In recent times, Employment Practices Liability (EPL) insurance is often associated with protection against the financial ramifications of the dramatic uptick in sexual harassment claims in the workplace. This vital coverage can be utilized for a multitude of risks and exposures, especially for the hospitality industry (and particularly restaurants), given the right endorsement. This can include ever-increasing wage and hour related claims, which are something each and every restaurateur should be cognizant of and prepared for in today’s market.
In 2018, the U.S. Department of Labor (DOL) recovered over $304 million in back wages (1), with food service dominating the number one position for the highest number of violations per industry (2). Wage and hour claims can be triggered by any number of complaints, including pay discrepancies and employee misclassifications. Workers can file a lawsuit when they are just a minute late for a meal or rest break, or if their overtime was miscalculated even slightly. And, more and more hospitality employers are being investigated for Fair Labor Standards Act (FLSA) compliance.
Identifying the Risks
There are certain factors that make employers in this industry uniquely at risk for wage and hour violations. For example:
- Restaurant employees rarely work the standard 9-5 working hours, so the irregular scheduling structure can lead to unauthorized overtime
- Having multiple restaurant locations can make it difficult for management to accurately track employee hours or ensure employees are taking their required breaks.
- In addition, many restaurant and foodservice employees are minimum to low wage workers, exposing employers to minimum wage compliance exposures at a greater rate than many other industries.
Minimum Wage & Tipped Employees
The FSLA requires employers to pay non-exempt employees wages that are at least equal to the federal minimum wage rate. However, when the state, city or county minimum wage rate is higher than the federal rate, employers are required to pay workers the higher amount. So while the federal rate has been $7.25 per hour since 2009, New York City, for example, just raised its 2019 minimum to $15 per hour for businesses with 10 or more employees.
However, since restaurant employees mainly rely on tipping, this makes compliance matters even more complicated. The minimum wage for tipped workers is lower than the regular minimum wage, but if an employee’s hourly wage plus tips does not equal the regular minimum wage, then the employer must make up the difference, known as the “tip credit.” Restaurant employers who pay their tipped employees the tipped minimum wage without ensuring that the standard minimum wage is met when adding in the tip credit, may find themselves subject to a claim and
Document your company’s wage and hour policies/procedures, train your managers to thoroughly understand them and ensure that they are implementing them on the ground. They should have a very thorough understanding of how the rules work and be able to explain it to workers to avoid any misunderstanding or potential violations. It’s advisable to always consult with outside counsel specializing in employment law in your state. Even a quick consultation to discuss the company’s policies and practices could avoid a future claim.
Unfortunately, claims are often inevitable regardless of the precautions taken to prevent them. Speak to your insurance advisor to ensure that you have EPL insurance coverage with a wage and hour endorsement so that you have financial protection in place against costly defense costs associated with these claims.