Most of my practice focuses on helping government contractors navigate the perilous waters of the wage and hour laws specifically directed at those who do business with the federal government. So what can federal contractors learn from a case involving tip pool and tip credit violations brought against a Mexican restaurant in Pennsylvania? In a word—lots.

The case, recently settled by way of a consent judgment between the US Department of Labor (“DOL”) and the restaurant, arose out of the investigation of La Tolteca Authentic Mexican Restaurant in Wilkes Barre, Pennsylvania. The alleged violations centered around the restaurant’s tip pooling practices and the tip credits claimed by the restaurant for compliance with minimum wage and overtime pay requirements.

Tip pooling involves the practice of having tipped employees turn over all or part of their tips to their employer, which then distributes the pooled tips to all employees who customarily receive tips (e.g., servers, bartenders, and the like). The employer then distributes the pooled tips to all of the tipped employees based, for example, on the employee’s hours worked and/or their roles. Employers may pay tipped employees an hourly wage less than the minimum wage and may count employee tips as a “credit” for minimum wage compliance purposes. In other words, employers who claim a tip credit must ensure that each employee receives the minimum wage based on a combination of the employee’s hourly wage plus the tips earned by the employee.

Suit was brought against the restaurant by DOL in federal court, a substantial part of which was decided in a ruling on a motion for partial judgment in which the Court found in favor of DOL. The ruling can be found here: https://casetext.com/case/walsh-v-la-tolteca-wilkes-barre-inc. If you review the decision, you’ll see the employer’s lack of adequate records virtually guaranteed it couldn’t prove that its practices were legally compliant. According to the court, the restaurant couldn’t establish the value of tips pooled, whether all the pooled tips were distributed, whether the value of distributed tips resulted in employees receiving the minimum wage, and whether the employees were paid overtime at the proper regular rate of pay.

Maintaining adequate wage and hour records is a statutory and regulatory obligation under FLSA. See 29 U.S.C. § 211(c); see also 29 C.F.R. § 516. We’ve blogged about them here: https://www.awrcounsel.com/blog/2020/9/9/back-to-basics-flsa-recordkeepingtimekeeping. While those come with their own sanctions for noncompliance, the larger problem with bad recordkeeping is that you can’t prove your compliance absent some other means of proof, which can be hard to come by.

Similar recordkeeping requirements permeate the laws and regulations applicable to federal contractors. We’ve written about them in a number of our earlier blogs. We discussed the newly revised Davis Bacon Act requirements here: https://www.awrcounsel.com/blog/2023/11/15/davis-bacon-update-recordkeeping-requirements. We’ve explained how one must maintain good records of hours worked and wages for workers who hold multiple positions with varying rates of pay here: https://www.awrcounsel.com/blog/2018/3/5/two-hatters-overtime-and-prevailing-wages-for-workers-in-dual-jobs.

And the Executive Orders that require the provision of paid sick leave and the payment of minimum wages to those who work on or in connection with federal contracts each come with their own recordkeeping obligations. Good records will be critical to demonstrating whether employees work in connection with covered contracts and how many hours they do so. I’ve discussed the “in connection with” concept here: https://www.awrcounsel.com/blog/2022/9/7/get-in-connection-with-the-federal-contractor-minimum-wage.

Obviously, it’s necessary for federal contractors to understand the wage and hour laws applicable to them and what they must do to be compliant. It’s just as important have good records to prove that you followed the rules. As the title of this blog states—if it’s not in writing (or your database), it doesn’t exist.