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Wage-and-hour suits put industry on defensive

Wage-and-hour suits put industry on defensive

The restaurant industry already is infamous for long hours, relatively low pay and physically demanding work. But now a barrage of lawsuits, judges’ decisions and heightened regulatory initiatives are suggesting that in some places restaurant work is unfair and exploitative, too.

The number of lawsuits alleging that restaurant employees have been forced to work off the clock, directed to share tips with managers, denied meal breaks or rest periods, incorrectly compensated, or discriminated against is on the rise, according to attorneys who represent both plaintiffs and defendants. Those same attorneys say some of the factors pushing up the number of wage-and-hour violations are the tight labor market, which is compelling some employers to willfully skirt the law, and trial lawyers in search of cases with class-action potential.

In the state of New York, where a mounting caseload of complaints about wage-and-hour violations has reached “epidemic” proportions, according to groups representing immigrant workers, officials at the state Department of Labor reported that collections of unpaid wages in all industries throughout the state jumped 36 percent in the past year, to $10.4 million. As a result, the department has created a special unit to do nothing but pay calls to restaurateurs, retailers and construction trades suspected of cheating employees.

Earlier this year, the California Supreme Court issued a ruling that established a longer liability period for employers across the state that violate mandatory meal- and rest-break requirements. The decision in Murphy v. Kenneth Cole Productions Inc., which found that the amount paid to a worker by an employer for failing to provide a meal or rest break is considered a “wage” with a statute of limitations reaching back three years. It was expected to have a multimillion-dollar impact on the restaurant industry, which has been hit hard by wage-and-hour violations in the state in recent years.

More recently, Applebee’s was ordered by a federal magistrate in Kansas to provide the names and contact information of some 42,000 current and former workers who may be eligible to join a class-action lawsuit alleging that the dinnerhouse giant illegally applied a tip credit when servers spent more than 20 percent of a shift on tasks that should have compensated them the minimum wage.

Complaints also recently were lodged against chef-restaurateur Jean-Georges Vongerichten and fine-dining operator Drew Nieporent, both in New York and both charged with letting their companies’ managers share in tip pools.

Allegations of wage-and-hour violations also have ensnared the Fireman Restaurant Group, Smith & Wollensky Restaurant Group and Restaurant Daniel. Both S&W and Restaurant Daniel settled their suits out of court. S&W paid an undisclosed sum to settle its wage-and-hour suit, but the New York Times reported that Daniel paid $80,000 to end a suit alleging that workers were denied promotions because of race and ethnicity. FRG officials have said previously that they would vigorously defend their company.

Few lawyers are surprised that such seemingly black-and-white issues as paying minimum wage, granting rest periods or keeping managers hands out of the tip till have become so litigious.

Whether their clients are restaurant employees or restaurant owners, lawyers on opposing sides agree that the restaurant industry’s long tradition of assigning front-of-the-house staff to a variety of jobs in the same shift and the way trial lawyers pick their cases are fostering the wave of litigation.

First, lawyers say, wage-and-hour violations are far more lucrative than harassment or discrimination lawsuits. Such suits are quicker to resolve and often have a bigger payday given that the plaintiff is usually a group of people, versus lone individuals in harassment or discrimination suits, lawyers note. Moreover, lawyers point out that in many states and in federal cases if the employer-defendant loses, they pay punitive and compensatory damages as well as a host of fees, penalties and other court costs that could zoom up into the hundreds of thousands of dollars for the plaintiff group.

Second, attorneys, government regulators and academics say that with labor being so tight in the restaurant industry, some employers are being tempted to indulge in the so-called “Wal-Mart Syndrome,” a practice where employees work off the clock before or after their shifts to drive productivity. The practice is named after the nation’s largest retailer for its alleged practice of forcing employees to work off the clock while cleaning up the stores and restocking shelves after hours. In some cases, company managers were alleged to have locked employees in the stores until the units were ship-shape. At least 150,000 workers are eligible to join one class in what the company reported to be 57 lawsuits over wage-and-hour violations in its 2006 annual report.

In the fine-dining side of the business, especially in big cities like New York, San Francisco, Boston, Chicago or Miami, another factor fueling claims of maltreatment by workers is the yawning pay gap between servers and managers. Because some servers at hot restaurants make six figures annually, versus the mid- to high-five-figure range for maître d’s or managers, some operators promise their front-of-the-house managers a piece of the tip pool to keep them on board and shave labor costs, lawyers contend.

Sherril Colombo, an attorney who defends hospitality employers in labor trials for Cozen O’Connor in Miami, suspects the number of cases involving restaurant employers over wage-and-hour violations have increased 30 percent in the local, federal district court house in the past few years.

Colombo says she believes aggressive plaintiff attorneys see such cases as “low-hanging fruit” and are aggressively marketing themselves through Internet sites and traditional advertising as justice seekers for minimum-wage employees who feel they have been ripped off.

