RESTAURANT LAW –

LABOR & EMPLOYMENT ISSUES

E. JASON TREMBLAY

ARNSTEIN & LEHR LLP

I. WAGE AND HOUR ISSUES

IN THE RESTAURANT

INDUSTRY

COVERAGE UNDER THE FLSA

Only employers who are exempt are those small businesses not engaged in interstate commerce and who have an annual gross revenue under $500,000.

All employers that engage in interstate commerce or in the production of goods for interstate commerce.

WHY PLAINTIFFS’ ATTORNEYS LOVE

WAGE AND HOUR LAWSUIT

Payout is extremely large.

Frequently asserted as collective and class actions.

Attorney’s fees are available.

Some of the regular burdens of proof are shifted to the employer – almost strict liability.

Individual liability statute.

EXPLOSION OF FLSA CASES

FLSA is now the most popular employment collective action.

Record # of FLSA suits filed in 2014.

DOL estimates that 80% of employers are out of FLSA compliance.

States with the largest growth in wage and hour litigation are California, Florida, New York and Illinois.

WHAT DOES

THE FLSA

REQUIRE?

1. Exempt or non-exempt?

2. Accurately and fairly capture and record the hours worked by non-exempt employees.

3. Pay at least minimum wage for the first 40 hours of work during a work week.

Federal Minimum Wage = $7.25

Illinois Minimum Wage = $8.25

Chicago Minimum Wage = $10.00

4. Pay at least 1.5 a non-exempt employee’s regular rate of pay for hours worked in excess of 40 hours per work week.

5. Special rules for tipped employees

Under the FLSA, tipped employees can be paid $2.13/hour (a $5.12 tip credit) if the following are met:

• Hourly cash wage plus the tips received equals or exceeds the federal minimum wage (or applicable state minimum wage, if higher).

• The employee retains all tips, subject to only a valid tip pooling agreement.

• The employee regularly receives more than $30 a month in tips.

WHO IS EXEMPT

FROM OVERTIME?

THRESHOLD INQUIRY

Must be paid a salary of at least $455/week (approximately $23,700 per year). ***

Must fall into recognized exemption.

*** This salary threshold is being updated to at

least $921/week ($47,892/year). Could increase

once final regulations are issued.

MOST COMMON FLSA

OVERTIME EXEMPTIONS

IN RESTAURANT INDUSTRY

Executive

Administrative

Learned Professional

Creative Professional

1. Paid on “salary” basis of at least $455/week.

2. Primary duty must be management.

interviewing, selecting and training of employees, setting and adjusting their rates of pay and work hours, appraising work productivity and disciplining employees, etc.

3. Must have 2 full-time direct report employees.

4. Must have authority to hire, fire and promote.

Reference: WHD’s Fact Sheet #17B

EXECUTIVE EXEMPTION

1. Same “salary basis” weekly pay threshold.

2. Primary duty must be to perform office or

non-manual work directly related to the

management or business operations.

3. Use discretion and independent judgment regarding matters of significance.

Examples: labor relations/HR, finance directors, public relations, legal officers, insurance claims representative, etc.

Reference: WHD’s Fact Sheet #17C

ADMINISTRATIVE EXEMPTION

1. Same “salary basis” weekly pay threshold.

2. Employee’s work requires higher education to perform the job and must have academic training or degree.

Examples: Chefs, such as executive chefs and sous chefs, who have attained a 4-year specialized academic degree in culinary arts program.

Reference: WHD’s Fact Sheet #17D

LEARNED PROFESSIONAL

EXEMPTION

1. Same “salary basis” weekly pay threshold.

2. Employee’s work requires invention, imagination, originality, or talent in a recognized artistic or creative profession.

Reference: WHD’s Fact Sheet #17D

Examples: actors, musicians,

composers, soloist, certain

painters, writers, cartoonists,

novelists, etc.

CREATIVE PROFESSIONAL

EXEMPTION

HOT RESTAURANT

FLSA TOPICS

HOT TOPICS

Informing Tipped Employees About Tip Credit

• Must provide employees with notice (written or oral) that sets forth (i) the amount of hourly cash wage that employer is paying; (ii) the additional amount claimed by the employer as a tip credit; (iii) that the tip credit cannot exceed the amount of tips actually received by the tipped employee;

HOT TOPICS

(iv) that all tips received by tipped employee are to be retained by tipped employee (except for valid tip pooling arrangement); and (5) the tip credit will not apply to any tipped employee unless the employee is informed of the provisions.

• Beware of stricter state notice laws.

• Failure to give notice denies employer’s right to take tip credit, which adds a lot to potential damages and liability.

HOT TOPICS

• Best practice is to prepare a standard written notice and have all tipped employees execute at the commencement of employment.

