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The Employer Handbook Blog
Illegal Deductions, No Records, No Tip Credit: A Restaurant’s FLSA Trifecta
A restaurant charged its servers a dollar a shift for silverware and pens. That dollar voided the tip credit for every hour every server ever worked, and the liquidated damages doubled the bill.
TL;DR: Former servers sued a Texas restaurant for FLSA minimum wage violations after the restaurant paid them $2.13 per hour while deducting a $1 per-shift fee from their tips and operating a tip pool it couldn’t prove was lawful. The court granted summary judgment to the employees on liability, finding that the per-shift deduction independently voided the tip credit as a matter of law, and that the restaurant’s tip pool defense failed because it had no records of who received distributions and couldn’t establish those employees customarily and regularly received tips. The court also declined to reduce liquidated damages because the restaurant offered no evidence of good faith.
A Dollar a Shift, Times Every Shift, Times Every Server
The plaintiffs were all former servers at a Texas restaurant. The restaurant paid them $2.13 per hour under the FLSA’s tip credit, which lets employers pay below minimum wage so long as tips make up the difference and the employer follows the rules. For every shift, it deducted $1 from each server’s tips to cover “silverware, pens, things like that.” It also required servers to contribute either 2.25% or 3.25% of total sales each shift into a tip pool. The court granted summary judgment to the employees on both theories. On the minimum wage claim, the restaurant owes the $5.12 per-hour gap between what it paid and the full minimum wage, plus equal liquidated damages, for every hour worked during the violation period.
Two Independent Ways to Lose the Tip Credit
The $1 fee killed the tip credit on its own. The FLSA bars employers from shifting ordinary operating costs onto tipped employees, and the employer conceded liability once the court applied controlling precedent.
The tip pool was a separate problem. The employer’s only evidence was an affidavit from its authorized agent, who had already testified that he didn’t hand out the money, didn’t know which employees received distributions, and that no records were kept. His affidavit then contradicted that testimony with conclusory assertions that all tips went to bartenders, bussers, and hosts. He couldn’t name a single employee who received money, let alone describe what any of them did. The court rejected it.
What Restaurants Need to Fix Now
- Any deduction from a tipped employee’s pay is worth a FLSA audit. Any charge that shifts an ordinary business cost onto tipped employees, whether for uniforms, equipment, linen fees, or “things like that,” can void the tip credit entirely. The liability is tied to every hour worked while the deduction was in place, not to the size of the deduction.
- The tip credit burden is the employer’s, and post-hoc paperwork won’t carry it. Records of who received tip pool distributions need to exist before litigation, not get improvised under oath.
- Tip pool eligibility turns on actual duties, not job titles, and managers and supervisors are categorically excluded. Calling someone a busser or host doesn’t establish eligibility. Employers need records of what those employees actually did to defend the pool, and any distribution to a manager or supervisor invalidates it regardless of how the role is labeled.
- Liquidated damages are automatic without a good-faith record. An FLSA minimum wage violation doubles the damages owed unless the employer shows good faith and reasonable grounds to believe its practices were lawful. The restaurant offered nothing, so the court treated it as conceded. Employers who took legal advice or ran a compliance audit have a fighting chance. Employers who didn’t have none.
The math is simple and brutal. Five dollars and twelve cents per hour, times every tipped employee, times every hour worked, doubled. A dollar-a-shift fee is not a rounding error.