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The Top 5 Wage & Hour Class/Collective Action Claims that Hospitality Employers Face (And How to Avoid Them)

Author: Alix Udelson (Houston)

Published Date: April 28, 2017

Wage and hour class action jurisprudence continues to twist and turn down an unusual path. As a consequence of the limited consistent case precedent in this area, hospitality employers defending against these claims face difficulty in accurately predicting their legal outcome.

Case in point: In March of 2017, two courts rendered decisions concerning separate wage and hour class and collective actions involving the same hospitality employer, Chipotle.

1. Scott v. Chipotle Mexican Grill, Inc., No. 12-CV-833 (ALC)(SN) (March 29, 2017)

A federal district court in New York granted Chipotle’s motion to decertify a Fair Labor Standards Act (FLSA) collective action that it had conditionally certified under a lower standard almost four years prior. The court held that, under the so-called “two-step” analysis, the plaintiffs—who alleged they were misclassified as exempt in violation of the FLSA and the laws of six states—were not “similarly situated” as required by Section 216(b) of the FLSA. The court also denied the plaintiffs’ motion to certify the six state classes, holding that certification under Rule 23 was improper because common questions of law or fact did not predominate over individual questions.

2. In re Chipotle Mexican Grill, Inc., No. 17-1028 (March 27, 2017)

Just two days earlier, the Tenth Circuit Court of Appeals (which covers Oklahoma, Kansas, New Mexico, Colorado, Wyoming, Utah, and Yellow Stone Park) denied Chipotle’s petition for a writ of mandamus following the lower court’s use of the “spurious” approach to conditionally certify a class of plaintiffs alleging they were required to work “off the clock.” In so doing, the lower court had deviated from the “two-step” approach endorsed by both the Southern District of New York and its own federal appellate court. While the Tenth Circuit found “debatable” the lower court’s departure from case precedent, it declined to characterize it as a “judicial usurpation of power” for which mandamus relief is reserved.

The trajectory of these cases underscores the importance of risk mitigation—especially within the hospitality industry, Chipotle being just one employer that was targeted by the plaintiffs’ bar. Below are five situations that could lead to wage and hour class/collective actions against hospitality employers.

1. Circumventing “No Overtime” Policies

Allegations that employers require non-exempt employees to work off-the-clock are common for the plaintiffs’ bar. Many hospitality employers prohibit non-exempt employees from working overtime. Such policies may inadvertently encourage tipped servers to fail to clock in when they begin work and clock out before they finish. In short, no-overtime policies, may incentivize servers wishing to squeeze out every possible tip-generating hour of work to avoid clocking-in until their first table and, similarly, immediately clocking out after their last table. Consequently, hospitality employers that have overtime policies will want to be careful to ensure that their tipped employees are clocking all hours worked.

2. The Pressure to Increase Labor Productivity

This pressure to get the most out of one’s labor force can backfire on employers. For example, supervisors may try to earn bonuses or performance-based awards by unilaterally adjusting the time clock entries of non-exempt employees to manipulate productivity numbers. Not only is tampering with time entries unlawful, but doing so destroys an employer’s ability to defend itself against a class of employees alleging they failed to have been compensated for all hours worked. Just last year, the Supreme Court ruled that a representative sample of employees in a “donning and doffing” case were able to “fill an evidentiary gap created by the employer’s failure to keep adequate records” by introducing into evidence statistical sampling to establish liability and damages on behalf of the more than 3,000 class members. To both comply with the law and avoid the pitfalls of this “trial by formula” evidentiary standard, hospitality employers will want to make sure their productivity goals do not lead to inappropriate time editing.

3. Poor Shift Scheduling

Appropriate staffing is critical for many reasons. When too many servers are scheduled for a slow shift, managers—even those with good intentions —may attempt to find servers other work to perform, like rolling silverware, washing dishes, or cutting lemons. Employers might face issues if they assign servers to perform work that will not earn tips but, nevertheless, continue to take a tip credit by paying these employees less than the minimum wage. In such cases, assigning employees who are typically tipped to perform non-tipped tasks may form the basis of FLSA and state collective/class actions alleging that employers unlawfully took a tip credit because their tipped employees spent too little time performing “tip producing” tasks.

Another issue that may result from poor shift scheduling is exempt/non-exempt misclassification. For example, an exempt manager with limited non-exempt staff may be more likely to jump into and perform “non-exempt” duties, thereby increasing the risk of a viable misclassification claim.

Finally, hospitality employers should be aware that some jurisdictions require employers to pay employees “show up” or “reporting time” pay—that is, some amount of partial compensation for employees who report to work expecting to work a scheduled amount of hours but are then sent home because of lack of need or improper notice. In these jurisdictions, employers may want to be careful not to rush to send non-exempt employees home when a shift is slower than expected without first evaluating the consequences to the employer’s pay obligations.

4. Taking a “One Size Fits All” Approach

Courts have taken many approaches in deciding whether cases should proceed as class/collective actions. Given this uncertainty, standardization may be harmful to employers in litigation. It may be helpful for restaurant supervisors to have flexibility and autonomy to manage their restaurants the way that works best for the individual location (of course, this flexibility is also important from the standpoint of classifying employees as exempt or nonexempt). Restaurant floor plans may also dictate just how much time employees may spend on any particular activity; for example, it is unlikely a server will spend much time slicing lemons (also known as “unlawful side work” in a tip credit class/collective action)  if the counter is far removed from the floor.

5. Failing to Maintain Notices and Record-Keeping

 Investing in a reliable record retention mechanism may prove to be important for employers, especially those that are multi-unit operators facing high turnover, frequent employee transfers, and unit closings. They can help employers avoid some of the most common wage and hour class/collective action claims: failure to provide notice of tip credit; failure to post the notice about employees’ rights under the FLSA; and/or failure to provide wage notices required under various state laws. The last thing an employer defending against a class/collective action needs is undermined credibility resulting from their inability to prove that the plaintiffs received all requisite wage notices.

Alix Udelson  (Houston)

Alix Udelson
Alix is an Associate in the Houston office. She represents and counsels employers in a variety of employment matters. Prior to joining Ogletree Deakins, Alix served as in-house counsel for a national restaurant brand, where she advised and counseled stakeholders at all levels of the organization on myriad employment law matters. Her experience includes managing and directing through resolution all aspects of a wide range of employment law-related litigation and arbitration, including national...

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