How to address wage and hour claims
Whether you own one pizzeria or 100, employees notice when you’re violating minimum wage and overtime laws. One manager requiring employees to arrive at work 10 minutes early before clocking in can spark a labor investigation that prompts a wage and hour lawsuit or class action involving hundreds of employees.
Don’t think a class action can’t happen to your restaurant. In Jan. 2014, Domino’s Pizza agreed to pay a class action settlement of $1.28 million to 61 workers for minimum wage and overtime violations. In June 2017, Pizza Hut of America Inc. settled a wage violations class action for $3.1 million.
Restaurants are “notorious for being sued” for wage and hour violations, says Arthur Ehrlich, an employment attorney at Goldman & Ehrlich in Chicago.
Food service employees filed more wage and hour complaints in Fiscal Year 2016 than in any other “low wage, high violation industries,” according to U.S. Department of Labor (DOL) statistics. That year alone, the DOL processed 4,975 food service wage and hour cases and enforced payment of back wages totaling more than $39 million.
So, how should a pizzeria owner respond when served with a summons for a wage and hour lawsuit? Here are six steps you need to take when an employee sues:
- Contact an employment attorney immediately. Restaurant owners often make the mistake of planning their next move without consulting an attorney, says James Nowlin, CEO of corporate consulting company Excel Global Partners in Austin, Texas. Don’t try to battle an employment lawsuit with your real estate lawyer, either. Choose an experienced employment attorney to determine the strength of the employee’s case.
- Don’t ignore the lawsuit. “Too many times, I see a client who says he or she got sued by a disgruntled employee making things up and is just getting around to contacting a lawyer,” says Ehrlich. Depending on state law, the defendant generally has within 20 to 30 days after receiving the summons to file what’s called an “answer” to the lawsuit allegations.If you fail to respond by the deadline, the employee will typically have to “prove up” the allegations under oath or with an affidavit, and a judgment against the employer for a specific amount of money is entered. In some states, you may be able to file a motion to try to vacate the judgment within 30 days of the entry. “Many employers who come to me so late feel that they can prove the employee lied, but if too much time passes, it’s too late,” says Ehrlich.
- Gather relevant documents. You’ll need to provide your attorney with documents that could include timecard entries, pay stubs, bookkeeping journals and other payroll records for the employee (or employees) who filed the claim. In fact, you may have to provide payroll records for all your employees. That’s because your employee’s attorney will probably want to amend your employee’s lawsuit to a class action if you’ve underpaid other workers. “The biggest threat to a restaurant or any company is a class action,” says Robert Ottinger, an employment attorney at Ottinger Law, which has offices in San Francisco and New York.
- Don’t retaliate. One of the worst things you can do is angrily confront the worker, fire or demote the person, change their schedule to undesirable hours or harass them. If the employee’s attorney adds a count of retaliation to the lawsuit, and if you lose, you could end up paying all wages for time the employee missed if you fired the worker.“Retaliation cases are incredibly easy to win,” says Ottinger. If the employee had a spotless work record for two years and you fired him a day after he sued, it’s going to be hard to prove the termination wasn’t punitive.
- Explore a reasonable settlement. Your attorney can try to work out a settlement with the employee’s lawyer. However, most employment lawyers won’t want to settle because they’re in it for the class action, says Ottinger. You can always call the employee and offer to pay what they say they’re owed so they’ll dismiss the case.However, make sure your discussion is not a threat to retaliate if the employee won’t settle. The purpose of the discussion is to prevent the case from proceeding and becoming a class action, which could cost you thousands, or even millions of dollars if you own numerous restaurants.
- Take precautions to prevent future lawsuits. Your pizzeria or chain should have a comprehensive employee handbook with policies approved by an employment attorney, says Nowlin. “Keep documents of employee performance and payroll records for at least two years or more,” says Nowlin. “Know the law, specifically the Fair Labor Standards Act, which guarantees the right to a minimum wage and overtime pay.”
Whatever you do, don’t ignore an employee who approaches you, claiming that you owe unpaid wages.
“If you find out employees are owed money, don’t be stingy or bicker with them,” says Ottinger. “Put on a smile and say, ‘Hey, let’s sit down and work it out.’ It’s better to pay three people than 300.”
How to Avoid Wage and Hour Violations
Your restaurant needs an accurate time entry system to show exactly how much time an employee works, says Ehrlich. That system could be a time clock, swipe card system or a log where employees sign in and out. However, it’s important that managers check the log for accuracy. If an employee inflates hours, a manager can change the time only after bringing it to the worker’s attention and having the employee initial the entry.
Common mistakes managers make that lead to wage and hour lawsuits:
- Reducing employee hours (time shaving) to avoid paying overtime.
- Not paying employees for time required to wait to clock in or time required at work after clocking out.
- Misclassifying supervisors and managers as exempt from overtime.
- Having a policy of not paying overtime to employees who work more than 40 hours in a week.
- Not offering legally required meal and rest breaks.
Deb Hipp is a freelance writer who routintely covers a variety of topics for news and trade publications.