Minimizing Your Restaurant’s Risk of Wage and Hour Violations

July 11, 2018

On-Site Risk Management wage and hour claims

Did you know that the hospitality industry faces more wage and hour violations than any other industry? These can quickly become financially devastating to any business if action is not taken and the proper layers of protection are not implemented. In 2017, the Department of Labor (DOL) took over 7,000 hospitality wage and hour claims, recovering more than $483 million in back wages for employees. That’s nine times more than any other industry.¹

Wage and hour laws are often changing, making it difficult for employers to keep up. Employers must comply with the most important federal wage and hour law, the Fair Labor Standards Act of 1938 (“FLSA”), as well as their state laws, including wage orders and governing case law. Unfortunately for most restaurants, having employees partially paid by tips and practices like tip pooling, complicate matters even more and create a special set of requirements.

Many employment lawyers recommend that employers follow the local state law standard, or even better, match a more conservative state’s employment law statute. For details about the local wage and hour laws in your state, you can visit the DOL website directory.

What does this mean for employers?

In order to safeguard against wage and hour claims, employers can follow these steps to minimize their risk of litigation:

Make sure employees are aware of the policies and procedures. Include adequate and detailed information about your company’s wage and hour-related policies, including meal and rest break policies.
Enforce the policies and procedures. If you require an employee to take a break for 30 minutes in the middle of the day, but don’t have anyone to relieve them, the policy can’t be enforced. Make sure additional staff is on-site, or at least someone in a managerial role, who will fill in for each worker to ensure they take their breaks.
Train supervisors and managers accordingly. Supervisors and managers should receive instruction on both applicable wage and hour laws and how to encourage employees to stick to the break schedule.
Document it. Employers should track both meal and rest breaks on a timesheet or online timekeeping program, as these records can become useful should the case go to court. Include a confirmation from the employee that the hours are a true and accurate account. Further, managers should also be required to confirm these hours are correct.

Where does insurance fit in?

Employment Practices Liability Insurance (EPLI) coverage protects businesses from the financial costs incurred from the majority of employment-related lawsuits. For employers with a lot of employees and third-party interaction, EPLI insurance is recommended. Although some wage and hour coverage can be found under EPLI, it’s unlikely and depends on which state you are in and the carrier’s willingness to offer the coverage. Historically, at most, some carriers have offered very limited amounts for defense costs only for wage and hour claims.

However, there are stand-alone wage and hour products now available that offer both defense and indemnity for these types of claims. This new class of stand-alone wage and hour policies, and EPLI endorsements, has recently gained traction, as they can transfer some of an employer’s wage and hour risks associated with meal breaks and overtime.

Aside from having the proper coverage in place, restaurant employers should follow the best practices outlined for minimizing wage and hour claims to avoid becoming part of the troubling statistic. Make sure you have policies, maintain records beyond the statute of limitations and, if possible, have a law firm on call, who is familiar with your company. You cannot always prevent these claims, but you have to be prepared for when they happen.