Three Restaurateurs Burned by Wage & Hour Violations

We’ve known for a long time now the Department of Labor (DOL) has been targeting certain industries and types of businesses based on historically high rates of non-compliance with wage and hour laws. And since the beginning of this DOL initiative, restaurants have been on the list.

Presented in the spirit of learning from the experience of others, here are the stories of three restaurateurs who recently got called out for wage and hour violations:

El Tequila LLC and owner Carlos Aguirre

Aguirre operates four restaurants in the Tulsa, OK area. Back in January he was found guilty of underpaying his employees, lying to a federal investigator, forcing employees to lie to a federal investigator, and falsifying payroll and time records. The judge ordered him to pay $2.1 million in back wages and liquidated damages to over 300 current and former employees. Yikes! He’s going to have to sell a lot of margaritas to cover that cost!

The back story: Carlos Aguirre opened his first restaurant in 1997. As the judge noted, he’s “no stranger to managing and compensating employees.” In 2010, in response to an employee complaint, the DOL opened an investigation. Aguirre readily furnished the inspector with his payroll records. The only problem was, the records he furnished were phony. Aguirre was keeping a second set of handwritten records that showed what he was really paying his workers — a weekly straight salary, with no overtime.

The investigator initially took the books at face value, and believed the statements given by Aguirre and some of his employees (it turned out he had instructed them to lie to the investigator). Subsequent employee complaints and further investigation revealed the truth.

Notably, Aguirre was also lying to his accountant — furnishing him with doctored hours-worked data that showed employees working fewer hours than they actually worked. The accountant would produce payroll sheets (which he apparently thought Aguirre would use to cut pay checks) showing the workers being paid for the hours reported by Aguirre. Meanwhile, Aguirre continued to pay the workers straight salaries. In some cases, this meant employees made less than the minimum wage.

Lesson learned: It should be obvious — if you’re keeping a second set of books to track what you’re actually paying your employees versus what you’re telling the authorities you’re paying them, that’s a pretty strong indication you’re doing it wrong.

Billy’s Boudin & Cracklins

In March, this set of Louisiana businesses was found to have violated wage and hour laws and was ordered to pay $112,724 in back wages to 102 employees. In addition, the company was assessed $25,750 in civil penalties because the violations were found to be “willful.”

The back story: The business consists of three Louisiana-based locations offering grocery and prepared food items, including their own specialty Cajun sausages. The stores are owned by William “Billy” Frey, II, and his wife Patsy.

The owners were found to have been paying their employees straight time, regardless of the number of hours they worked. Further, in an effort to conceal when employees worked overtime, the owners would record only up to 40 hours at any given location. If a worker put in more than 40 hours in a week, the hours over 40 would be recorded as having been worked at another location — even though the employee only worked at one location the whole time.

Lesson learned: When you have more than one location, the hours employees work at all locations must be combined for the purpose of calculating overtime. Shifting hours from one location to another — especially when the worker themselves didn’t change location — in an effort to avoid paying overtime will backfire eventually. It’s another of those red flags that indicate a violation was “willful,” which usually results in larger penalties.

Tampico restaurants and owner Luis Salas

A group of three restaurants in Ohio and West Virginia are required to pay workers $190,000 in back wages. The owner and general manager, Luis Salas, was also found individually liable, meaning if the restaurants don’t pay the amount due, the DOL can go after the owner’s personal assets to try to recover the money.

The back story: The three restaurants were found to have paid employees off the books in cash, failed to keep accurate records of hours worked, failed to pay overtime, paid some workers less than the minimum wage, and required workers to participate in an illegal tip pool.

In addition to the back wages, the consent judgement requires the companies to furnish all employees (and new hires through February 2017) with a copy of the judgement, post a copy of the judgement in all locations where employees can see it and leave it posted through January 2018, and provide training for their managers and employees on the provisions of the FLSA.

Notably, the company is also required to install a computerized time tracking system and furnish employees with detailed pay stubs. (I’ve got some good suggestions for systems they might want to consider!)

Lesson learned: If you don’t have a formal time recording system in place, The time to get one is before the DOL investigators show up at your door. With the upcoming changes to the “white collar” exemption threshold potentially making millions more workers eligible for overtime, it’s more important than ever that you have accurate time records.

Oh, yeah, and if you have tipped employees and you want to start a tip pool, be sure to check with your employment law attorney to make sure you’ve set it up correctly and that you don’t have ineligible workers participating. Word to the wise.

A recipe for success

Even if you don’t operate a restaurant, you can learn from the mistakes of these three businesses. Your best bet: install and configure a good time tracking system. Pay your overtime-eligible workers in full for the hours they work, including time-and-a-half overtime when it’s incurred. A system such as AcroTime is designed to alert you when workers are in danger of incurring unscheduled overtime and help you efficiently manage your schedules to minimize necessary overtime.

Managing overtime is an important part of controlling labor costs. Refusing to pay overtime that’s been earned is not a legal cost-cutting measure. As Betty Campbell, southwest regional director for the DOL Wage and Hour Division stated, “Cost-saving measures must never include breaking the law at the expense of workers’ livelihood.”

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