The minimum wage requirements under the Fair Labor Standard Act (FLSA), as well as many state laws including Pennsylvania, allow tipped workers to be paid a lower hourly rate than non-tipped workers. However, those laws require companies to comply with a strict set of requirements in order to take advantage of that lower rate. Failure to do so can lead to expensive litigation, as demonstrated by a $2.1 million class action settlement recently approved in Koenig v. Primanti Corp.[1]

Although the lead plaintiff in Koenig alleged several violations of state and federal law regarding minimum wage payments to tipped workers, the critical allegation was that the employer failed to provide employees with proper notice of the tip credit under federal and state law. Both the FLSA and the Pennsylvania Minimum Wage Act (PMWA) require employers to notify employees of these tip credit requirements in writing before any tip credit can be applied to employees. The U.S. Department of Labor requires that these notices include the following information:

• the amount of the cash wage that is to be paid to the tipped employee;
• the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer (which amount may not exceed the value of the tips actually received by the employee);
• that all tips received by the tipped employee must be retained by the employee (except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips); and
• that the tip credit shall not apply to any employee who has not been informed of these requirements in this section.[2]

Wage and hour claimants will often claim a violation of these notice requirements because it is relatively easy to prove. Conversely, an employer who complies with the notice requirements can obtain an early dismissal of a class action suit, as demonstrated in Calabrese v. TGI Friday’s Inc.[3] Approximately three months after the complaint was filed in Koenig, defendant implemented a new notification policy that met the notice requirements of the FLSA and PMWA, thus limiting the time period that plaintiffs could recover. However, the company remained potentially liable for over 2,000 class members who worked as tipped employees for the period starting three years prior to the complaint through the end of 2016 when the new policy was implemented. To minimize similar exposure, companies who employ tipped workers and rely on the tip credit should check that they are providing appropriate written notices. Obermayer attorneys have experience reviewing and revising employer policies and notices to ensure compliance with these requirements and other employment laws and regulations.

[1] No. 16-1402 (W.D. Pa. Apr. 23, 2018).

[2] 29 CFR § 531.59.

[3] No. 16-CV-0868, 2017 U.S. Dist. LEXIS 181598, 2017 WL 5010030 (E.D. Pa. Nov. 2, 2017).