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Stealing wages from the working poor

Wage-Theft-coverPhiladelphia sports bar and restaurant chain Chickie’s & Pete’s has signed a consent judgment agreeing to pay current and former employees more than $6.8 million in back wages and damages for improperly taking tips from servers and violating federal minimum wage, overtime and record-keeping requirements. Following one of the U.S. Department of Labor’s largest tipped employee investigations in recent years, the company and its owner, Peter Ciarrocchi, Jr., have agreed to pay $6,842,412 to 1,159 employees at nine of the company’s locations, plus a $50,000 civil money penalty. The proposed consent judgment has been filed in the U.S. District Court for the Eastern District of Pennsylvania and is subject to the review and approval by the court.

“The egregious actions by Chickie’s & Pete’s harmed real people and violated the promise that a fair day’s work deserves a fair day’s pay,” said U.S. Secretary of Labor Thomas E. Perez. “Restaurant servers are among the lowest paid workers in this country, with many earning incomes below the poverty line. Tipped workers deserve better and this action shows that the Department of Labor is ready to stand up for them.”

Under the Fair Labor Standards Act, tips are the property of the employee who receives them; however, restaurant operators can benefit by claiming a credit based on the tips towards their obligation to pay those employees the full minimum wage. If an employee’s tips combined with the employer’s direct wages do not equal the minimum wage, the employer must make up the difference during the pay period. An employer that claims a tip credit is required to pay a tipped employee only $2.13 an hour in direct wages provided that amount plus the tips received equals at least the federal minimum wage of $7.25 an hour. The federal minimum wage of $7.25 per hour was last increased in 2009 and the federal tip credit’s cash wage requirement of $2.13 has not been increased since 1991.

“When employers exploit tipped workers, they not only harm their employees who are working hard to earn a living, but also take advantage of the trust of their customers,” said Laura Fortman, principal deputy administrator for the department’s Wage and Hour Division. “Customers might not realize it, but their tips frequently are paying part of their servers’ wages, not just giving them a little extra to go with their pay. Chickie’s and Pete’s behavior is troubling because they both unlawfully took tips from their workers and failed to pay them even the $2.13 per hour the law requires when an employer takes a tip credit.”

Investigators from the Wage and Hour Division’s Philadelphia and Southern New Jersey offices conducted investigations at locations in Northeast Philadelphia, South Philadelphia, Philadelphia International Airport, Parx Casino in Bensalem, Pa., Warrington, Pa., Drexel Hill, Pa., Audubon, Pa., Egg Harbor Township, N.J., and Bordentown, N.J. Investigators found that the company improperly retained a fixed portion of the tips servers received from customers.

The investigation disclosed that the company required servers to contribute a portion of their tips to an improper “tip pool,” or tip-sharing arrangement, which was approximately between 2 percent and 4 percent of the server’s daily table sales. The owner illegally retained approximately 60 percent of the tip pool. This amount had come to be known as “Pete’s Tax” and was required to be paid to the manager in cash at the end of each shift, even if the server received all tips on credit cards and therefore did not have cash on hand. In some cases, the company required employees to use their own money to contribute to this pool by withdrawing cash from a nearby ATM or borrowing from another server.

Additionally, servers and bartenders were paid only a flat rate of $15 per shift at all locations except for Chickie’s and Pete’s airport establishment  an amount that was not sufficient in all cases to even cover the minimum cash wage of $2.13 per hour that must be paid to a tipped employee when an employer claims a tip credit under federal law. Additionally, the employer failed to pay the required overtime wages to these employees when they worked in excess of 40 hours in a week. Investigators also determined that employees were not paid for time spent in mandatory meetings and training, and were improperly required to pay for uniforms.

Under the provisions of the consent judgment filed in U.S. District Court for the Eastern District of Pennsylvania, and subject to court approval, the company will pay minimum wage and overtime back wages and is required to return the improperly retained tips to the servers, as well as pay liquidated damages. In addition, the company has agreed to enhanced compliance, including: (1) External compliance monitoring for an 18-month period, (2) Internal compliance monitoring for an additional 18-month period, (3) Training for all employees on their rights under the FLSA, (4) Providing a statement to any employee required to contribute to a tip pool detailing the amounts that were contributed by the employee, the job categories of workers included in the tip pool and the specific percentage each category receives, and (5) Peter Ciarrocchi, Jr., will write an article for a restaurant trade publication that addresses an employer’s obligations under the FLSA.

The consent judgment also calls for Chickie’s & Pete’s and Ciarrocchi to be permanently enjoined and restrained from violating the provisions of the FLSA in the future.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates of pay for hours worked beyond 40 per week. Employers also are required to provide employees notice about the FLSA tip credit provisions, to maintain accurate time and payroll records and to comply with the hours, hazardous orders and other restrictions applying to workers under age 18.

Equal pay claims

The right of employees to be free from discrimination in their compensation is protected under several federal laws, including the Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and Title I of the Americans with Disabilities Act of 1990.

The law against compensation discrimination includes all payments made to or on behalf employees as remuneration for employment. All forms of compensation are covered, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits.

Equal Pay Act

The Equal Pay Act requires that men and women be given equal pay for equal work in the same establishment. The jobs need not be identical, but they must be substantially equal. It is job content, not job titles, that determines whether jobs are substantially equal. Specifically, the EPA provides that employers may not pay unequal wages to men and women who perform jobs that require substantially equal skill, effort and responsibility, and that are performed under similar working conditions within the same establishment. Each of these factors is summarized below:

Skill

Measured by factors such as the experience, ability, education, and training required to perform the job. The issue is what skills are required for the job, not what skills the individual employees may have. For example, two bookkeeping jobs could be considered equal under the EPA even if one of the job holders has a master’s degree in physics, since that degree would not be required for the job.

