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Tip Credit Litigation: A Disturbing Restaurant Industry Trend


One of my first jobs was that of a dishwasher.  In the “back of the house,” I learned that cleanliness was most important to the servers—those who made the “big money.”  I heard their talk, how attentive they need to be to their customers, and how every little effort counted toward the almighty tip.  It was all about the tip.  Every server hustled to be attentive, to run to their guests with extra forks, knives, spoons, plates and napkins. 

From there, I became a cook’s assistant.  As the restaurant showcased the kitchen in the “front of the house,” I could see the servers greeting guests, and doing everything in their power to be gracious and attentive.  If the plates were not perfect in appearance, the server would carefully adjust the plate’s content for the best presentation.  I was told, again, that it was all about the tip.tip prague restaurant resized 600

Next, I bussed tables.  Not only did I clean and re-set the tables swiftly to help the servers turn the tables for more guests, but I filled water glasses and bread baskets.  When I noticed a customer looking for their server, I would approach to see if I might be of assistance.  Usually an extra plate, fork or napkin was the cure.  Other times, the steak might need a bit more fire.  Improving the guests’ dining experience trickled down to me: the servers showed their appreciation for my attentiveness by tipping out to me.  Yes, I had come to appreciate that it was all about the tip. 

My promotion to server was big—now I could earn tips.  The small hourly wage reduced by the tip credit was important, but it paled in comparison to the tips.  I worked hard and strived to be the best server in the restaurant.  I worked with professional servers.   For me, it was a job to get me through the end of high school, then college and then law school.  Nevertheless, I saw the importance of guest service and winning the big tip.

It has been many years since I waited tables.  The perpetual dream of forgetting to bring something to some table never goes away.  Now, as an attorney, I represent the restaurant industry that taught me values such as guest attentiveness and the goal of prompt service. 

Claims by some servers suggesting that many of their duties are not service-related or are “incidental” to service, so that they may void the tip credit and permit their counsel to recover fees in class actions, are troublesome.  Have they forgotten what goes into securing the big tip?  I haven’t. 

Glenn Duhl represents restaurants and restaurant groups in defense of employment-related claims, including tip credit litigation under the Fair Labor Standards Act and corresponding provisions of state law.

Job-Targeting Programs: Another Advantage for Organized Labor


In a critical new ruling, the National Labor Relations Board held that “union job targeting programs, including those funded in part by voluntary deductions from the wages of union members employed on State-funded public works projects, are clearly protected under Section 7 of the Act.” This latest ruling throws up yet another roadblock in front of contractors already contending with a stagnant economy and burdensome regulations.  

Job targeting programs, also known as market recovery funds, are yet another one of the economic weapons organized labor can deploy against non-union contractors. As part of these programs, unions collect dues which are then used to subsidize “union friendly” contractors. Yet, job targeting programs aren’t just about keeping organized labor’s allies in business; these subsidies put non-union contractors on the defensive, as the union shops are able to lower the gap between union and non-union contractors.

In this case (J.A. Croson Company, 359 NLRB No.2, 2012), the collective bargaining agreement contained a dues-checkoff provision requiring member employers to “deduct and remit to the Union, pursuant to voluntary authorizations signed by unit employees, due in the amount of 1.75 percent of the employees’ gross wages as a “Market Recovery Assessment.” The money collected was then used to fund the union’s “job targeting program, which funneled money to unionized contractors. The purpose of this program was clear: to “lower union contractor’s overall costs to complete targeted projects, enabling union contractors to submit competitive bids.”

job targeting NLRB

In response to the union’s job targeting program, J.A. Croson Company, an ABC member, filed a lawsuit charging that the wage deductions violated state law. The Ohio Supreme Court eventually held that this lawsuit was preempted by the National Labor Relations Act (Act), and an administrative law judge found that Croson’s lawsuit did not violate the Act. The Board, however, reversed the judge’s ruling, holding instead that union job targeting programs are “clearly protected by Section 7 of the Act.” Consequently, the Board also held that Croson’s state court lawsuit was preempted by the Act, and that Croson’s lawsuit did not garner First Amendment protection: Indeed, by merely filing the lawsuit, Croson violated Section 8(a)(1) by interfering with union activity.

As a result of the Board’s J.A. Croson Company decision, the playing field has, once again, been titled in favor of organized labor.

