter 151B] may assert a claim under MERA.” It also found that MERA not only applied to hiring decisions, but also discrimination during the course of employment.

 

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