A restaurant’s initial response to a tip credit lawsuit is a critical moment. Actions and statements by management have the potential to become evidence, and in some cases, can give rise to additional liability. While many businesses have established response procedures for discrimination charges or safety complaints, surprisingly few develop similar procedures for claims for unpaid wages. This is may be due to several factors, such as the limited amount of available insurance coverage for wage cases, the procedural complexities of “opt-in” collective wage actions brought under the Fair Labor Standards Act (FLSA), and the complexity of substantive law governing tipped employee compensation, including recent regulations issued by the U.S. Department of Labor that have been received mixed reviews from federal courts. Regardless of the cause, the actions that a restaurant must take (or not take) are relatively simple.
It is imperative that both current and former employees be treated with great care and respect when there is any dispute, grievance, or complaint regarding unpaid wages, particularly if a lawsuit or Department of Labor investigation has been initiated, regardless of the employer’s view of a complaint’s merits. The FLSA contains broad anti-retaliation protections, forbidding any person from discharging, or in any other manner discriminating against, employees who have engaged in protected activity. Protected activities include filing a lawsuit, opting into a collective action, initiating an administrative investigation, and participating as a witness. In 2011, the Supreme Court held that an oral complaint could also be protected activity.
It is important to note that an employer can still be liable for retaliation even where a legitimate reason exists to take an adverse employment action. Likewise, even where the underlying claim for unpaid wages turns out to be meritless, a retaliation claim can still survive. Compounding the exposure for the employer is the requirement that the court must award reasonable attorney’s fees to be paid by the employer to a prevailing employee.
Employers must also avoid “spoliation” of evidence, which is the failure to preserve property for use by another party in reasonably anticipated litigation. Sanctions for spoliation can be severe and range from monetary penalties to the dismissal of claims or defenses. It is useful to remember that capable counsel can deal with evidence that may appear damaging, but counsel cannot properly defend the allegation that relevant evidence has been destroyed—it is impossible to prove the irrelevance of the evidence without it. In short, evidence preservation is not only required, it is the only way to provide counsel with a means of defending the business. Accordingly, all relevant documents, time records, wage data, emails, documents, and electronically stored information should be preserved by making back-up copies of the data and by documenting the data retention process.
Finally, it is important to remember that a lawsuit is just a formal argument between people, and like any argument, an agreeable resolution is more likely when the parties are willing to listen to each other. Employers may find it useful to hold a meeting where employees are encouraged to raise their concerns or ask questions for clarification. The key here is to listen to employees, rather than trying to dictate additional rules or impose restrictions. For example, in a case in which an employee files suit alleging unpaid minimum wages because she was not provided with legally sufficient notice of the tip credit, the employer should ask other employees if they have any questions or concerns about the way they are paid. Regardless of the employees’ response, the employer can memorialize the discussion with a letter thanking the employees for their input and providing written materials explaining the tip credit from the DOL, which are available for free online.
Because of the legal intricacies of designing and executing an appropriate FLSA lawsuit response plan, it is important to select counsel with care and deliberation, ideally before the filing of a lawsuit. Regardless of when counsel is retained, it is essential to choose a specialist in this field. FLSA compliance involves dealing with an immense number of regulations, exemptions, and exceptions, and the FLSA’s unique procedural characteristics can make litigating in this area very difficult, even for lawyers who work in other areas of employment law, resulting in costly inefficiencies within a litigation team.
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