• Also post notice in common areas.

HOT TOPICS

Properly Computing Tipped Employees Overtime Pay

• Common mistake is to calculate overtime by multiplying 1.5 by the sub-minimum wage (hourly cash wage) being earned.

• In calculating overtime rate for tipped employee, the employer must multiply the prevailing minimum wage (currently $7.25 under federal law) by 1.5, which equals $10.875.

HOT TOPICS

• Next, the employer must subtract from that amount the tip credit being taken (currently $5.12 under federal law) to arrive at $5.755, which would then be multiplied by the number of overtime hours worked in a work week.

HOT TOPICS

Working at Multiple Restaurant Locations

• Frequently, a restaurant may have several locations.

• Beware of employees working at multiple locations during a work week, as their collective hours may apply to the 40-hour work week overtime threshold.

HOT TOPICS

Tip Pooling

• “Tip pooling” occurs when directly tipped employees pool their tips, and those tips are redistributed among directly and indirectly tipped employees.

• Must notify tipped employees of this arrangement in writing and should have all participants sign acknowledgements.

• Employer must never retain the employee tips.

• Must apply only to tipped employees.

HOT TOPICS

Dual Job Issues

When employee is performing tipped and non-tipped positions, the employer may only use tip credit for hours worked in tipped position.

Where employee is performing tipped and non-tipped tasks (e.g., setting the table, filling sugar containers, etc.), keep non-tipped duties sporadic and under 20% of the work time.

HOT TOPICS

Providing Meals to Employees

There is nothing illegal about providing meals to employees, but employers who do so need to pay attention to how those meals factor into an employee’s pay.

Deducting an amount from pay must be the cost to the employer not the price on menu.

HOT TOPICS

Should not be “automatic” deduction since there will be instances when employee brings own meal.

If employee works overtime in a work week, the cost of meal must be factored into “regular rate” for purposes of determining overtime rate.

II. OSHA AND

WORKPLACE

SAFETY IN

RESTAURANTS

BASICS OF OSHA

The federal Occupational Health and Safety Administration (OSHA) develops and enforces workplace safety regulations for all industries, including restaurants.

Generally, the regulations cover a wide range of safety issues such as:

employee training

hazards communication

hazard protection

Restaurant workers are exposed to many job-related hazards that may cause injuries and illnesses.

Job hazards include:

Safety hazards (knives, ovens, slippery floors, etc.)

Ergonomic hazards (repetitive lifting, etc.)

Other hazards (noise, chemicals, heat, stress, etc.)

Most common workplace injuries in restaurants include:

sprains and strains

cuts, bruises and burns

SOME COMMON OSHA

VIOLATIONS FOR RESTAURANTS

1. Failure to implement hazard communications to employees.

Material Safety Data Sheets (MSDS) binder should be maintained and all employees should be familiar with its location.

Maintain list of hazardous chemicals. Chemicals include oven cleaners, pesticides, disinfectants, drain cleaners, etc.

Document employee training and communications regarding hazardous materials.

SOME COMMON OSHA

VIOLATIONS FOR RESTAURANTS

2. Failure to maintain Personal Protective Equipment (PPE) or provide training.

The restaurant should have protocols and assessments for doing hazardous tasks, such as cutting meat or transferring hot grease.

As well, should provide safety equipment (and mandate use) for engaging in hazardous tasks, such as providing cut-resistant gloves, protective clothing or goggles and machine guarding.

SOME COMMON OSHA

VIOLATIONS FOR RESTAURANTS

3. Failure to Maintain Portable Fire Extinguishers.

Should have the requisite number of (and proper) extinguishers in proper locations, as well as documentation on employee training and how and when to use the extinguishers.

Also, should record regular testing and have an Emergency Action Plan and a Fire Prevention Plan in case of fire.

SOME COMMON OSHA

VIOLATIONS FOR RESTAURANTS

4. Failure to Maintain Safe Walking-Working Surfaces.

Walkways and working surfaces should be clean, dry and not excessively wet. Wet surface signage.

Walkways must not be cluttered and must be free from debris and clutter.

Ensure adequate lighting and no obstruction of exits.

SOME COMMON OSHA

VIOLATIONS FOR RESTAURANTS

5. Failure to Provide Medical Services and First Aid.

Employees should be trained in first aid and protocols to follow when an injury occurs.

First aid kits should be readily available.

Eye washing stations and showers should be available, where necessary.

SOME COMMON OSHA

VIOLATIONS FOR RESTAURANTS

6. Failure to secure dangerous conditions.

Ensure that electrical outlets are not exposed.

Ensure that any wall/floor openings are covered.

Secure any electrical cords.

Secure proper stairway railings and guards.

