Latest Legal Trends for Restaurants in 2018

by Eric Sarver, Esq.8 Min Read

Most restaurant owners would agree that staying up to speed on the latest trends is crucial for business. Developments in the dining-out habits of your customers, technology tendencies (such as online ordering or payment apps), and new methods in brand differentiation are a handful of trends that you, as a restaurant owner or hospitality professional, will likely keep up with, to stay relevant and successful in 2018. However, there is another area of trends that is equally crucial to your long-term success: legal trends in the restaurant and hospitality industry – particularly involving new labor and employment laws relating to your workers’ tips and wages, crypto-currency, and the legal rights of your employees.

Now that you’ve digested the introductory appetizer about the importance of being up to speed on the law, the main course for this article will consist of a brief overview of the four most recent legal trends in the restaurant industry. 

Tip Pooling Changes: Back-of-The-House Betterment or Unscrupulous Under-Cutting of Front-Facing Staff?

On December 4, 2017, the United States Department of Labor issued what’s called a “Notice of Proposed Rulemaking” (NPRM), regarding regulations governing tips under the FLSA (Fair Labor Standards Act [29 U.S.C. § 201 et seq., § 203(m)].  Under the new proposed rule, front-serving wait staff’s tips will become the property of the employers (such as restaurant owners), and not the property of the servers or wait staff.  This new proposed law -- a reversal of a year 2011 regulation by the U.S. Department of Labor under the Obama Administration -- would mean that the restaurant owner will own their staff’s tips, and can either: (a) pool such tips and share the money with untipped “back of the house” employees, like cooks, porters and dishwashers, or (b) the restaurant owner / employer may decide to keep these tips entirely, and not share them with either the front-facing or back-end staff.

Currently, the Notice of Proposed Rulemaking is just that – a proposed regulation that The United States Department of Labor is considering (if you are curious about the exact text, check the United States Department of Labor website, document citation 82 FR 57395; see also 29 CFR Section 534).  The public has until February 5th, 2018 to submit comments to the U.S. Department of Labor’s Wage and Hour Division, so you can state whether you support this regulation being implemented.  

What are the implications of this proposed rule change, for you, the restaurant owner?

What are the pros and cons you need to consider, from a legal liability standpoint or a business / employee morale standpoint? 

Consider the following:

  • Previously, tips were considered wages under the Fair Labor Standard Act, and employers could pay their servers less than minimum wage, with a tip credit, so long as their servers’ salary of wages plus tips met or exceeded the federal minimum wage (currently at $7.25 per hour) [See 29 U.S.C. Section, §§ 203(m) and 206]. The Obama-era ruling (prohibiting tip pooling by restaurants) led to a wave of federal lawsuits filed by the National Restaurant Association, with federal courts split in their rulings -- some courts for and some against allowing restaurant owners to take the tips of their servers, for tip pooling or other purposes (so long as the employer met minimum wage requirements, for those staff whose tips they were taking). Will the Trump Administration’s new pro-tip pooling regulation result in a new wave of lawsuits against restaurants, that would challenge the validity of tip-pooling as a violation of the Fair Labor Standards Act?  Restaurants who implement this tip-pooling may find themselves impacted by – or a part of – litigation from watchdog advocacy groups, who oppose the Trump Administration’s new proposed rule.
  • Interestingly, this new tip-pooling NPRM is simultaneously under criticism and praise by workers’ rights advocates: some say it will help to equalize the compensation scheme for back-of-the-house staff (cooks, cleaners, etc.) who work hard to make the customer’s dining experience a positive one, yet often make minimum wage. Other employee rights advocates, however, worry that the proposed DOL regulation’s silence on the restaurant owner’s keeping of the tips for themselves, combined with a lack of transparency and workers’ fears about complaining to the Department of Labor, makes for a recipe whereby none of the workers will share in the tips, and will instead make minimum hourly wage, while an establishment’s owner pockets the tips. A recent national study estimates that the servers and front-facing staff (including wait staff, bartenders, and bussers) will face an annual loss of approximately 5.8 billion dollars industry wide – while 80 percent of the tips that would be taken from employees would come out of the pockets of female tipped workers, according to the Economic Policy Institute. Could this last prediction trigger a class action or individual employment discrimination suits based on gender (impact-based discrimination)? This possibility remains to be seen in 2018.
  • If you do partake in pooling and redistributing of tips, do keep copious records of the tips that your restaurant brings in -- as well as when and how they are distributed -- in case of any lawsuits, challenging the tip-pooling practice (discussed above).
  • Be aware of your state’s laws around tip-pooling. Many states (such as Alaska, California, New York, Minnesota, Montana, Nevada, Oregon, Washington) and even some municipalities and cities set stricter (or at times differing) legal requirements -- preventing an owner / employer from tip-pooling, or limiting which workers can share in the tip-pool, and requiring advanced notice to employees upon hire, prior to their tips being pooled.  More will be revealed after February 5th, 2018, when the DOL has closed the public commentary, and decides whether to officially enact regulations, rescinding the Obama-era restrictions against taking or redistributing servers’ tips.  Indeed, this is an issue to watch carefully in 2018.
Overhaul of Overtime Laws

