I don’t feel right about it,” Alisa Baker said, as she scooped ice into a big plastic cup during the Saturday lunch rush. “I don’t understand.”

Baker, a server at Dew Drop Inn, said she’s heard “bits and pieces” about lawsuits filed by servers against five area restaurants over back pay and doesn’t get it.
“I’m happy about what I make,” she said.

In addition to the $2.30 an hour she’s paid as a server at the restaurant known for its chili-covered burgers and hot dogs, she brings home about $70 in tips on an average five-hour shift. She said she normally works five days a week.

The story is the same for the other servers at the city’s oldest continuously operating eatery, with a history dating more than 90 years.

Hillary Hamlin takes customers’ orders at the Dew Drop Inn last Saturday. Her uncle, owner Kenneth Hamlin, said he does not enforce a “tip pool” at the restaurant.

Hillary Hamlin takes customers’ orders at the Dew Drop Inn last Saturday. Her uncle, owner Kenneth Hamlin, said he does not enforce a “tip pool” at the restaurant.

While running around to make sure every customer in her section was happy, Hillary Hamlin, niece of owner Kenneth Hamlin, said even after 10 years, she loves the job.

“There’s a good atmosphere and good people,” she said.

Server Marquisa Lucas was taking care of customers on the other side of the small dining room. Lucas has worked at the midtown diner for eight-and-a-half years and said she’s always been treated fairly. The recent lawsuits are just about the money, she said.

Lucas said she works five to six days a week, splitting time between serving and working the counter where customers pay for their meals. As a server, she makes the standard $2.30-an-hour rate and earns the average daily tips, but when she works the counter, Lucas is paid $8.25 an hour.

Lawsuits involving some of the city’s best-known restaurants claim servers at target establishments deserve back pay and damages because the restaurants allowed dishwashers and other kitchen staff to benefit from mandatory tip pools. Attorneys for the plaintiffs argue the practice is in violation of the Federal Labor Standards Act.

The Wage and Hour Division fact sheet provided to Lagniappe by the Alabama Restaurant and Hospitality Alliance explains that if kitchen staff and dishwashers are included in a tip pool, the tip pool is invalid. That means owners can’t claim the tip credit, which allows them to pay servers less than the federal minimum wage.  

There’s no tip pool at Dew Drop Inn, so the servers there keep 100 percent of the money they make.

“Our money is our money,” Lucas said.

That wasn’t always the case, Kenneth Hamlin said. The restaurant’s owner since taking over for his father in 1991, Hamlin said he used to employ a mandatory tip pool that included back-of-house staff, but did away with it because he felt it was unfair to servers.

“It got to the point where people in the back expected it,” he said.

Hamlin, who said this practice took place “many, many years ago before tip credits,” was once sued by a part-time, back-of-house employee over the issue.

In addition to being paid more than minimum wage, he said full-time kitchen staff get benefits and paid vacation. They do not receive tips, or benefit from a tip pool, Hamlin said. One exception however, was when his cook received a small tip for singing to a regular customer on his birthday Saturday.

“If we went to a tip pool, my waitresses won’t be happy,” he said.

In addition, Hamlin said every member of his wait staff is cross-trained to work the counter and work in the kitchen. He said when they do anything other than serve food, they are paid more than minimum wage.

Restaurants involved in lawsuits
Some well-known Mobile-area restaurants have been named as defendants in the FLSA cases. The rash of suits started with the Original Oyster House in Gulf Shores, which recently settled with 68 plaintiffs for $770,000, plus court costs. More recently, Lambert’s Cafe in Foley, Mikee’s Seafood and the Shrimp Basket in Gulf Shores, as well as Wintzell’s Oyster House and Butch Cassidy’s in Mobile have been named defendants in similar suits. In the case of Wintzell’s and Butch Cassidy’s, at least, the number of plaintiffs is just two or three people.

Each suit is different, but all reference the existence of an “invalid tip pool.” All the suits have been filed by Daniel Arciniegas, an attorney from a well-known Birmingham plaintiff’s firm.

Recently, he explained in an email message that the FLSA allows for restaurant owners to get around having to pay servers minimum wage through a tip credit. The tip credit accounts for $5.12 an hour, meaning an employer only has to pay a minimum of $2.13 an hour to employees who regularly receive tips.

“The ‘tip credit’ saving adds up quickly when you have five servers, five days a week, working 40-plus hours for years at a time,” Arciniegas wrote. “By claiming a ‘tip credit,’ employers are immediately realizing huge savings in their labor costs, improving their profitability. Most employers use the ‘tip credit’ savings to pay better wages for its other employees, without taking the gratuity given by customers to tipped employees.”

Arciniegas wrote that the FLSA protects that arrangement because “that’s how it’s supposed to work.”

