Tip Bandits Not Welcome Here: Court Orders New Hampshire Restaurant to Pay Back wages for Illegally Withholding Tips!

“Badges? We don’t need no stinkin’ badges!” – The Treasure of the Sierra Madre

After a Department of Labor investigation into Luchador Tacos, a North Conway, N.H. restaurant, a federal court ordered the restaurant to pay $74,064 in withheld tips and back wages as well as an equal amount in liquidated damages to 31 employees for violations occurring between February 2020 and February 2022.

The restaurant violated sections of the Fair Labor Standards Act (“FLSA”) that contain provisions requiring the payment of minimum wages, recordkeeping and overtime to covered employees. The owners of the restaurant violated the act in doing the following: 

·       Kept employees’ credit card tips.

·       Paid at least one employee straight-time wages for overtime hours worked.

·       Did not pay some employees one and one-half times their regular rates of pay for hours over 40 in a workweek.

·       Calculated tipped employees’ overtime rates improperly, basing the rates on their cash wage as opposed to their regular rates of pay.

The FLSA is a relatively complicated act with many different ways to trip employers up. But ignorance of the law is not an excuse for violating it. The FLSA requires that managers do not keep employee’s tips, either in cash or credit card form. Some employers will keep a portion of the credit card tip that an employee receives to credit towards the amount they will have to pay to a credit card company for processing a transaction. This is allowed under the FLSA; however, employers can only recoup the portion that the restaurant would be charged for the employee’s tip, not the entire bill. If an employee is tipped $1.00 on a $5.00 bill, the employer can keep 3 cents if the processing fee is 3%. They may not keep 15 cents (the processing fee for the whole bill).

These pitfalls can be easily avoided by reviewing the FLSA Tipped Employee’s regulations at 20 C.F.R 531 Subpart D. However, if you have any questions, it is likely less expensive to have a quick consultation with a labor attorney than to pay $74,064 in liquidated damages, notwithstanding the amount incurred hiring an attorney to defend the restaurant in litigation after the fact. To see the Department of Labor New Release on this case, visit their website here: https://www.dol.gov/newsroom/releases/whd/whd20221017.