Hurricane Sandy and Employer's Wage Obligations


In the wake of Hurricane Sandy, a frequent question is whether an employer must pay wages to employees who did not work due to a storm closing. While you should consult with counsel for a specific answer in light of your pay policies and practices, there are two answers for salaried exempt and hourly non-exempt employees.

Employers do not have to pay non-exempt, hourly, employees when no work has been performed as, by definition, they are “hourly” and only to be paid for hours worked. r HURRICANE SANDY COST large570 resized 600

Employers must continue to pay salaried, exempt, employees if they work any time during a work week and are available to work the remaining days, whether they work or not.  In other words, if the worksite is closed for less than a week, and a salaried exempt employee has worked part of the week, s/he must be paid for the week. As Hurricane Sandy hit at the beginning of the work week, if the employee did not work at all during the week, no pay is earned and none need be paid. See Conn. Regs. §§ 31-60-14, 15 (the employee need not be paid for any workweek in which s/he performed no work).  However, be careful as some salaried, exempt employees may claim to have worked from home. If they did work at home, they would be due their salary for the week. 

Other than what the law provides, there is one additional consideration:  is not paying the employees for the storm closing going to hurt employee morale?  That remains as a business decision that you will have to consider.  If a written policy is currently in place that informed employees that they might not be paid during the week in which the employer is closed, this may not be as much of a concern. However, with employees returning to work after having been living without power, they may not fully appreciate that the storm also caused the employer to suffer financial losses.  Day to day events in the workplace may be dangerous.  Be safe!   

Independent Contractors Are Under Assault


When the United States Department of Labor (USDOL) announced its “Misclassification Initiative” in September, 2011, it was clear that employers utilizing independent contractors were doing so at their own peril.  At a meeting of the Connecticut Bar Association’s Labor and Employment Law Section representatives from both the Connecticut Department of Labor (CTDOL) and the Hartford office of the United States Department of Labor confirmed that as the one-year anniversary of their partnership agreement approaches, both agencies are continuing to increase their joint efforts to identify and penalize those employers who misclassify – even inadvertently – employees as independent contractors.

The DOL Misclassification Initiative

 On September 19, 2011, the U.S. Department of Labor, the Occupational Safety and Health Administrative (OSHA) and the Employee Benefits Security Administration (EBSA) entered into a memorandum of understanding with the Connecticut Department of Labor with the specific goal of pooling their resources to identify and pursue employers utilizing independent contractors.  The CTDOL also formed its own Joint Task Force consisting of representatives from the Workers’ Compensation Commission, the Department of Consumer Affairs and the Department of Revenue Services; amongst others.

In addition, the USDOL also entered into a memorandum of understanding with the Internal Revenue Service (IRS) for “enhanced information sharing and other collaboration.”

The Impact Of The Misclassification Initiative On Connecticut Employers

The consequences of this collaborative effort are many.  For example, instead of having just one agency knocking on your door following a complaint or random audit there may be joint visits with representatives from both state and federal agencies present.

Far more significant, however, is the sharing of information amongst all applicable state and federal agencies.  Gone is the day when an employer might receive a CTDOL complaint, settle up with that agency for a minimal amount, revise its practices and be done with the matter.  Now instead of just wage and hour exposure from the CTDOL complaint, you can assume that information regarding the complaint will be forwarded to numerous agencies so that an employer may find itself liable for unpaid payroll taxes, workers’ compensation penalties, unemployment payments and assessments and other penalties and fines in addition to wage and hour overtime payments.  Interestingly, the representative of the USDOL noted that it does not automatically contact the IRS following every complaint but instead will look at each complaint on a case-by-case basis before also making a referral to the IRS.  Frankly, by doing so, the USDOL can utilize the threat of potential IRS involvement as “leverage” in any investigation and related settlement discussions.independent contractors connecticut

Not surprisingly, another critical component of the DOL misclassification initiative is the amount of personnel and other resources devoted to conducting independent contractor-related audits and complaints.  As the USDOL represented noted, over 350 additional investigators have been hired nationwide with several of those assigned to the USDOL Connecticut offices.  Further, these investigators (many of whom are also lawyers) are all being supplied with laptops and other technological assistance so that they can complete their audits quicker and therefore, initiate even more audits.  The USDOL representative also noted that approximately forty percent (40%) of the Hartford offices’ investigators are involved in what he described as “directed investigations,” meaning that investigators will target a particular industry or even a large project and conduct an investigation – even absent a complaint.  Some of the industries receiving the most attention are: construction, healthcare, restaurant, motor carriers, payroll services and nail salons.

