BESIDES being major names in the culinary world, what do Lidia Bastianich, Mario Batali, Tom Colicchio, Bobby Flay, Danny Meyer, Keith McNally, Drew Nieporent, Jean-Georges Vongerichten and Michael White have in common? In recent years, their restaurants have been caught up in a wave of lawsuits — almost all class action — alleging violations of labor laws regarding wages and overtime. And new suits are being filed almost daily. What’s behind this onslaught?
Lawyers for the plaintiffs argue that many of the city’s restaurants are routinely cheating their workers by confiscating waiters’ and busboys’ tips to share with managers and other ineligible employees, among other charges. Restaurateurs, in turn, point to a confusing hodgepodge of outdated wage and hour laws and opinion letters from the State Department of Labor that have made it hard to know whether they’re in compliance.
Whom should diners believe? There’s likely some truth to both versions. As in all industries, it’s probable that some restaurateurs are unscrupulous. They deserve to be held accountable. But it defies common sense to think that so many of the city’s most respected restaurateurs have intentionally cheated their waiters — and continue to do so despite the threat of costly lawsuits that could drive them out of business.
Regardless, almost all restaurateurs settle these cases, even while denying wrongdoing, rather than go to trial. That’s because a loss in court would bring a number of draconian penalties. In fact, thanks to the Wage Theft Protection Act signed into law by Gov. David Paterson on Monday, employers will soon have to pay plaintiffs not only back pay owed, interest and lawyers’ fees, but also damages equivalent to 100 percent of the wages due — up from 25 percent under the old law. (Under federal law the same penalties apply.)
The biggest worry for restaurateurs, though, is that one error — for example, just one ineligible employee found sharing in tips — could cost a restaurant its “tip credit,” which permits restaurants to pay their waiters less than the full minimum wage because the state assumes that they get $2.60 an hour in tips. If a restaurant’s tip credit is yanked, it has to repay that much for every hour worked by every tipped employee for up to three years.
Though no two cases are exactly alike, many center on these seemingly simple but surprisingly arcane issues: tip sharing and pooling arrangements; miscalculation of overtime pay; and service charges for banquets and private parties.
This last issue was the subject of an important 2008 New York State Court of Appeals decision. In a case in which the employees of the dining fleet World Yacht claimed that the company had not shared the mandatory service charges with them, the court ruled that if “a reasonable patron” would believe that a service charge was a gratuity, then the entire amount must go to the members of the service staff (who may already earn an average of $20 or more an hour at private events). The decision unleashed a new wave of lawsuits.
The regulations governing these issues came under review by the State Department of Labor in 2009. But it wasn’t until October that a proposed new hospitality wage order was published for comment, and if all goes well, it should take effect by early next year. Though both sides believe that this revised order would help clarify confusing areas in the law, neither side believes it would stop the lawsuits. Indeed, it should be only the first step in a much-needed overhaul of the current system of laws and regulations.
Here are some next steps that could protect workers while preventing crippling lawsuits from putting restaurants out of business:
The Department of Labor should enact the proposed wage order without further delay — and make arrangements to educate both employers and employees about its requirements.
The State Legislature should grant the industry amnesty from the retroactive application of the 2008 State Court of Appeals decision.
The Legislature should reduce from six years to three the statute of limitations for which restaurants might be liable for back wages, which is more in line with federal wage and hour laws and those of most other states.
A special judicial board, versed in the relevant regulations, should be appointed to hear all pending and future cases, on an expedited basis. This would cut down on legal costs for both sides, promote early settlements and give plaintiffs with legitimate claims a chance to be heard quickly.
One way or another, New York City and State have an interest in clearing up this mess — before it cuts into all of our diets.
Tim and Nina Zagat are the co-founders of Zagat Survey.
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