“I don’t think employers are doing anything different than in years past,” she says. “They are not more greedy or ignorant of the law. But I do think what is new is that you have a new class of attorney out there who knows how to exploit a case when they see an opening and, sad to say, some restaurant employers are giving them a big opening.”

Colombo said one frustration she encounters with restaurant clients is that while they are not willfully cheating workers out of their just desserts, they nonetheless classify people in the wrong positions or let managers participate in tips as a way to reduce turnover.

“This is a very transient industry,” she says, “and what I think happens is that some employers, as well-meaning as they may be, are trying to breed loyalty by offering certain compensation perks they really don’t have the right to offer.”

D. Maimon Kirschenbaum, a New York-based employee rights attorney at Joseph & Herzfeld, agrees that thanks to a technical procedure within the law governing the Fair Labor Standards Act, it is somewhat easier to file class-action lawsuits over wage-and-hour issues than it is to file class actions alleging racial or sexual discrimination in civil court.

Kirschenbaum is the lawyer who brought the tip-pool sharing suits against Vongerichten and Nieporent, and he just secured class-action status against Heartland Brewery.

But Kirschenbaum refutes charges that the plaintiff bar is enriching itself by exploiting the law and shaking down employers by soliciting uneducated workers.

While he admits that his law firm is doing quite well going after restaurateurs who steal tips or work minimum-wage employees off the clock, he defends the firm’s success ultimately as performing a social good.

“Yes, this is a good business to be in, and we are quite a busy law firm because we are helping people who otherwise would have few places to protect themselves,” he says. “I know that there are those who claim that the kind of law we practice gives trial lawyers a bad name, but I have never, ever sought out a client or solicited them. They seek me out.”

Kirschenbaum’s law firm has a link and an ad on , one of about a dozen hugely successful but antagonistic restaurant blogs, along with and , where restaurant employees anonymously indulge in “cybersmear,” airing their employers’ dirty laundry as well as tales of mistreatment by customers.

Kirschenbaum said he does not see the marketing at a website hostile to the industry’s employers as solicitation in the classic definition of the word.

“These workers are poor, they are being stepped on by their bosses, treated like garbage, and the word is out there that we’re going to stand up for your rights,” he insists. “I’m proud of what I do.

“It’s immoral to steal your servers’ tips.”

Officials at the New York State Department of Labor say they are doing all they can to reduce Kirschenbaum’s client list.

Christine Perham, a policy specialist with the department, says new commissioner M. Patricia Smith, formerly an assistant state’s attorney general who specialized in labor issues for 10 years, reconfigured a branch of the department that used to go after worker mistreatment in New York’s extinct garment industry to retarget it’s enforcement powers on minimum-wage violations in the restaurant industry and other retail.

High on the hit list are employers in foodservice and retail with staffs of deliverymen, she notes.

Perham says complaints filed with the agency from rank-and-file workers have been growing in recent years. She suspects complaints from the restaurant industry are on the rise because some unscrupulous employers think they can take advantage of the agency’s lack of manpower and resources.

“I think some employers know we don’t have the manpower to be everywhere, but they err if they think we won’t catch up with them,” she says. “This is why we are doing sweeps. We are adding more people who speak foreign languages, and we have set up offices all over the state for workers to contact us if they think they are being underpaid or mistreated.”

In “Unregulated Work in The Global City: Employment and Labor Law Violations in New York City,” a recently published, peer-reviewed study by the nonpartisan Brennan Center for Justice at New York University Law School, researchers contend that the impressive rebound of the restaurant industry after the terrorist attacks of Sept. 11, 2001, and the disproportionate number of immigrant and minority workers in the business is tempting restaurant employers to break the law.

“The result is fierce and unceasing competition, driving many restaurants to compete on the basis of cost cutting,” the authors wrote. “Because rent and food costs are essentially fixed, it is wages and benefits that often end up being cut. And while 50 years ago unions were able to set a wage floor, in the [restaurant] industry currently there is very little union presence.

“The upshot is that the workers, currently about 160,000, face difficult working conditions with frequent workplace violations.”

Paul Sonn, co-director of the Economic Justice Project of the Brennan Center, says what he takes away from his colleagues’ work is that restaurant employers are relying on old traditions and not the law in managing and paying their workers.

“We believe that part of the problem is that there is an operational tolerance for some of these abuses in the restaurant workplace,” Sonn says, “and that is complicated by the fact that no one is really educating employers about what is right or wrong until it ends up in court.

“There is growing evidence that these abuses are widespread, but I think too many employers indulge in it because their competitors are getting away with it, too, and they don’t want to be at a competitive disadvantage. Yet they are the first to cry that they are being unfairly penalized when caught.”

Sonn says the birth of the Restaurant Opportunities Center of New York, or ROC-NY, a group that fights unfair labor practices subjected on servers and cooks and is often likened to a union, is a result of the spreading maltreatment of foodservice employees.

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