Wednesday, October 24, 2007, 9:26 AM

Be Careful of What You Take from Your Employees: Tipped Employee Issues Can Be Scandalous!

Scores Holding Co., Inc. has gotten into some legal trouble this month for allegedly taking part of its employees' tips and failing to follow minimum wage and overtime compensation requirements according to allegations in a proposed class action filed October 9, 2007 in the U.S. District for the Southern District of New York. Scores promoted "Diamond Dollars"--play money used to tip workers--on its website and in its club to customers. Scores processed the Diamond Dollar tips and retained a portion of the money when employees went to cash in their Diamond Dollars. Scores owns and/or operates nightclubs in New York City, Chicago, Las Vegas, and New Orleans.

The lawsuit also alleges that Scores did not pay minimum wage to its employees for all hours worked and did not pay overtime rates for hours worked over 40 hours in a week. Allegations also include Scores' failure to maintain proper time records and failure to pay or reimburse employees for the cost of uniforms and their laundering, which allegedly led to the workers making less than the minimum wage.

This proposed class action could prove to be significant for employers in the restaurant and entertainment industries who routinely face issues of how to handle minimum wage in light of tip compensation, uniform costs and maintenance, and recording hours worked. Employers of "tipped employees" are permitted to claim a tip credit against their minimum wage requirements, but employers must still pay a cash wage of at least $2.13 per hour and make up any difference between the employee's tips combined with the cash wage and the minimum hourly wage. The requirements for tipped employees can be found on the Department of Labor's website under Fact Sheet #15. Many state departments of labor have articles and guidelines on what deductions and withholdings an employer may and may not use if these reduce the employees' wage rate below the minimum wage, for examples, see the webpages for North Carolina, Georgia, and South Carolina.


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