In Focus: Wage Theft in the Restaurant Industry

By Douglas Lipsky

In recent years, a number of high-profile restaurant chains have settled lawsuits over unpaid wages. While many think of wage theft in terms of employers withholding pay or skimming hours, wage theft in the restaurant industry typically involves unpaid overtime and tip violations. In fact, Labor Department statistics show that restaurant industry has one of the highest rates of wage theft.

What is wage theft?

Wage theft is the non-payment or underpayment of employees for hours worked, and includes any of the following:

  • Employers paying less than the minimum wage
  • Refusing to provide overtime pay
  • Failing to give workers breaks
  • Requiring employees to work off-the-clock

Minimum wage, overtime, and record keeping requirements are governed by federal law, the Fair Labor Standards Act (FLSA), as well as New York’s Wage Theft Protection Act (WTPA).

Why are tipped workers vulnerable to wage theft?

There are a number of reasons why wage theft is so pervasive in the hospitality industry, where workers rely on tips for a significant portion of their income. First, there are separate minimum wage requirements for certain workers, such as servers in restaurants.

Under the FLSA and the New York Labor Law, employers in the hospitality sector are permitted to pay tipped employees less than the minimum wage as long as they reach the minimum wage threshold. This is referred to as a tip credit, or the amount the employer is not required to pay. The tip credit for servers in a restaurant differs from the tip credit for other hospitality employees, all of which are set forth in the Labor Department’s Hospitality Industry Wage Order Summary, which is scheduled to be adjusted until 12/31/21, when the minimum wage for all employees will be elevated to $15 per hour.

Nonetheless, tipped workers are at a high risk of wage theft when employers are required to  manage differential payments. Errors, miscalculations, or intentionally not paying out earned wages is not uncommon, which ultimately means employees aren’t paid for their work. At times, tip pooling results in employees working more hours than they get paid for. In others, management may pay non-tipped workers (cooks, maintenance people) a tipped wage for non-tipped work, like rolling silverware or polishing glassware. The most egregious form of wage theft occurs when employers skim workers’ tips and keep a portion for the business.

Why do restaurants fail to compensate workers fairly?

Put simply, because they can. Limited resources are dedicated to enforcing current wage and hour laws, which means offenders often escape detection. Given that restaurant employees are among the lowest paid and poorest workers in the nation, they have little leverage to fight back.

The Takeaway

If you work in the restaurant or hospitality industry and your wages have been improperly withheld, whether intentionally or unintentionally, you have powerful legal remedies under state and federal law. By filing a lawsuit, particularly on a class basis, you can recover the compensation you deserve. When you become a client of Lipsky Lowe LLP, you will have strength in your corner.


About the Author
Douglas Lipsky is a co-founding partner of Lipsky Lowe LLP. He has extensive experience in all areas of employment law, including discrimination, sexual harassment, hostile work environment, retaliation, wrongful discharge, breach of contract, unpaid overtime, and unpaid tips. He also represents clients in complex wage and hour claims, including collective actions under the federal Fair Labor Standards Act and class actions under the laws of many different states. If you have questions about this article, contact Douglas today.