TGI Friday’s, the casual dining chain, has agreed to pay $19.1 million to settle claims that it continuously underpaid many of its employees for years. This is believed to be the largest wage and hour payout of all time. The class action case (a lawsuit with many plaintiffs all of whom were allegedly injured similarly by the defendant) asserted violations of the Fair Labor Standards Act (a federal law that protects workers by setting standards for minimum wage, overtime pay, and more) and labor laws of nine states: California, Colorado, Connecticut, Florida, Illinois, Maryland, Michigan, New Jersey, and NY.
One of the alleged issues in the case involves tip pooling violations. Servers at Fridays were required to give a portion of their tips to the host staff. The law prohibits sharing pooled tips with non-tipped employees such as hosts, chefs, managers, dishwashers, and bouncers. The reason is that employers must pay non-tipped employees minimum wage but can pay tipped workers significantly less due to the tip credit, a deduction from minimum wage employers of tipped employees can take. So tipped workers need their tips to reach minimum wage.
Additionally, Friday’s was accused of not paying overtime wages which are mandated to be 150% of a worker’s hourly rate, payable for hours over 40 an employee works in a week. Per the lawsuit, employees who worked more than 40 hours were directed to clock out but continue working. So these workers were paid zero for the extra hours.
Nonpayment for hours worked is of course illegal. Managers allegedly promised to give employees a “good schedule” and free dinner to make up for the unpaid work. These perks are not legal substitutes for wages. Further, the supposed appeal of free food was worth less than it may appear because employees were already entitled to purchase food at half-price. When the workers were asked why they agreed to work off-the-clock, they typically responded they were concerned about losing their job if they objected.
Another allegation was that the restaurant company failed to keep proper wage records of employees’ hours. To help eliminate discrepancies in workers’ pay, employers are required to maintain and preserve certain records. These include the employee’s regular hourly rate of pay, the hours worked each workday and the total hours worked each workweek, and the employee’s earnings. When an employer fails to keep the records, payment to workers of less than the proper amount earned is more likely to occur.
Still another complaint was that Friday’s was violating the law relating to payment for work uniforms. The relevant rule is this: an employer can require an employee to pay the cost of a mandated outfit, unless by doing so the worker’s income falls below minimum wage. If that happens, the employer and not the employee must pay for the uniforms.
As with virtually all lawsuit settlements, plaintiffs will agree to release the defendant from any further liability in exchange for settlement payments.
The TGI Friday’s settlement is subject to court approval. A court’s role in a class action includes ensuring the settlement is fair, reasonable, and adequate, thereby protecting the interests of class members.
The plaintiffs in the class action consist of 28,000 current and past workers, all of whom will share in the settlement money. They will each receive a pro rata share based on the number of weeks they worked during the time period covered by the litigation.
Friday’s restaurant chain has survived 52 years in business, and has more than 900 stores in 60 countries including approximately 540 in the US. Its worldwide workforce exceeds 175,000.
Sadly, wage theft cases are not unusual in the restaurant industry. Ruby Tuesday recently resolved allegations of tipping violations by agreeing to pay $1 million. Other companies settling cases or being sued include McDonald’s, Chipotle, and Jimmy John’s, to mention just a few.
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Note: On October 2, 2017, the United States Supreme Court heard arguments on the legality of class action waivers added to employment contracts by employers. For more information, click here.
What systems should an employer institute to ensure compliance with wage laws?