Any restaurant or hospitality owner who has been under audit for overtime/FLSA violations would likely agree that failure to pay overtime wages, or improper recording of overtime wages for your employees, is not something that you want to take lightly.  The Fair Labor Standards Act has long required that a certain class of employees (non-exempt) be compensated for one and-a-half- times their hourly wage, for all hours worked above 40 hours in a work week (29 U.S.C. §§ 201 through 219).  However, there are changes in store for 2018.  In 2016, The Department of Labor regulations set a higher economic threshold, under which certain employees could still receive overtime pay (earning $47,476 per year as the ceiling; workers earning less than that could still be eligible for overtime pay.)

However, in 2017, the Trump Administration’s Labor Secretary and the U.S. Department of Labor rescinded the Obama-level salary threshold (or “economic threshold”) for non-exempt (overtime owed) workers, and has put forth the possibility of a threshold salary, whereby certain employees earning more than $33,000 annually may be classified as exempt from the FLSA’s overtime pay requirements (no overtime pay required, for hours worked over 40 in a week).  This $33K per year threshold would be higher than the pre-Obama salary level for cutting off overtime pay (at $23,660 earned per year).  Many restaurants in midwestern and southern states, where the cost of living is lower than in places like New York or California, will feel the impact of having more of their employees covered by overtime than was the case when the “threshold salary” was at $23,660 per year.

Significantly, there are other factors in determining if certain employees are entitled to time-and-a-half pay under the FLSA.  The Trump Administration’s Department of Labor (year 2018 proposals) include narrowing the scope of duties that would qualify an employee for overtime pay, for working more than 40 hours per week (in a seven-consecutive day period). 

Applying these new laws to restaurant owners, bars, and cafes in 2018 may mean sitting down with an H.R. consultant, high-quality payroll company, employment law attorney, or all of the above, to make sure that you are correctly classifying which of your employees are entitled to overtime pay, and which ones are not. While waiters, cooks, and bussing staff will likely still fall under the FLSA’s overtime requirements, a question arises as to the overtime status of other employees in the hospitality industry.

Bitcoin and Crypto-Currencies – What’s In Your Customers’ Virtual Wallet?

Remember a time when “tweets” were heard only by birds, “friending” someone involved personal / live interactions, and “google” was perhaps known only by a few mathematicians as “googol”, referring to a number way too large to analyze in this article?  Technology changes so quickly, introducing words, concepts, and even new forms of currency that were once non-existent. As Bitcoin, Ethereum, and “Altcoin” forms of digital currency take hold across the globe, several restaurants and eateries are already accepting Bitcoin as a form of payment.

What might the benefits be to you, a restaurant, café, or hotel owner, in accepting bitcoin as payment from your clients to pay their bill?

How might you go about conducting such business?

To review in basic terms: a “Bitcoin” refers to a form of digital currency / cryptocurrency.  There are no physical Bitcoins (as there are dollars, coins, or euros). Rather, there are balances kept on a public ledger in the cloud. This ledger  – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are Bitcoins valuable as a commodity. 

Accepting Bitcoin can have its advantages to the restaurant, bar, café, or hospitality establishment.  These perks include:

  • lowering your transaction fees by accepting Bitcoin (generally significantly lower than fees charged for credit and debit card purchases);
  • helping to prevent fraud / identity theft of your customers by an unscrupulous employee (customers can pay businesses in Bitcoin without divulging personally identifiable information that a credit card discloses); and
  • no chargebacks (while this is not as common among eateries as with sellers of merchandise, there are times when credit card chargebacks occur based on disputes to a credit card’s purchase, as with identity theft).