OSHA’S FORM 300 – LOG OF WORK-

RELATED INJURIES AND ILLNESSES

Generally, employers must record most occupational injuries and illnesses on the OSHA Form 300.

An employer must record any job injury that requires more than first aid treatment or results in lost work time, restricted duties or transfer to another job.

Full service restaurants are generally exempt unless requested by OSHA or for fatality or hospitalization of 3 or more employees.

III. NLRA ISSUES

IN THE

RESTAURANT

INDUSTRY

NLRA/NLRB BASICS

The National Labor Relations Board is the federal agency that enforces the NLRA.

The National Labor Relations Act applies to union and non-union workforces.

NLRA/NLRB BASICS

The NLRB has the mission of protecting employees – whether union or non-union – from employer practices and policies that impinge on the employees’ rights to organize and bargain collectively.

Also, the NLRB is set up to protect employees’ rights to freely discuss issues related to issues beyond unionizing, such as pay, safety concerns and other workplace conditions.

FEW EXAMPLES

OF PROTECTED ACTIVITY

1. Two or more employees address their supervisor about getting pay raises.

2. Two or more employees discussing issues related to safety issues in the kitchen.

3. An employee speaking to his manager on behalf of at least one other employee about improving workplace conditions.

FEW EXAMPLES

OF PROTECTED ACTIVITY

Beware of two workers chatting back and forth on Facebook about the above issues – the NLRB will consider this protected concerted activity.

If any of these situations occur leading up to an employee’s termination, care must be taken before disciplining or terminating the employee.

Delivery car/safety example.

JOINT EMPLOYER STANDARD AND

BROWNING-FERRIS INDUSTRIES

DECISION

Generally, the law has insulated franchisors and separate corporate entities from liability for what their franchisees or related companies do.

The NLRB just established new precedent to change the joint employer standard.

In doing so, the NLRB threatens the franchise business model.

JOINT EMPLOYER STANDARD AND

BROWNING-FERRIS INDUSTRIES

DECISION

The decision paves the way for franchisors to be joint employers of their franchisees’ employees even if the franchisor has reserved authority and unexercised control over the franchisees’ employees.

Applies equally, if not with more force, to two separate corporate entities that might have related or common owners.

JOINT EMPLOYER STANDARD AND

BROWNING-FERRIS INDUSTRIES

DECISION

While time will tell the true impact of this decision, common rules and practices established by a parent company designed to preserve brand standards may now be seen as direct, indirect or unexercised employee control sufficient to invoke joint liability.

IV. EEO AND ANTI-HARASSMENT

ISSUES IN RESTAURANTS

EEO and anti-harassment is really no different in restaurants than in other industries.

Bottom line is that employers have a legal obligation to maintain a workplace free from harassment, discrimination and retaliation.

They must also have effective complaint and investigation mechanisms to address workplace disputes.

WHAT ARE THE

PROTECTED CLASSES?

There are many protected classes, depending on whether federal, state or local law applies.

Federal = race, color, religion, sex, national origin, ancestry, age, disability, pregnancy, military status, citizenship status and genetic information.

State and local law will cover many more categories, as well as apply to restaurants that have fewer employees.

EFFECTIVE ANTI-DISCRIMINATION

POLICY

All restaurants should adopt an anti-harassment policy that prohibits sexual and other types of prohibited harassment, discrimination and retaliation.

1) Set forth definition of prohibited conduct giving examples.

2) A statement that harassment/discrimination/retaliation is illegal.

EFFECTIVE ANTI-DISCRIMINATION

POLICY

3) Provide the internal complaint procedures available to the complaining employee (with alternative avenues to complain).

4) A statement that a prompt investigation of the complaint will take place.

5) Provide assurances that complaining employees, or anyone else involved in the investigation, will not be retaliated against.

EFFECTIVE ANTI-DISCRIMINATION

POLICY

The policy should be written in plain English, keeping in mind the age and native language of the employees (e.g., high school employees, etc.).

Ensure all employees receive a copy of the policy and execute their acknowledgment of receipt and understanding.

STRATEGIES FOR

DISCRIMINATION PREVENTION

A well-written policy is only so good as it is followed.

Annual training should be conducted for employees on topics such as what constitutes harassment and discrimination and how to report it. And, a record of such training should be documented and preserved.

STRATEGIES FOR

DISCRIMINATION PREVENTION

Supervisors and managers should separately be trained on such topics as how to identify and deal with harassment/discrimination issues, and what steps they must take if a complaint is conveyed to them.

STRATEGIES FOR

DISCRIMINATION PREVENTION

Employers should also routinely monitor the workplace by going into the workforce and asking employees and managers about the work environment. Inquire for input as to working conditions in an effort to address issues before they become a problem.

