The long-standing restaurant industry practice of having servers share their tips with nontipped kitchen staff is out by court order.
The practice was fairly commonplace, though it was unlawful under the Fair Labor Standards Act established in 1938, said Bill Kunstman, spokesman for the state Department of Labor and Industrial Relations.
The ruling affects all restaurants that are covered by the federal Wage and Hour Law, “so virtually all restaurants,” labor and employment lawyer Christopher Cole said. There are certain minimum revenue requirements that would make it possible that some small restaurants might fall outside the law’s coverage, he said.
A Feb. 23 ruling by a divided 9th Circuit Court of Appeals ordered that the U.S. Department of Labor has the authority to ban most tip-pooling practices used by employers, which includes a prohibition against employers adding back-of-the-house, or kitchen staff, to tip pools.
There are few and strict exceptions to the rule, according to attorney Christopher Cole, who addressed a standing-room-only seminar staged for members of the Hawai‘i Restaurant Association on Thursday.
The ruling affects all restaurants that are covered by the federal Wage and Hour Law, “so virtually all restaurants,” Cole said. There are certain minimum revenue requirements that would make it possible that some small restaurants might fall outside the law’s coverage, he said.
Restaurants that used to rely on tip pooling to compensate their kitchen staff are now left with the prospect of effectively cutting the pay of kitchen staff or increasing their hourly wages.
Highway Inn, a Hawaiian-food restaurant with three locations on Oahu, came up with one solution. After consulting with legal counsel, the restaurant implemented a new 5 percent “kitchen service fee” on customer checks. The checks also print a suggested tip starting at 10 percent, which would go to the waitstaff.
Some restaurants have begun instituting no-tipping policies wherein menu prices are increased and customers need not tip employees.
But most restaurants are still trying to figure out what to do.
Chef Alan Wong was among those in attendance at Thursday’s meeting. He said he hopes consumers can grasp how important the issue is to their favorite restaurants.
“Our core value is family,” he said. A restaurant’s team produces the dishes that a server brings to diners, he said. From ensuring clean plates to pouring drinks to cooking and serving food, everybody has a hand in creating the diners’ food and overall experiences in his restaurants, he said. Sharing front-of-the-house staffers’ tips with back-of-the-house crew members meant “everybody (got) taken care of,” Wong said.
Now, however, his restaurants will comply with the law, he said.
Roughly 35 percent of a restaurant’s costs are for food, with another 35 to 40 percent covering labor; the rest is for lease rent, utilities and other operational expenses, said Russell Ryan, chief commercial officer for Highway Inn.
In recent months, enforcement actions by the U.S. Department of Labor have led to numerous Hawaii restaurateurs being ordered to pay back wages and damages following investigations by the department’s Wage and Hour Division.
The department has beefed up its investigative staff in recent years, and Cole cautioned restaurant operators to “brace for the coming wave of enforcement.”