Effort

The amount of physical or mental exertion needed to perform the job. For example, suppose that men and women work side by side on a line assembling machine parts. The person at the end of the line must also lift the assembled product as he or she completes the work and place it on a board. That job requires more effort than the other assembly line jobs if the extra effort of lifting the assembled product off the line is substantial and is a regular part of the job. As a result, it would not be a violation to pay that person more, regardless of whether the job is held by a man or a woman.

Responsibility

The degree of accountability required in performing the job. For example, a salesperson who is delegated the duty of determining whether to accept customers’ personal checks has more responsibility than other salespeople. On the other hand, a minor difference in responsibility, such as turning out the lights at the end of the day, would not justify a pay differential.

Working Conditions

This encompasses two factors: (1) physical surroundings like temperature, fumes, and ventilation; and (2) hazards.

Establishment

The prohibition against compensation discrimination under the EPA applies only to jobs within an establishment. An establishment is a distinct physical place of business rather than an entire business or enterprise consisting of several places of business. In some circumstances, physically separate places of business may be treated as one establishment. For example, if a central administrative unit hires employees, sets their compensation, and assigns them to separate work locations, the separate work sites can be considered part of one establishment.

Pay differentials are permitted when they are based on seniority, merit, quantity or quality of production, or a factor other than sex. These are known as “affirmative defenses” and it is the employer’s burden to prove that they apply.

In correcting a pay differential, no employee’s pay may be reduced. Instead, the pay of the lower paid employee(s) must be increased.

Title VII, ADEA, and ADA

Title VII, the ADEA, and the ADA prohibit compensation discrimination on the basis of race, color, religion, sex, national origin, age, or disability. Unlike the EPA, there is no requirement that the claimant’s job be substantially equal to that of a higher paid person outside the claimant’s protected class, nor do these statutes require the claimant to work in the same establishment as a comparator.

Compensation discrimination under Title VII, the ADEA, or the ADA can occur in a variety of forms. For example:

An employer pays an employee with a disability less than similarly situated employees without disabilities and the employer’s explanation (if any) does not satisfactorily account for the differential.

An employer sets the compensation for jobs predominately held by, for example, women or African-Americans below that suggested by the employer’s job evaluation study, while the pay for jobs predominately held by men or whites is consistent with the level suggested by the job evaluation study.

An employer maintains a neutral compensation policy or practice that has an adverse impact on employees in a protected class and cannot be justified as job-related and consistent with business necessity. For example, if an employer provides extra compensation to employees who are the “head of household,” i.e., married with dependents and the primary financial contributor to the household, the practice may have an unlawful disparate impact on women.

It is also unlawful to retaliate against an individual for opposing employment practices that discriminate based on compensation or for filing a discrimination charge, testifying, or participating in any way in an investigation, proceeding, or litigation under Title VII, ADEA, ADA or the Equal Pay Act.

Workers can’t survive on the minimum wage

From Secretary of Labor Tom Perez –

To create opportunity for American workers, we must ensure that they can earn enough to support a family and afford life’s very basics. Tomorrow, it will be exactly four years since our low-wage workers last saw a raise. Now more than ever, we must renew the call to increase the minimum wage.

If you work full time in the wealthiest nation on earth, you shouldn’t live in poverty. You shouldn’t have to lay awake at night worried about how you’re going to pay the utility bill, or what you’ll do if the car breaks down, or whether you can put dinner on the table the next day.

Minimum wage infographicJoin the conversation on Twitter and Facebook using the hashtag #MWraise.

President Obama has proposed raising the federal minimum wage from $7.25 to $9 per hour. Since the last increase, its value has eroded 7.3 percent due to the rising cost of living, so the president also wants to index the minimum wage to inflation beginning in 2015. Why shouldn’t workers’ take-home pay keep up with the price of a gallon of milk or a pair of children’s shoes?

The president’s minimum wage increase is part of his vision of an economy where opportunity is available to everyone; where we all get a fair shake; where the middle class is within reach no matter who you are or where you come from.

There is a lot of sky-is-falling rhetoric suggesting that a higher minimum wage will be a catastrophic job-killer. But we’ve seen this movie before. This argument rears its ugly head every time an increase is on the table. The minimum wage has increased in 22 steps since the 1930s, thanks to strong bipartisan support. Not once did it send the nation into an economic death spiral.

Quite the contrary. A higher minimum wage boosts consumer demand, the engine that powers our economy during a recovery like this. Study after study from credible economists demonstrate that raising the minimum wage has no negative effect on employment and may be good for business as it leads to a more stable workforce with less turnover, lower training costs and higher productivity.

The minimum wage numbers tell a compelling story, as the above graphic illustrates.  But behind the numbers are stories of real people, their struggle and sacrifice – a father working in the grueling heat as an airport baggage handler, a grandmother doing back-breaking work cleaning offices at night. They’re working hard and taking responsibility. They’re not looking for handouts or special favors. They just want a fair day’s pay for a fair day’s work.

It is time to increase the minimum wage. As a matter of social justice, it’s the right thing to do; as a matter of economic common sense, it’s the smart thing to do.

The Black Swan case, the FLSA and you

Check out our recent interview with the Pittsburgh Business Times on the “Black Swan” unpaid intern case.  Now is the time for employers to review their internship programs and check, re-check and then check again that they are not misclassifying employees as unpaid interns.  The internship exception to the FLSA is very narrow and applies only when specific conditions are met.  Employers who believe that on-the-job work experience is enough to trigger the exception are wrong.  As the Court wrote in Black Swan, “While classroom training is not a prerequisite, internships must provide something beyond on-the-job training that employees receive. ”

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