As the CTDOL representative noted with regard to investigations that are initiated by complaints, it is not merely disgruntled individuals filing complaints.  Rather, she noted that approximately fifty percent (50%) of the complaints are generated by upset competitors!  Apparently, in these difficult economic times when work is scarce, what better way to place a competitor at risk than by “dropping a dime” with the CTDOL that the competitor is alleged to be utilizing independent contractors.

Finally, all of this increased focus and effort has resulted in the collection of increased overtime wages, payroll taxes and fines and penalties or worse.  For example, the CTDOL recently issued stop work orders to twenty-three (23) construction contractors in only a one-month period – February 27 to March 30!  Big Brother is not only watching, but also acting. 

Bottom Line For Employers

So what options do Connecticut employers have when faced with this onslaught of federal and state resources in attempting to prudently and lawfully operate their businesses with independent contractors.

First, employers must realize that the ostrich “head-in-the-sand” approach will no longer be effective in minimizing their exposure.  So, if an employer is going to utilize independent contractors, it must conduct an analysis of whether or not the independent contractor satisfies the applicable legal standards.  For certain agencies such as the USDOL, IRS and Connecticut Department of Revenue Services and Connecticut Workers’ Compensation Commission this means satisfying what is essentially variations of the more traditional common law “right of control” test.  Unfortunately for those issues within the CTDOL’s jurisdiction, employers are required to satisfy the far more rigorous so-called “ABC” test contained in Connecticut General Statutes Section 31-222(a)(1)(B).  In fact, a scenario could arise in which an employer satisfies the “right of control” test but not the “ABC” test, thereby at least limiting its exposure to CTDOL’s wage and unemployment tax obligations.

In conducting its analysis, employers can also utilize labor and employment counsel, not only to participate in the analysis but also to prepare, if appropriate, an opinion letter explaining why the proposed independent contractor arrangement satisfies, or at least would appear to satisfy, all applicable legal standards.  Reliance on such letters will not only assist in defending any complaints, but also should at least constitute a good faith defense, precluding any claim that the employer “willfully” disregarded the applicable independent contractor standards.  Such a scenario is significant because the DOL can seek damages for three (3) years prior to the date of a complaint for willful violations instead of just two (2) years for non-willful violations.

Finally, the CTDOL representative noted that employers concerned about whether or not their use of independent contractors complies with all legal requirements could voluntarily contact the CTDOL for a review.  While the agency does not have a formal amnesty plan like the IRS, the representative noted that by voluntarily contacting it, employers will not only obtain a detailed response regarding their use of independent contractors but also they will minimize their exposure in the event it is determined that they have misclassified individuals as independent contractors instead of employees.  Employers contemplating engaging a voluntary audit should, of course, consult with legal counsel before doing so.

The appropriate use of independent contractors can certainly contribute significantly to an employer’s effective operations and bottom line.  Their use has always involved some risk but with state and federal governments looking for ways to increase tax revenues in these difficult economic times, the risks of utilizing independent contractors has never been greater – a scenario likely to continue for the foreseeable future as a result of the “misclassification initiative.”

NLRB Recess Resignations


Terence Flynn, a Republican, nominated to the Board by President Obama has resigned from the National Labor Relations Board (NLRB) effective July 24, 2012.  In the interim, Flynn has recused himself from all agency activities.Flynn Resigns

Flynn was one of three recess appointments made by the Obama Administration.As the constiutitonality of these appointments remains suspect, each one is currently being contested in court. Specifically, the lawsuit filed against these appointments claims that, becayse Congress was technically in session when the appointments were made, the Administration lacks the authority to make an "interm" appointment.

A Vacuum

Flynn’s resignation now leaves the NLRB with three Democratic appointees, and just a single Republican. Considering the current political climate in our nation's capital, its unlikely the President will make another appointment before the 2012 election. And should the President buck conventional widsom and make a new appointment, the odds of such an appointment being Republican are almost zero. 

Flynn’s resignation sets the stage for another political battle between the administration and the Congress over a NLRB appointee. This new battle will continue even as litigation over the temporary appointment continues in the court.

It is unlikely we will see a resolution of this issue until after the elections this Fall.

NLRB Ambush Elections: More Than Just Showing Up



In an important victory for employers and proponents of individual freedom, U.S. District Judge James Boasber threw out a recent NLRB “Snap” election mandate.

