U.S. Department of Labor’s Wage and Hour Division investigators found that two popular restaurants, Sophia’s House of Pancakes restaurants in Kalamazoo and Benton Harbor, were requiring that servers pay $2 an hour from their tips to their employer. Investigators also found that Peter Philis, who runs the Benton Harbor location, discriminated against a server, claiming that she reported violations of the Fair Labor Standards Act to the Labor Department.

A federal judge ordered the restaurants, Sophia’s LLC in Kalamazoo and Sophia’s III in Benton Harbor, and their owners, John P. Filis and Peter P. Philis, to pay $122,500 in back wages and $122,500 in liquidated damages to 73 employees at the Kalamazoo location and 45 workers at the Benton Harbor restaurant.

Investigators found the restaurants failed to comply with the FLSA’s requirements for tipped employees as well as the minimum wage, overtime, record keeping and anti-retaliation provisions by:

• Requiring servers to pay the employer $2 per hour from their tips, without a tip pooling arrangement in place. A valid tip pool allows employers to collect tips as long as employees are notified of the arrangement and tips are redistributed by the employer to eligible employees in the pool and not used for any other purpose.
• Failing to pay servers for time spent working before and after their scheduled shifts.
• Taking deductions from employees’ pay for uniforms or incorrect orders, causing their hourly rates to fall below minimum wage.
• Failing to accurately record daily and weekly work hours and earnings.
• Paying kitchen staff flat salaries without regard to the number of  hours they worked, resulting in violations of the overtime regulations when these employees worked over 40 hours in a workweek and were not paid overtime.
• Discriminating against a worker whom the employers blamed for calling the Department of Labor to complain about the restaurant’s pay practices

The court action enjoins the defendants from violating the FLSA in the future and requires significant changes in their business practices.  The defendants are required to provide training to managers and employees on the FLSA’s tip credit provisions to ensure compliance with the FLSA at both locations.

The consent judgment also requires the employer to:

• Install a computer or point-of-service system that records hours worked and permits servers to self-report tips received;
• Provide every current and future employee with a Wage and Hour division “Work Hours Record keeper” publication they can use to track their hours;
• Provide a complete wage statement to each employee each pay period, showing all hours worked, rate of pay, gross pay received, the nature and amount of all deductions, net pay, the pay period covered by the payment, and a copy of the employee's record of hours worked.

It also requires the employers to provide a copy of the Wage Hour Division’s Handy Reference Guide to the Fair Labor Standards Act, to every current and future employee.

Under the FLSA, when customers tip employees, restaurant operators can benefit by claiming a credit toward their obligation to pay those employees the full minimum wage. An employer that claims this tip credit is required to pay a tipped employee only $2.13 per hour in direct wages. If an employee’s tips, when added to the wages paid directly by the employer, do not equal at least the federal minimum wage of $7.25 per hour the employer must make up the difference. Tips are the property of the employee who receives them.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular hourly rates for hours worked beyond 40 per week. The FLSA provides that employers who violate the law are, as a general rule, liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees. Additionally, the law requires employers to maintain accurate time and payroll records and prohibits retaliation against employees who exercise their rights under the law.