DOL Focuses on Tip-Credit, Minimum Wage and Overtime Violations Across Michigan

DOL Focuses on Tip-Credit, Minimum Wage and Overtime Violations Across Michigan

DOL Focuses on Tip-Credit, Minimum Wage and Overtime Violations Across Michigan

The 2023 enforcement docket reflected a sea-change in how the US Department of Labor (DOL) is enforcing wage rights for food service workers. The renewed focus of the Department of Labor shines a light on rampant wage theft in the food service sector – where many workers are not unionized and 85% of DOL investigations confirmed violations of the federal wage laws. The national priority is also reflected in Michigan, where a majority of Department of Labor 2023 FLSA enforcement lawsuits have targeted wage theft by restaurants and restaurant franchises across Michigan, from Lansing, St. Joseph, Grand Rapids, and Ann Arbor.     

Work on a tip-credit system is a unique exception to the basic minimum wage law.  Generally, every employee has a right to be paid at least a minimum wage ($7.25 per hour under federal law, but $10.33 per hour under Michigan state law). However, for food service and other customarily tipped occupations, employers are allowed to pay as little as $3.93 per hour.  For customarily tipped workers, Michigan employers may take a tip credit of up to $6.40 an hour, as long as the employee makes at least $10.33 an hour with tips. This exception is only allowed in narrow circumstances.

Here are some of the most common ways restaurants have run afoul of the law:

1. Invalid tip pools – Tip pooling is common in the restaurant industry – where servers and bartenders pool tips together and share all or some of their tips in a common pot.  However, when managed incorrectly, tip-pooling policies can violate federal law. The FLSA prohibits restaurants from requiring tip-credit employees who customarily and regularly receive tips (like servers) to turn over those tips to other employees who do not ordinarily receive tips (like cooks and dishwashers).  When restaurants violate the law they are not only responsible to repay the illegally taken tips, but also liable to pay their tip-credit workers at least a full minimum wage. 

These types of violations are alleged in recent DOL lawsuits against Saucy Crab in Grand Rapids, and Barrio Tacos in East Lansing, Michigan.  For instance, in Su v. Saucy Crab et al., the DOL filed an enforcement lawsuit alleging the Grand Rapids restaurant took tips from servers to enrich the owner/manager of the facility, and other illegal payroll deductions, and record-keeping violations. 

According to the DOL complaint, six or more back-of-the-house workers (cooks and dishwashers) were illegally allowed to participate in the tip pool.  Based on the multiple violations alleged, the DOL has found that food service workers should have been paid at least the full amount the federal minimum wage of $7.25 per hour.  (Because of the limit of federal enforcement, the DOL is unable to recover the full Michigan Minimum Wage, which increased to $10.33 per hour in January 2024.)

In Su v. Sparty Tacos, et al. the Secretary of Labor sued a restaurant chain doing business in East Lansing, Grand Rapids, and Traverse City (d/b/a Barrio Tacos) alleging servers tips were taken to pay kitchen staff as part of an illegal tip pooling scheme.  As with other recent DOL lawsuits, the DOL alleges that the tip-pooling arrangement invalidates the restaurants’ eligibility to use the lower tip credits, and therefore they are required to pay the full minimum wage to their servers.               

2. Tip stealing – Public tipping habits have become supercharged in recent years.  Customers feel generous and want to make sure workers are appreciated.  Unfortunately, many cafes and restaurants have also taken note of the customer generosity upswing and used the opportunity to redirect tips to pad their own pockets.  The FLSA was amended in 2016 to create an independent cause of action for tip stealing, and many employers have not caught up with the law.   The legal point is quite clear: tips belong to the worker, they cannot be taken by management.  It is against the law for any restaurant to take any portion of tips, even for workers who earn above the Michigan minimum wage. 

Because business owners control the point-of-sale systems, it provides an attractive opportunity for tip stealing from workers.  Some owners illegally take a portion (or sometimes all) of credit card tips, or for online ordering, or in-app tips are illegally redirected to management.  These practices are illegal.  In Su v. AJCJ d/b/a Gibby’s on the Lake, the Secretary of Labor sued a restaurant alleging forced tip pooling involved payments of the tips to an owner/manager.  The DOL alleged that as a result of the invalid tip pooling arrangement, the restaurant was not permitted to take a tip-credit toward the federal minimum wage.  As a result, all tipped employees are entitled to recover back wages to the difference between the federal minimum wage and the minimum cash wage received under tip-credit rules.

3. Refusal to pay overtime wages – Restaurant workers are typically entitled to receive overtime pay for all hours over 40 in a week.  This is a very clear requirement.  For all workers (tipped and non-tipped), wages plus tips must add up to one and a half times the regular hourly rate.  This type of violation is the subject of recent FLSA lawsuit against a group of Ann Arbor Restaurants. 

In Su v. Cascabel Ventures, Ann Arbor restaurants owners simply stopped paying overtime pay for kitchen workers.  Cooks and staff who had been paid normal overtime wages before the pandemic, were allegedly told they would no longer make overtime pay.   There is no excuse for this violation.  The Complaint file by the DOL includes reference to the restaurants’ benefit from Paycheck Protection (PPP) Loans to supplement employee compensation.  The legal relevance is questionable, but the reference suggests that restaurant owners who accessed those PPP loans may be subject to increased scrutiny of their pay practices during the pandemic.

4.Non-tipped Sidework. Another common tip-credit violation involves paying servers on the tip credit for non-tipped work (a/k/a “sidework” such as filling condiments and folding napkins).  The DOL recently reinstated clear rules limiting the amount of sidework that can be required of tip-credit employees.  Restaurants are required to pay a full minimum wage to servers for non-tipped work over 20% in a work week, or any continuous period more than thirty minutes.

The DOL is sending a clear wake-up call to the Michigan food service industry.  Yet government enforcement it is only one piece of the wage and hour compliance system.  Its sets a tone and provides a roadmap for others to follow.  For one, the volume of DOL complaints far exceeds the available resources.  So, only a small subset of the food-service violations can be pursued by the DOL each year. Private attorneys general can be much more nimble. Second, the DOL is limited to enforcing federal law. So, the difference between the federal minimum wage and the state minimum wage is unlikely to be recovered in any federal enforcement action.  State and federal laws are written to depend on those of us in the private bar to fill the enforcement gap.

How do I find out more about tip-credit law, minimum wage and overtime?

    1. DOL Fact sheets
      1. 15

        1. 15a (dual jobs)

    • Consult with a knowledgeable wage and hour attorney 

How do I report a restaurant tip-credit or overtime violation?

    1. Contact the DOL local office.

    1. Contact the state wage and hour division at or toll free at 1-855-4MI-WAGE (1-855-464-9243).

If you’re not sure where or when to report wage theft, start by contacting an employment attorney with wage theft enforcement experience.  The DOL enforcement power is limited to seeking the federal minimum wage of $7.25 an hour (and other damages and penalties) for restaurant workers.  Without a private lawyer, impacted employees cannot recover the full Michigan minimum wage of 10.33 per hour. Blanchard & Walker attorneys provide confidential legal advice for food service workers.