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How Documenting Can Keep You Out of Court
The best way to avoid labor-wage lawsuits is to keep accurate records of overtime and tips paid to employees.
Accurate bookkeeping of tips and overtime wages is critical in avoiding wage lawsuits.

In the latest sign of a possible wage-dispute trend in the restaurant industry, five Houston-based restaurants agreed to fork over more than $334,000 in back pay to 154 current and former employees after the Department of Labor found minimum-wage and overtime violations of the Fair Labor Standards Act (FLSA).

The Department’s Wage and Hour Division discovered that non-exempt employees, entitled to “time-and-a-half” pay for overtime under the FLSA, “were being paid straight time for all hours worked, including those worked over 40 in a workweek,” according to a press release issued Friday. “Additionally, the companies did not maintain the required recordkeeping.”

“It is a top priority of this department to ensure that all workers receive the wages they have earned,” said Cynthia Watson, regional administrator for the Wage and Hour Division in the Southwest, in the release. “In these cases, employees were found to be earning hourly rates that fell below the federal minimum wage. This is illegal.”

The Department’s intensified focus on wage disputes, signaled by the hiring of 250 new Wage and Hour investigators this summer, comes amid several recent headline-grabbing cases. Workers from upscale Manhattan restaurant Remi filed a lawsuit in June, claiming the restaurant’s owners violated the FLSA by not paying overtime, withholding tips, and falsifying records. Then, in November, a married couple with five restaurants in western Michigan was ordered to pay more than $2 million in minimum-wage and overtime pay owed to 129 employees after a Labor Department investigation.

Robin Mallett, district director of the Wage and Hour Division in Houston, says the Department’s “increased enforcement efforts … definitely include the restaurant industry because it is one of the primary industries that employs vulnerable workers.”

She defined vulnerable workers generally as those making close to minimum wage.

According to Mallett, the recent uptick in FLSA infractions might have to do with the bad economy tempting some employers to illegally cut corners.

“Historically, whenever there has been an economic downturn … the Wage and Hour Division has seen an increase in wage violations,” she says.

Bill Strock, a labor and employment attorney at Haynes and Boone in Dallas, says many labor-law violations result from employers misunderstanding the complexities of the FLSA. The Labor Department revised the law in 2004 in an effort to clarify its exemption clauses, which cover who is—and who isn’t—entitled to overtime wages and other premiums. But Strock says the Act needs "further refinement" to avoid unintentional violations.

“You’re always going to have situations where people view the law differently or understand the law differently, but it seems there’s an awful lot under this legislation that can’t be attributed to people consciously violating the law,” he says.

Justin M. Swartz, a partner at Outten & Golden in New York who represents employees in labor-law disputes, disagrees that the Act is hard to understand.

Historically, whenever there has been an economic downturn the Wage and Hour Division has seen an increase in wage violations.”

“I think the law is pretty clear,” he says. “The basic concept is you work and you get paid. What makes [the requirements of the FLSA] complicated is when employers try to shoehorn employees into exemptions under which they don’t belong.”

Swartz says the Labor Department’s enforcement of FLSA under the Obama administration “has made a 180-degree turn from what was happening under the last administration” in terms of protecting low-wage workers. But he says staying within the law is easy.

“Use common sense,” he says. “It’s not difficult to understand that workers have to be paid for all the time that they work. Don’t try to find loopholes and don’t try to stretch the exemptions beyond what they’re meant for.”

Still, some believe staying in line with the law requires constant vigilance. Keith Gutstein, a partner at Kaufman Dolowich Voluck & Gonzo in New York who represents business owners, says he gets calls daily about FLSA cases, “particularly against restaurants.”

Gutstein says one of the problems is that restaurant operators often do not document tip and overtime payments, leaving themselves vulnerable if accused by employees of wage violations.

“In the absence of documentation you’re kind of behind the eight ball,” he says.

In many cases, Gutstein says, problems arise from informal payments.

“You can’t contract out of what the law requires,” he says. “You can’t say, ‘So-and-so agreed to get paid less.’”

In the end, Gutstein says the way to avert a Labor Department visit is to follow the FLSA to the letter.

“Everything can be cured if you comply with the law,” he says. “Keeping the [payment] documents—that’s the ticket.”

Jordan Melnick is QSR's online exclusives reporter.