Woody Allen and the Quorum Requirement

“According to Woody Allen, eighty percent of life is just showing up,” Boasberg wrote in an opinion issued today. “When it comes to satisfying a quorum requirement, though, showing up is even more important than that.”snap elections

In this case, Boasberg held that only two of the three members of the Board actually voted on the rule—3 members are required to constitute a quorum. Although the Board claimed its "snap" election rule was based on a 2-1 vote, the Board’s sole Republican member, Brian Hayes, was not able to cast his vote, as he was given only a few hours notice via the NLRB’s electronic ballot system. Boasberg ruled that, despite the Board’s claims to the contrary, Hayes’ inability to vote did not constitute a vote. Therefore, with a final vote of just 2-0 on what’s supposed to be a five-member Board, the court ruled that there was no quorum and therefore the rule was invalid.

As a result, representation elections will continue under previously established procedures unless the board votes with a proper quorum.

Bottom Line for Employers

Boasberg’s decision is, most likely, a temporary reprieve for employers. Given that Obama has (through dubious recess maneuverings) appointed new members to the Board, the passage of yet another Snap election rule seems likely—as does the another battle over whether a quorum exists. Until the President stops playing games with recess appointment—or a more business friendly President is elected—employers should expect uncertain regulatatory climates to persist.


NLRB Attacks Mandatory Employment Arbitration (Again!)


The NLRB General Counsel has issued an unfair labor practice complaint against 24 Hour Fitness, an employer in California. The NLRB is alleging that, as a result of its mandatory arbitration policy dealing with employment disputes, 24-Hour Fitness has violated the National Labor Relations Act. The policy in question required employees, when hired, to waive their right to participate in class actions against 24 Hour Fitness. However, the employees were allowed 30 days to opt out from this restriction by submitting a specific form to the company.NLRB

The General Counsel has taken the position that this opt-out procedure is unlawful because it forces the employees to take exception to the mandatory arbitration policy on class actions very shortly after they are hired. In other words, in the view of the NLRB, the employer's policy constitutes unlawful coercion because the newly hired workers are going to be reluctant to identify themselves as potential “troublemakers” in the event they want to preserve their rights to file or join in a class action lawsuit or arbitration against 24 Hour Fitness.

In a previous case, D.R. Horton, Inc., which was decided earlier this year, the NLRB held that it was unlawful for the employer in a mandatory arbitration agreement to impose a class action waiver upon its employees. The Board said this restriction violated the workers’ Section 7 rights to engage in protected concerted activities. That case is on appeal to the federal circuit court of appeals. However, it seemed to have left the door open for the type of opt-out procedure crafted by 24 Hour Fitness.

Bottom Line for Employers

While the case involving 24 Hour Fitness must still be decided by an administrative law judge,  the NLRB is communicating its strong opposition to employer mandatory arbitration agreements. This position is not shared by the courts, as reflected in particular by the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011), which upheld class action waivers in consumer arbitration agreements.

These issues involving mandatory arbitration policies in the employment setting will remain in a state of uncertainty until these cases can be resolved by the courts.

--Peter Janus represents employers in various industries and in the private and public sectors in all aspects of employment and labor relations law

Employee Criminal Records: New Rules from the EEOC


Last week, the U.S. Equal Employment Opportunity Commission (EEOC) issued formal guidance regarding employers’ use of criminal records in making employment decisions. The Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 is the EEOC’s first policy statement on the issue in 22 years. It addresses topics such as how an employer’s use of an individual’s criminal history can violate Title VII, what generally applicable policies the EEOC believes employers should follow to avoid violating Title VII, and employer best practices, among others. A press release and a question and answer resource accompanied the guidance’s release and is available on the EEOC’s website.

In short, the guidance summarizes that certain uses of criminal records may result in either disparate treatment or disparate impact under Title VII, the former occurring when “an employer treats criminal history information differently for different applicants or employees, based on their race or national origin (disparate treatment liability);” and the latter under circumstances where “[a]n employer’s neutral policy (e.g., excluding applicants from employment based on certain criminal conduct) may disproportionately impact some individuals protected under Title VII, and may violate the law if not job related and consistent with business necessity (disparate impact liability).”EEOC

To meet the “job related and consistent with business necessity” defense, the guidance recommends employers:

  • Validates criminal conduct screens for the position in question per the Uniform Guidelines on Employee Selection Procedures (Uniform Guidelines) standards; or
  • Develop a targeted screen considering at least the nature of the crime, the time elapsed, and the nature of the job, and then provide an opportunity for an individualized assessment for people excluded by the screen to determine whether the policy as applied is job-related and consistent with business necessity.

