Hospitality Serves Up Thousands of Wage and Hour Claims

Wage and hour disputes have rapidly increased for U.S. restaurant employers. In 2017 alone, the U.S. Department of Labor (DOL) took over 7,000 hospitality wage and hour claims, recovering more than $483 million in back wages for employees. That’s nine times more than any other industry.

Workers can file a lawsuit when they are just a minute late for a meal or rest break, or if their overtime was miscalculated by one dollar. And, more and more hospitality employers are being investigated for Fair Labor Standards Act (FLSA) compliance. 

The problem is, proprietors and restaurateurs aren’t likely covered for these infractions. A common misconception is that wage and hour disputes regularly fall under the umbrella of employment practices liability insurance (EPLI).  Although some wage and hour coverage can be found under EPLI, it’s unlikely and depends on which state you are in and the carrier’s willingness to offer the coverage.   

An employee is supposed to get a break, but late meal breaks and overtime miscalculations are viewed as willful denials by the employer. EPLI covers employment torts, including claims of wrongful termination discrimination, harassment and retaliation.

Historically, at most, some carriers have offered very limited amounts for defense costs only for wage and hour claims.  There are, however, stand-alone wage and hour products now available that offer both defense and indemnity for these types of claims. 

This new class of stand-alone wage and hour policies, and EPLI endorsements, has recently gained traction, as they can transfer some of a hospitality employer’s wage and hour risks associated with meal breaks and overtime. 

Regardless of your coverage, restaurant employers will want to consider the following common wage and hour violations and best practices for minimizing wage and hour claims. 

Four Common Hospitality Wage and Hour Violations

If you’re doing any of the following – even unknowingly – it’s time to review your wage and hour strategy with front-line management and staff. 

  1. Prep time compensation. When employees are required to “suit up” in a uniform for their restaurant job, is that time compensable? Depending on the employee and the job, an employee may be entitled to pay for the time it takes to change in and out of uniforms or special apparel, whether it takes one minute or 10 minutes to get ready. 
  2. Calculating overtime. Many organizations don’t calculate overtime correctly because they fail to properly calculate the employee’s regular rate of pay when non-discretionary bonuses are earned in a particular pay period. This error, which may amount to only a couple of dollars, could expose businesses to various statutory penalties. 
  3. Rounding hours. Employers typically round to the nearest 15 minutes to clear up time sheet discrepancies. The courts have explicitly stated that rounding must be fair to both the employee and employer and consistent “up and down.” While rounding, when utilizing fair and consistent practices, is permissible, doing so may expose employers to legal challenges and the expense of defending the fairness of the practice.   
  4. Additional breaks. Are additional breaks required because of an employee illness or injury, compensable? The U.S. Department of Justice recently sided with the employer in a case where chronic back pain necessitated an employee to take more breaks than are typically provided by the employer during an eight-hour day. The court said that “accommodation breaks,” beyond what is “common in industry” are not compensable.
Ways to Minimize Wage and Hour Claims
  • Pen policies and procedures. Include adequate and detailed information about your company’s wage and hour-related policies, including meal and rest break policies. While you don’t have to “police” your employees to ensure they are taking their available breaks, you need to make sure you have adequate written policies and procedures and that employees are relieved of all their duties during their break time.  
  • Review time cards. Whether you rely on an outside agency or payroll company, or you do it yourself, review worker time cards. Make sure they took their break, and did so timely. 
  • Waive the meal break. There are certain situations in which an employee can waive a meal break, but in some states they have to do so in writing. If you are in a state that allows meal break waivers, they should be done in writing and signed by the employee each time he/she intends to waive a break. This will help avoid potential penalties or claims of missed meal periods down the road.
  • Don’t turn your back. You cannot ignore meal period violations. Train supervisors and managers on the law, and what they can do to achieve compliance in multiple scenarios.  
  • Always pay for missed meal periods. Let go of your instinct to not pay an employee when he/she intentionally misses a meal period. Always, discipline, document and pay. If not, you could face legal action.
  • Talk with outside employment counsel.  Always consult with outside counsel specializing in employment law in your state. Even a quick consultation to discuss the company’s policies and practices could avoid future claims.  

Although the hospitality industry ranks #1 in volume of FLSA wage and hour claims, you don’t have to sit by and wait for your business to be affected. Contact your advisor to find out if you can transfer your risk to a standalone wage and hour policy or by adding a wage and hour endorsement to your Employment Practices Liability Insurance policy.