Restaurant Owners Need to Watch for Employment Liabilities Around Every Corner

by Lindsay A. Ayers and Christopher J. Campbell4 Min Read

The restaurant industry continues to face stringent employment-related laws, compounding the managerial difficulties and operational risks of restaurant ownership. From predictive scheduling to the ever prevalent wage and hour laws, owners face employment-related legal compliance issues around every corner.

Restaurants are prime targets for data theft because they typically process large volumes of sensitive credit card information on a daily basis.

To start, legislation is being introduced at federal, state and local levels in an effort to address “clopenings," or shifts that require employees to consecutively work closing and opening shifts with fewer than 10 hours between. These bills or laws aim to increase predictability in workers' schedules by requiring employers to give employees advance notice of work schedules, to pay employees for schedule changes or cancelled shifts, and to provide predictability pay for on-call employees not called into work. Owners should monitor this trend closely given the prevalence of "clopenings" in the restaurant industry.

In addition, beginning September 2017, the EEOC will require private employers with 100 or more employees to submit summary pay data in its newly revised Employer Information Report. They intend to use this information to strengthen enforcement of anti-discrimination policies. States are responding as well, including California’s newly minted Fair Pay Act which prohibits employers from paying employees of the opposite sex differently when they perform “substantially similar work.” Restaurant owners should review their polices and pay structures for potential sex or race disparities, and be mindful of sex and race diversity throughout their front and back of the house positions. Furthermore, employers should consider auditing their discrimination, retaliation, and harassment policies in light of these new regulations.

Restaurants are also prime targets for data theft because they typically process large volumes of sensitive credit card information on a daily basis. According to studies, most data breaches are the result of employee error. To address these issues, best practices include performing background checks on employees who handle sensitive information, creating record retention policies limiting the time during which authorized-only personnel have access to sensitive information, developing employer policy handbooks with data management procedures, and training employees on their role and responsibility in data protection.

Given the NLRB’s modification of the joint employer standard, restaurant franchisors and owners should remain vigilant that their business relationships do not engender unintended joint-employer liability. Accordingly, owners should avoid attempting to control their contractors' conditions of employment, including their right to hire, terminate, discipline, supervise and direct their contactors’ employees.

According to studies, most data breaches are the result of employee error.

While every restaurant owner certainly is familiar with the concept of tips; treating tips correctly has become more complicated, and getting it wrong can carry significant consequences.  To avoid surprise calls from the IRS, “tips” should be voluntarily given by the customer to the persons the customer chooses, and in an amount determined by the customer-- free from restaurant policy. Where some restaurants apply a “mandatory service charge” to certain bills, it is important to note that, regardless of the customer’s intent, automatic gratuities are not considered tips. In 2014, the IRS began treating mandatory “service charges” as wages rather than tips, if any portion of the "service charge" is paid to an employee. With respect to tip pools, limitations are set for participation of only those employees who “customarily and regularly receive tips,” excluding for example: dishwashers, cooks, chefs, and janitors.  Because different states enforce their own tip-pooling restrictions, restaurant owners should closely monitor these regulations at the local level.

Unfortunately, the restaurant industry is remarkably vulnerable to wage and hour litigation because it predominantly employs hourly personnel. This vulnerability is compounded when restaurant owners operate in multiple states and localities, each requiring different policies and practices. The nearly unnavigable morass of laws can easily subject employers to significant expense for unpaid wages, overtime, payroll deficiencies, and meal and rest violations.  As a result, restaurant owners should perform regular wage and hour audits to adapt to the continually changing wage and hour landscape. An audit should examine:

  • proper classification of employees
  • recordkeeping policies
  •  pay, overtime, and break policies
  •  pay deduction policies
  • tip pool/tip credit calculations, and
  • manager’s practices.

This article covers a few of the litany of liabilities restaurant owners face when it comes to employment-related issues. Conducting regular preventative legal maintenance can prevent costly litigation and allow restaurant owners to focus on their customers and their bottom line.

About the Authors

Lindsay A. Ayers

Lindsay A. Ayers

Lindsay A. Ayers is Partner in the Orange County office of Carothers DiSante & Freudenberger LLP, an award-winning California employment, labor and business immigration law firm providing litigation defense and counseling to California employers. Ayers advises and defends California businesses in labor, employment, and general business matters.  She is an experienced trial attorney and represents clients in matters involving employment, unfair competition, fiduciary duty, breach of contract, negligence, unjust enrichment, securities, and fraud.  She also represents clients in government regulatory actions involving the EEOC, DFEH, and SEC, among others.  She has practiced in federal and state courts throughout California. She may be contacted at layers@cdflaborlaw.com.

Christopher J. Campbell

Christopher J. Campbell

Christopher J. Campbell is an Associate in the Orange County office of Carothers DiSante & Freudenberger LLP. Christopher defends California employers against allegations of wrongful termination, harassment, discrimination and retaliation. He has experience defeating wage and hour claims brought on behalf of individual plaintiffs or as putative class actions.  Contact Christopher at cjcampbell@cdflaborlaw.com.

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