Restaurant Lawyer David Jordan on Tip Pools and Illegal Immigration
David Jordan is a partner in the Houston office of Littler Mendelson, an international law firm specializing in labor and employment law. Before he was a lawyer, Jordan worked in the restaurant industry for several years: flipping burgers at Burger King when he was in high school; working in TCBY's corporate offices after college; managing and owning an El Chico franchise; and managing several Applebee's restaurants. As a lawyer, he remains heavily involved with the restaurant industry; between a third and two-thirds of his work is restaurant-related, and he is a frequent commentator on restaurant-related labor issues.
EOW: I've often heard of unhappy lawyers opening a restaurant or wine bar, but you're the first person I've met who owned a restaurant and then decided to become a lawyer. How did that happen?
DJ: After ten years I had seen it all: from Tex-Mex to yogurt franchises to fast-casual concepts and family restaurants. But the hardest thing at all of these places was managing employees -some of these restaurants had more than a hundred employees. There would always be these fascinating legal issues, but it was difficult for me, as a manager, to appreciate them. So I thought I'd give law school a try. I took the LSAT, applied to one law school [the University of Oklahoma], and when I got accepted that was that. Now I help restaurants navigate the things I could never figure out as a manager, and the risks are much bigger now.
EOW: What are the main legal issues facing restaurants?
DJ: There's a wide variety: workplace discrimination and harassment, wage issues relating to the Fair Labor Standards Act, and immigration. Restaurants also have to address premises liability - for instance, when someone slips and falls on restaurant property - and food safety regulations, but those latter two aren't what I do. Finally, there are intellectual property issues, such as copyright, confidentiality and trade secrets (like an employee stealing recipes). And of course there are everyday disputes: between franchisees and franchisors, and between restaurants and realtors, landlords or banks. As restaurants historically have lower success rates than other businesses, they often find themselves in legal difficulty.
EOW: Does every restaurant need a lawyer?
DJ: Yes. Most restaurants find themselves in legal trouble at some point, and it's typically because they've never partnered with a lawyer who knows the industry. Restaurant owners often spend all their money on capital equipment and paying down debt, and don't make provisions to limit their potential liability on labor, immigration and safety issues. Smaller operators are also less likely to have sufficient insurance, which means that a labor problem may become a situation in which if they lose a lawsuit, they're out of business. And a qualified lawyer would only need a couple hours to address issues like a restaurant's procedures for paying wages and sharing tips.
EOW: How can restaurants get it wrong in terms of wages and requiring employees to share tips?
DJ: Federal law sets the minimum hourly wage for most employees at $7.25, but restaurants can reduce that minimum wage all the way down to $2.13 for employees who regularly and customarily receive tips, such as bartenders, busboys and waiters. That difference of $5.12 is called the "tip credit." Restaurants that reduce an employee's minimum wage in this fashion must ensure that the employee makes enough in tips to get back up to $7.25 an hour for the pay period. This part isn't a big deal; most waiters and bartenders make far more than minimum wage when you include tips, as all they have to do is make about five dollars in tips in an hour.
Restaurants must tell the employee they're taking the tip credit, and they need to allow the employee to keep all of her tips, unless the tips are part of a valid tip pool. What's a valid tip pool? Employers can require an employee to share her tips with other regularly and customarily tipped employees, so long as the tipped employee keeps enough to cover the minimum wage requirements. But an employer cannot require a tipped employee to share tips with employees who do not regularly and customarily receive tips (e.g., dishwashers, janitors, and chefs). What makes this dangerous for restaurants - and such a hot issue for restaurant lawyers - is that if restaurants mess up on tip pooling, the damages they have to pay employees are much larger than the amount of the contribution.
Here's an example. Say every waiter, at the end of her shift, has to put in a dollar for the chef or the manager. This is illegal. And if the restaurant is sued, it won't be required to pay back each waiter a dollar for each shift, but rather the full tip credit of $5.12 for each hour worked during each waiter's shift. If the shift is five hours long, that's a payment of more than $25 per shift, and when you're talking about dozens of waiters working hundreds of shifts over a period of months or years, that's a huge payday. Something similar happened with Gravitas a couple years ago.
[In 2008, a federal court held that Gravitas's policy of requiring waitstaff to contribute $1 per shift to a "breakage" fund (to replace broken stemware) was illegal, and Gravitas had to pay back the waitstaff the entire tip credit it had taken for every hour during every shift in question.]