STRATEGIES FOR

DISCRIMINATION PREVENTION

No matter how small the complaint, take all complaints seriously – even if the complainant does not want an investigation to be conducted. Better safe than sorry.

V. CONFIDENTIALITY, NON-COMPETE AND NON-SOLICITATION ISSUES FOR RESTAURANTS

WHAT ARE RESTRICTIVE COVENANTS?

Provisions that restrict an employee’s conduct during and after employment.

Three primary types:

Covenants not to compete.

Covenants not to solicit.

Covenants not to disclose confidential information.

Dictated by state law (which varies widely).

WHEN ARE RESTRICTIVE COVENANTS ENFORCEABLE?

To be valid, a restrictive

covenant must:

Be reasonable and

narrowly tailored;

Protect legitimate

business interests; and

Supported by adequate

consideration.

WHEN ARE RESTRICTIVE COVENANTS REASONABLY

TAILORED?

Geographic scope.

Temporal scope.

Prohibited activity.

GEOGRAPHIC SCOPE

Case by case and fact specific analysis.

Area should correspond with where the employer conducts business.

Nationwide restrictions enforced.

Local restrictions not enforced.

TEMPORAL SCOPE

Fact specific.

Determined by amount of time to develop relationship.

Generally, restrictions of 1-2 years are enforceable.

PROHIBITED ACTIVITY

Activities must be limited and specified.

Restricting an employee from working in any capacity for a competitor would be invalid.

Restricted activity should be narrowly tailored to employee’s job or similar duties.

Restricted activity should also relate to using confidential or trade secret information.

WHAT IS A LEGITIMATE BUSINESS INTEREST

IN THE RESTAURANT INDUSTRY?

Recipes and formulas.

Methods of doing business.

Customer relationships (but difficult).

OTHER WAYS TO PROTECT

YOUR RESTAURANT

Trademark name of restaurant.

Create signature names for dishes and trademark them.

Consider patent protection for unique recipes.

Extend brand by selling signature products.

FIRST THINGS TO DECIDE

Determine whether you need a non-solicitation, non-compete, non-disclosure provision or all of them.

Ensure the covenant is enforceable under state law.

Determine the protectable interest and ensure it is actually protected.

OTHER SUGGESTIONS

Secure restrictive covenant during pre-hire negotiations.

Draft restrictive covenant with enforcement in mind.

Venue & forum selection clauses.

Choice of law provision.

Savings and “blue pencil” clauses.

Avoid arbitration.

Attorney fee & injunction provision.

Do not materially breach employment contract.

VI. IMMIGRATION ISSUES IN THE

RESTAURANT INDUSTRY

Government has been cracking down on employers’ use of illegal immigrants in many industries, including the restaurant industry.

Chipotle, Pei Wei, McDonald’s and Krispy Kreme have all come under scrutiny for the employment of undocumented workers.

Smaller restaurant chains and independent restaurants are not immune to this issue.

WHY IS THIS ISSUE IMPORTANT?

An employer found guilty of hiring employees who are not authorized to work in the U.S. may be subject to civil fines and/or criminal penalties in the hundreds of thousands of dollars.

Engaging in a pattern of hiring illegal aliens can result in additional fines and even imprisonment.

WHAT SHOULD RESTAURANTS DO?

1. Ensure that you comply with IRCA (Complete a valid Form I-9 for each new employee)

Each employer is obligated, as part of the employment process, to examine specific documents that verify both the individual’s identity and eligibility for employment.

Acceptable forms of ID change frequently.

WHAT SHOULD RESTAURANTS DO?

Documents submitted must be originals or certified copies.

Let the employee choose the appropriate form of I-9 identification.

For a more complete explanation, review the “Handbook for Employers – Instructions for Completing Form I-9” which can be downloaded from the USCIS website.

WHAT SHOULD RESTAURANTS DO?

2. Conduct an internal I-9 audit at least once a year.

Having a consistently scheduled internal I-9 audit (at least once a year) can demonstrate a good faith effort on the part of the restaurant employer to avoid employment of unauthorized workers.

It can also help head off any issues related to typos and spelling errors, missing or outdated information and expiration of identification documents.

WHAT SHOULD RESTAURANTS DO?

3. Participate in E-Verify:

Consider using E-Verify. E-Verify compares information from the Form I-9 to data from the Department of Homeland Security and Social Security Administration. It is a voluntary, free, fast service. By participating in E-Verify, legally, it is presumed that the employer has complied with I-9 requirements.

QUESTIONS?

E. Jason Tremblay

Arnstein & Lehr LLP

120 S. Riverside Plaza

Suite 1200

Chicago, Illinois 60606

(312) 876-6676

ejtremblay@arnstein.com

www.arnstein.com