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Tipped Over: Employer Liability in a Two-Tiered Wage State

“Tipped Over: Employer Liability in a Two-Tiered Wage State,” examines how rules necessary to regulate the subminimum wage system, including the so-called ‘80-20 Rule,’ create tremendous liabilities for both employers and employees in New York State.

The report underscores that a ‘one fair wage’ system, in which employers pay all workers, including tipped workers, a full fair minimum wage, is necessary to ensure workers are properly paid, and employers are not placed at risk of unnecessary liability.

The study — based on interviews with 40 restaurateurs from New York and nationwide, as well as workers and attorneys —  highlights the significant monitoring and liability incurred by employers in order to ensure compliance with the necessary regulations associated with paying a subminimum wage, as well the increasing gap between a growing minimum wage and a decreasing subminimum wage for tipped workers. This pairing incentivizes employers to increase the workload of tipped workers by shifting tasks away from non-tipped workers. For many employers, tipped workers are now the considerably ‘cheaper’ workers whose wages did not increase. As a result, the number of class action lawsuits filed by workers with regard to violations of regulations associated with the subminimum wage has also increased. “Tipped Over” documents restaurant employers’ experiences of costly liability arising from the complicated rules surrounding paying tipped workers a lower minimum wage.

Key findings include:

  • New York employers face an extensive set of regulations with which they must comply, including (1) strict notification requirements of tip sharing procedures (“tip pools”) that must be signed by each tipped employee; (2) strict prohibitions on including non-tipped employees in a tip pool; (3) strict requirements that tips actually make up the difference between the minimum and subminimum wage each week); and (4) strict requirements that not more than two hours, or 20 percent, of any shift, whichever is less, is spent in performing non-tipped work, or work that is not related to direct service (the ‘80-20 Rule’).
  • Time and money spent monitoring compliance with the above regulations tied to the subminimum wage, such as the ‘80-20 Rule’, prevents employers from spending time training and even hiring new staff.
  • Employers face a tradeoff when concentrating on lawsuits or on hiring: while small employers are better equipped to handle ‘80-20’ by limiting the number of service staff, liability prevents them from growing. Large employers are particularly concerned with the burden of liability, at times dissuading them from making additional hires.
  • A survey of federal lawsuits filed in the Southern District of New York, covering the New York City (NYC) area, and in the Central District of California, covering the Los Angeles (LA) area, show that restaurant lawsuits made up approximately 23 percent of the total in the NYC area in a state with a two-tiered wage system, while making up only 8 percent of the total in the LA area in a state with no two-tiered wage system.

Download the full report here.

Watch a video summarizing key takeaways of the report: