Gary B. Eidelman, Esq. Saul Ewing LLP geidelman@saul February 21, 2012

1. Gary B. Eidelman, Esq. Saul Ewing LLP geidelman@saul.com February 21, 2012 Delaware Restaurant Association2ND Annual Restaurant Resolutions Education Symposium Employment Law Update

2. Federal and DE Law Relating to Tipped Employees • The law permits employers to credit tips against minimum wage • In DE, employer’s portion towards $7.25 per hour minimum wage must be at least $2.23 per hour • Balance may be made up with tip income • Employee must be engaged in an occupation in which tips are customarily included with remuneration and where employee customarily receives more than $30 per month in tips

3. Notice Requirements for Tip Credits Must notify employees in advance that: • The amount of cash wage being paid • The additional amount by which wages are increased on account of the tip credit (amount may not exceed actual amount of tips received) • All tips to be retained by employees except for valid tip pool • Tip credit shall not apply unless informed Key – to claim credit, employee must actually receive at least that amount in tips!

4. Definitions under DE law • “Gratuities” means money received directly or indirectly by an employee where the customer is entirely free to determine whether to make a payment and, if so, by how much. vs • “Service charge” is an obligatory amount included in the statement of charges. • Must be clear and conspicuous on the menu, placard, statement of charges, or other notice indicating that all or part of the service charge belongs to mgt. • Notice must be printed, stamped or written in bold text (at least 18 point type on placard or 10 point or larger type on other notices) • A service charge without such notice is the property of the primary direct service employees

5. Service Charges as Tips According to the strict interpretation of the DE statute, a service charge is not a gratuity and, therefore, it may not be counted towards tip credits. FLSA regulations are similar – compulsory charges for services imposed by a restaurant are not tips even if distributed to employees but may be counted towards the employer’s monetary requirements.

6. Tip Pooling “Any gratuity received by an employee, indicated on any receipt as a gratuity, or deposited in or about a place of business for direct services rendered by an employee is the sole property of the ‘primary direct service employee’ and may not be taken or retained by the employer except as required by state or federal law.” Primary direct service employee = performs the main direct service for the customer and is to be considered the recipient of the gratuity.

7. Exceptions under DE law • Employees can establish a system for sharing/pooling to tips • Employer may not require or coerce employees to agree on a system • Where >1 direct service employee provides service, employer may require such employees to establish a tip pooling system not to exceed 15% of the primary direct service employee’s tips. • “Employer” may never receive any portion of the tips (who is an employer??).

8. FLSA definition of tips • New regulations make clear that “tips are the property of the employee whether or not the employer has taken a tip credit” • Employer must notify employees of mandatory tip pool contribution amount, may only take a tip credit for the amount the employee receives and may not retain tips for any other purpose.

9. Who can participate in the pool? • Occupation that customarily and regularly receives tips (> $30 per month) • YES -- waiters, waitresses, counter personnel who serve customers, bellhops, bussers and service bartenders. • NO -- dishwashers, cooks, chefs and janitors.

10. Some issues • Credit cards – may deduct for actual service charges. Can’t reduce below minimum wage • Overtime –count the full minimum wage for determining what is time and half (may not use a larger tip credit) • Dual jobs – can only count tips for hours spent on the tipped occupation • Damages include back pay, liquidated damages and attorney’s fees

11. The headlines • The Starbuck’s barista case – not tip pooling but collective box tip sharing • Vida Café – if not a tip pool, can the employer require sharing with the back of the house (not in DE and no longer FLSA) • Owner/bartender may not participate in a tip pool

12. Crackdown on illegal workers • Be wary. The tide is changing. Focus no longer on punishing the illegal workers (civil violations, deportation, legal status) • Criminal charges are being levied against employers • 2010 – Immigration and Customers Enforcement Agency charged 180 business owners, employers and managers • Since 2009, ICE has imposed $50m in sanctions • April 2011-- Chuy’s Mesquite Broiler chain. Owners and accountant charged. Tax fraud and harboring illegal workers (each face 80 years in jail) • June 2011 – Mambo Seafood. Arrested managers, Raided corporate offices and restaurants (alleged knowingly hired and allowed workers to lie on paperwork)

13. Sexual Harassment in Restaurants • Recent statistics showed that almost 40% of all sexual harassment cases filed took place in restaurants (only 9% of workers) • Poll shows that more than 40% of women working in restaurants have claimed some form of sexual harassment • Influence of alcohol and uniforms/attire is a contributing factor

14. Addressing the problem • Quid pro quo • Hostile environment • A written policy with reporting is absolutely mandatory • Harassment training can really be the difference in winning and losing • Zero tolerance