The EEOC’s “best practices” include:

  • Eliminating policies or practices that exclude people from employment based on any criminal record.
  • Training managers, hiring officials and decision makers about Title VII and its prohibition on employment discrimination.
  • Developing a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct that identifies essential job requirements, related disqualifying offenses, and maintains a record of the decisions made, etc

Bottom Line for Employers

While the proper and appropriate use of employee criminal records by employers is primarily controlled by state law and regulations, this recently released policy statement provides important insight into how the federal government has interpreted many years of court precedent and how it will interpret employer practices in the future. Accordingly, employment decision- and policy- makers must be familiar with these materials. Given that the guidance is the EEOC’s first policy statement on the use of criminal records by employers in over 20 years, it presents a timely opportunity for employers to review their own practices and revise them where necessary.

Unfortunately and unsurprisingly, many of the aspects of the EEOC’s recommendations and best practices carry the potential for increasing the cost of conducting the criminal background checks that are often considered integral to maintaining a productive workforce. Therefore, a careful balancing of both legal and financial decisions may be in order. No matter what decisions are made, it is paramount that employers continue to be mindful of, and to comply with, current state laws and regulations concerning the use of employee criminal records.

--Kyle A. McClain is an associate in the Hartford office of Siegel, O’Connor, O’Donnell & Beck, P.C., where he practices labor and employment law.

FINRA: Collective Actions Can’t Be Arbitrated


For many years, employees and customers in the securities industry signed agreements that their disputes must be arbitrated before the self-regulatory organization for broker-dealers, Financial Industry Regulatory Authority (“FINRA”), previously known as the National Association of Securities Dealers (“NASD”).  Compulsory arbitration has been the norm for small and large customer claims, employee disputes and large complex cases, excepting only class actions. 


Rule 13204 prohibits class actions from being arbitrated under the Code:


Any claim that is based upon the same facts and law, and involves the same defendants as in a court-certified class action or a putative class action, or that is ordered by a court for class-wide arbitration at a forum not sponsored by a self-regulatory organization, shall not be arbitrated under the Code, unless the party bringing the claim files with FINRA one of the following:


(1) a copy of a notice filed with the court in which the class action is pending that the party will not participate in the class action or in any recovery that may result from the class action, or has withdrawn from the class according to any conditions set by the court; or


(2) a notice that the party will not participate in the class action or in any recovery that may result from the class action.


Now, with collective actions having increased in popularity, and despite FINRA having experienced, well-trained arbitrators hearing its cases, FINRA now believes that collective actions under the Fair Labor Standards Act (FLSA), the Age Discrimination in Employment Act (ADEA), and the Equal Pay Act of 1963 (EPA) would best be heard in the courts. 


Why should these claims be excluded from arbitration under the Industry Code? The courts see differences between class actions and collective actions. See, e.g., Velez v. Perrin Holden & Davenport Capital Corp., 769 F.Supp.2d 445 (S.D.N.Y. 2011) (compelling arbitration because collective action differs from class action); Gomez v. Brill Securities, Inc., 2010 WL 4455827 (S.D.N.Y. Nov. 2, 2010) (recognizing significant differences between an opt-out class action and an opt-in collective action; Gomez v. Brill Securities, Inc., 2012 WL 851644 (NY App. 1st Dept. Mar. 15, 2012) (denying motion to dismiss or to compel arbitration of class action claims).

Bottom Line for Employers

FINRA claims that the courts have established procedures to manage both types of representative claims. It also believes that the rule change would preserve access to courts for these types of claims for employees of FINRA members. Of course it does, but couldn’t FINRA do so as well? 

NLRB Posting Requirment Postponed (Again)



Last week, we predicted that the NLRB's "employee rights" posting requirement would be postponed. Sure enough, the Board has announced that, in light of the DC Circuit Court of Appeals recent enjoinment against the posting requirement, this new regulation has been delayed. NLRB

Therefore, the April 30, 2012 deadline for employer implementation of this rule is no longer in effective. Employers, however, should remain vigiliant, as its likely the Board will continue to press this issue.


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