“Unfortunately, there are law breakers who want to take more than the lawful ‘tip credit’ and make it mandatory for their servers to share tips with non-tipped employees,” he wrote. “Claiming the ‘tip credit’ and mandating tipped employees subsidize the wages of non-tipped employees goes beyond the boundaries set by the lawmakers.”

For those blaming the up-state firm for apparently targeting restaurants in South Alabama, Arciniegas wrote that isn’t the case. He said media attention, stemming from the first suit, informed other servers of their potential claims. He said servers at other establishments reached out to his firm for legal opinions.

“We represent people who contact us,” he wrote. “If the facts indicate that the law is being broken and the client wants to pursue the claim then we will file a lawsuit.”

He wrote he has pending suits against Michael’s Steakhouse and Iguana Grill, which are Birmingham and Tuscaloosa-area establishments, respectively. Arciniegas also sued Hooter’s in Trussville and Eddie Merlot’s in Kentucky.

Kenneth Hamlin defended the restaurant owners involved in the lawsuits, saying “they didn’t know they were doing wrong. Hamlin said it’s easier to be ignorant to some of the labor laws these lawsuits are based upon.

“I may be doing something wrong and not know it until attorneys come down,” he said. “Is there such a thing as a warning?”

Lisa Cooper, a labor and employment partner at Hand Arendall, said she believes a lack of education about the law is one reason why the suits are popping up more often.

She said valid tip pools are fine for restaurants claiming a tip credit, as long as notice is given to employees, the right employees participate and once it’s distributed that a server makes at least minimum wage. She said servers typically make more than minimum wage, even when a mandatory tip pool is in place.

“The only situation where that may not happen is if they had a really bad night,” Cooper said. “Generally speaking, when you look at what servers make it’s more than minimum wage.”

While it is clear owners and managers cannot participate in a mandatory tip pool, she said the issue of who can participate is a “somewhat unsettled” part of law, and the Department of Labor’s interpretation of the FLSA has been challenged. The problem is not just localized to this area, as there has been a lot of litigation nationwide, resulting in suits against some big restaurants.

For example, she brought up a case out of Oregon pertaining to allowing tips for the kitchen staff. In that case, the 9th Circuit Court of Appeals held if an employer did not take a tip credit, back-of-house employees could be part of a mandatory tip pool. The DOL responded with a regulation making clear it prohibits mandatory tip pools that include employees who do not customarily and regularly receive tips, but then a U.S. District Court judge ruled the DOL had exceeded its authority and that the FLSA only imposes conditions on employers who take a tip credit.

These suits apply only to employer-mandated tip pools, servers or other front-of-house employees can voluntarily share tips with dishwashers or other back-of-house employees and it doesn’t violate the law.

To make it more confusing, FLSA regulations concerning service charges are different, Cooper said. A service charge at a restaurant refers to mandatory gratuity added to the tab at large tables. It typically equals 10 to 20 percent of the table’s bill.

Unlike a traditional tip, Cooper said, this isn’t considered the employee’s money.

“It differs from a tip because there’s no customer discretion,” she said.
This means employers can disburse money from service charges, Cooper said, but that money is considered part of wages, not tips, and is subject to FICA withholding.

Possible solutions
Paying every employee at the restaurant more than minimum wage could be one way around, at least, a portion of these lawsuits, Cooper said.

To that end, some restaurants in other parts of the country have gone to paying a flat hourly fee to all employees, including servers, and discouraging tipping. Kenneth Hamlin feels that system would work a lot better on the East Coast, or in a big metropolitan area than it would down here.

He sees tipping as a motivation for his servers to give better service. He can’t always see what goes on in the dining room, but when he fields complaints about service from customers, he’ll sometimes suggest they not leave a tip.

A number of insurers also offer protection for business owners against lawsuits. The insurance known as Employment Practices Liability Insurance, or EPLI, covers employers who are sued for a number of labor-related issues, Andy Thomas of Hester, Thomas and Associates said.

A subset of these larger policies include coverage pertaining to FLSA compliance, but it may be limited to just a few carriers, he said. When similar lawsuits against restaurants began hitting courts in California six or eight years ago, wage and hour issues were not excluded and insurance companies paid a high price.

These policies typically cover the cost of defense against FLSA-related lawsuits, Thomas said.

The price of premiums for this type of coverage are based on the number of employees a restaurant has, as well as internal controls, like how well the owner keeps records, among other things, he said.

“Guys running a tighter ship are more likely to pay less per employee,” Thomas said.

Thomas gave an example of one business owner with 200 employees. The owner pays $17,000 a year for EPLI coverage.

He said he doesn’t know if news of the recent lawsuits have brought in more business, but he said EPLI is “a topic of conversation” for his clients now. Thomas said he would recommend the coverage.