In June of 2015, a server filed a class action lawsuit accusing Houlihan’s of an illegal tip-pooling policy. The lawsuit calmed the defendants' deprived their employees of money they earned, by retaining some portion of the tips left for employees by the customers. Both the bartenders and servers had to contribute a portion of their tips to pay other employees for their work in the kitchen as well as those doing custodial tasks. This pool tipping caused the employees to make less than the $7.25 per hour minimum wage which is federally mandated. A “tip credit” is allowed under the Fair Labor Standards Act, for tipped employees, which include waitresses, waiters, bussers, runners and other workers dealing directly with customers. The tipped employees must receive no less than $2.13 an hour in direct wages. The federal minimum wage of $7.25 an hour must be meet and the employer is responsible for any difference in tips if direct wages do not amount to the $7.25 per hour. Also, the Fair Labor Standards Act requires that employers must pay employees time and a half for all hours worked greater than 40 hours per week.
When tip sharing is used for workers that are not entitled to tips because they do not deal directly with the customers, the employers lose the privilege of paying workers a tipped minimum wage. The regulations also state that restaurants cannot use the “tip credit” for employees spending 20% or more of their time performing non-tipped work.
The Department of Labor’s Wage and Hour Division investigation on found that the defendants engaged in a number of practices that violated the Fair Labor Standards Act. As per the Department of Labor these include the following:
“Requiring servers and bartenders to contribute a percentage of tips to a tip pool, but using the tips to pay employees for tasks, such as custodial and kitchen work. The lawsuit claims that Houlihan's regularly retained a portion of employee tips.”
“Denying overtime pay to employees who worked at more than one restaurant, even when their combined hours totaled more than 40 hours in one workweek.”
“Having employees work off-the-clock, earning tips for their labor.”
“Routinely deducting money from employees' paychecks for meals consumed during breaks, while also requiring payment, at times, for the meals. The deductions were greater than the defendants' cost for providing the meals, and often resulted in some employees receiving less than minimum wage.”
The locations of the New Jersey restaurants, according to the Labor Department, include Bayonne, Brick, Bridgewater, Cherry Hill, Eatontown, Fairfield, Hasbrouck Heights, Holmdel, Lawrenceville, Metuchen/Woodbridge, New Brunswick, Paramus, Ramsey, Secaucus and Weehawken. The New York locations are in Farmingdale and Westbury.
A U.S. District Court judge must approve this agreement and according to officials, there are approximately 1,400 former and current employees affected by this lawsuit. The workers covered in this agreement were employed between February 2013 and May 2015. It is not yet known how much the workers will receive.