Restaurants would need to create a virtual wallet, have certain crypto-currency codes established, and would need to establish some protocol for the transmission of bitcoins into the restaurant’s “virtual wallet.” As this is a bit outside of my expertise as an employment law attorney, I would encourage restaurants interested in bitcoin to contact other establishments that have utilized such a process.

The #MeToo Movement– From Hollywood to Hal’s Diner, Sexual Harassment Demands Our Attention

In the last quarter of 2017, a watershed women’s movement gained momentum, calling out and holding powerful men accountable for sexual misconduct and sexual harassment in the workplace.  We saw leading figures in media, entertainment, and politics terminated from employment, removed from companies, and resigning their positions (including at least two congressmen), due to their sexual misconduct, harassment, and predatory behavior in (and outside of) the workplace.  While federal and state laws prohibiting and punishing this type of behavior have been in place for over five decades, year 2018 brings mass awareness about the prevalence of sexual harassment, gender discrimination, and mistreatment in the workplace, along with a rallying cry for action.

You might wonder: how prevalent is workplace sexual harassment in bars, restaurants, hotels, and the hospitality industry?  

Toward the end of 2017, a non-profit group called The Restaurant Opportunities Center-United, surveyed over 688 restaurants from across 39 states, and found “endemic” levels of sexual harassment, with more than 90 percent of women working in restaurants as tipped employees dealing with discrimination and unwanted sexual advances in some form.  Women working as tipped employees with the lowest (state) minimum wages for jobs were found to be twice as likely to be sexually harassed as those working in states with a higher minimum wage.

What can you do in 2018 to protect your restaurant, bar, or eatery from being tainted by employee / workplace sexual harassment?  One good starting place is to review and update your restaurant’s H.R. Policies and Employee Handbooks. Include clear procedures for employees to follow, and specified supervisors or H.R. staff that an employee can speak with, if she or he believes they are being sexually harassed or discriminated against.

Many restaurants – particularly large or chain restaurants – have several levels of management and employee interaction, such that a manager or owner may not be aware of sexual harassment being suffered by an employee in their workplace.  However, ignorance is no defense to a sexual harassment claim.  An employer can be held vicarious liability for unlawful sexual harassment or discrimination by an employee’s supervisors.  [See Burlington Industries, Inc. v. Ellerth, 118 S. Ct. 2257 (1998), and Faragher v. City of Boca Raton, 118 S. Ct. 2275 (1998)].   Yet, having the proper notification procedures in place for your employees to follow has long been a factor considered by the courts, in determining whether an employer can be subject to liability. Punitive damages are also a higher risk factor, when employers offer no clear channel on how to report cases of discrimination or sexual harassment [Burlington Industries, Inc. v. Ellerth, 118 S. Ct. 2257 (1998), and Faragher v. City of Boca Raton, 118 S. Ct. 2275 (1998); EEOC guidelines for interpreting federal laws against sexual harassment (Title VII of the 1964 Civil Rights Act)].

In addition, make sure you have a clearly stated anti-discrimination policy in plain sight in the workplace and in your employee handbooks that workers sign for. Restaurant owners would be wise to invest in a discrimination awareness workshop/anti-harassment training for  staff – given by trained experts in this area of the law.  Lastly, considering the most recent wave of sexual harassment cases, proper screening when hiring employees – from lower-level to supervisors and managers – is of crucial importance.  While you may have heard of the above suggestions before, 2018 is a critical year to implement the above actions, especially if you have not done so to date.

In Conclusion

Like other customer-facing service providers, restaurant owners are visionaries, who balance meeting the needs of their staff, their customers, and the demands of various legal requirements – from food safety regulations to employee compensation and hours. Knowing the most recent legal trends for 2018 will put you and your restaurant at an advantage point, where you will be less prone to problems of failing to comply with new legal obligations. Moreover, by understanding the legal trends in employment and customer service, you can make decisions about your restaurant’s business model, which can increase growth in what will hopefully be a healthy and prosperous new year. 

Eric Sarver, Esq

Eric Sarver, Esq.

@EricSarver73 | LinkedIn | Website | Email

Eric Sarver, Esq. is an employment law attorney representing management-side for small to mid-sized businesses such as the hospitality, retail, tech firms, service providers and startups. Practice areas include defending employers, defense against DOL investigations, drafting employment documents and counseling businesses on labor law compliance.

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