In the past quarter there have been a number of key updates and decisions in the wage-hour arena. The following two topics are of particular concern to hospitality employers.

Employees Fight Over Mandatory Service Charges

The hospitality industry has seen a surge in the number of wage-hour class actions filed against employers alleging improper pay practices related to service charges collected from customers. Under the Fair Labor Standards Act (FLSA), a mandatory service charge is not considered a “tip” because customers are not given the discretion to determine whether to pay it or how much to provide to the server. Consequently, under federal law, a hotel or restaurant may retain all of these service charges or distribute a portion to its employees. Nevertheless, there has been a recent spike in the following two types of cases in which employee plaintiffs attempt to circumvent the FLSA.

  • Plaintiffs allege that their employers – who retain some or all of the collected service charges – have interfered with a purported business relationship between the plaintiffs and their employers’ customers. Generally, the plaintiffs in these types of cases allege that their employers misrepresented to their customers that the service charges were gratuities that would be paid solely to the plaintiffs.
  • Plaintiffs also allege that their employers’ compensation method violates the overtime provisions of the FLSA. In these cases, the plaintiffs contend that the service charges they receive are gratuities and do not qualify as commissions under the retail sales and service establishment exception, 29 USC § 207(i) (known as the “7(i)” exemption), by which the employers classify them as overtime-exempt employees. In a recent decision in the Southern District of Florida, Seyfarth successfully convinced the court that service charge payments are commissions for purposes of 7(i) and, consequently, banquet servers are overtime exempt employees.

In response to both types of cases, hospitality employers should review the supplemental payments they receive to ensure that they are properly characterized as mandatory service charges under the FLSA.

In Nascembeni v. Quayside Place, 2010 U.S. Dist. LEXIS 58707 (S.D. Fla. June 11, 2010), a hotel banquet server alleged that the service charge distributions she received were gratuities, rather than wages, and could not be considered in determining whether employees were paid the state and federal minimum wage. The court held that mandatory service charges are not tips and, thus, must be included in the employee’s wages for minimum wage compliance calculations. Additionally, the court held that the hotel properly classified the banquet server as an overtime-exempt employee because the service charge payments were commissions for purposes of the retail sales and service establishment exception, 29 USC § 207(i) (known as the “7(i)” exemption).


Guidance Issues on Nursing Mother Amendment to FLSA

As part of the Patient Protection and Affordable Care Act (PPACA), Congress amended the FLSA to provide breaks for nursing mothers. Pursuant to the PPACA, certain employers must provide a “reasonable break time” for an employee to express breast milk for her nursing child. The requirement applies for one year after the child’s birth. Employers with fewer than 50 employees may be exempt if the requirements would create an undue hardship. Many hospitality industry employers, especially those who lack locations for mothers to express milk in private, have been awaiting guidance as to how the new law will work.

The DOL recently issued guidance that clarifies the agency’s position on several ambiguous points in the PPACA. First, the PPACA expressly requires that the employer provide a place where the employee can express breast milk, and it states that the place must (i) be somewhere other than a bathroom, and (ii) be “shielded from view and free from intrusion from coworkers and the public.” The DOL’s guidance echoes this point, stressing that even private bathrooms are unacceptable. However, the DOL also takes the position that a temporary space is sufficient, so long as it is functional as a space for expressing breast milk, it is available when needed, it is shielded from view, and it is free from intrusion.

The DOL’s new guidance on the PPACA also states that employees expressing breast milk are entitled to breaks of varying frequencies and durations. In short, covered employers must allow nursing mothers to take as many breaks as they need to, and for as long as they need to, so long as the breaks are “reasonable.” However, these breaks are not compensable unless the employer already provides paid breaks and the employee uses one of those paid breaks to express breast milk. Likewise, the employee must be paid for the break if she is not completely relieved of duty during that time. To review the actual guidance, click here.

Given that this law took effect March 23, 2010, hospitality employers should develop policies compliant with the new law as well as the many state laws addressing this issue, and train management so that employees are not accidently denied their rights in this area.