Restaurant Chain Fined for $500k in Violating the FLSA

A chain of San Jose Mexican restaurants in North Carolina was alleged for violating the FLSA, for which it was required to pay a total of $511,745 in back wages to its 125 employees.

In an investigation led by the Department of Labor (DOL), it was found that around 10 Mexican restaurants located within the state violated the Fair Labor Standards Act (FLSA) by: (a) paying the workers less than the federal minimum wage of $7.25 for every hour worked; (b) failing to pay workers for the overtime when they worked beyond 40 hours in a workweek, which requires receiving time and one-half their regular rates of pay, inclusive of commissions, bonuses and incentives; (c) encouraging the wait staff to work only for tips which resulted in minimum wage and overtime violations; (d) charging employees for mandatory uniforms from their pay; (e) failing to maintain required time and payroll records, and falsifying payroll documents.

With respect to the third violation, the FLSA’s essence of ‘tipped employees’ should be followed, referring to those customarily and regularly receiving more than $30 per month as tips. A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit.[1] However, a valid tip pool may not include employees who do not customarily and regularly receive tips, such as dishwashers, cooks, chefs, and janitors. The total amount of tips often exceeds wages paid by the employer but tips often fluctuate with customer volume and other factors.

While employers are required to pay tipped employees the minimum wage, they may factor tips into their wage obligation in most states (called a "tip credit"). The employers are required to provide an oral or written notice to its tipped employees in order to use the tip credit. In case an employer fails to do the same, he cannot use the tip credit provisions and must pay the tipped employee at least $7.25 per hour in wages and also allow the tipped employee to keep all tips received. Moreover, the employers are prohibited from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee or in furtherance of a valid tip pool.

The maximum tip credit that an employer can currently claim under the FLSA is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13). In the present case, the employer encouraged its staff to work only for tips in order to pay them just $2.13 which is lesser than the minimum wage, thus violating the FLSA minimum wage rate.

DOL’s Wage and Hour Division’s Raleigh District Director, Richard Blaylock, said in a press release that, “the restaurant industry employs some of our country’s lowest-paid workers, who are often vulnerable to disparate treatment and wage violations. Failure to pay these workers the wages they have worked long hours to earn hurts them and their families, and it provides a competitive advantage over law-abiding employers. Enforcement actions like these should motivate all North Carolina restaurant owners to follow the law and provide a fair day’s pay for a fair day’s work to all employees.”




[1] See “Enforcement of 2011 Tip Credit Regulations” dated February 29, 2012 at:







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