Making Servers Pick Up Tab for Fast Tip Payment Skewered

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By Jon Steingart

June 15 — A Texas restaurant chain violated federal wage and hour law when it imposed deductions on servers' tips that exceeded the processing costs for credit card payments, a federal appeals court ruled yesterday ( Steele v. Leasing Enters., Ltd. , 2016 BL 188925, 5th Cir., No. 15-20139, 6/14/16 ).

“This decision stops the employer from taking away the tips that are the property of employees,” Chris Williams, an attorney with the Restaurant Opportunities Center United, told Bloomberg BNA June 15. ROC describes itself as an advocacy organization for restaurant workers.

“Current regulations allow a restaurant to deduct a pro rata share of the processing fees” associated with the total amount for the check and tip, Williams said.

If a customer tips 20 percent of a check's total, that means the server must cover one-sixth of the processing fee, he said. For example, if a $20 tip is added to a $100 bill, the total card transaction would be for $120 and the server's part of that would be 20 over 120 or about 17 percent, he said.

Armored Car Delivered Cash

Perry's Restaurants LLC, a Texas restaurant chain owned by Leasing Enterprises Ltd., said it withheld a percentage of the credit card tips customers gave servers to cover the expense of receiving armored-car cash deliveries a few times a week. It did this so servers could get the tips in cash at the end of a shift instead of in their biweekly paychecks.

The chain “only has a legal right to deduct those costs that are required to make such a collection,” Judge Stephen A. Higginson of the U.S. Court of Appeals for the Fifth Circuit wrote June 15, in deciding an issue of first impression under the Fair Labor Standards Act. Credit card issuer fees meet this standard but cash delivery expenses don't, Higginson said, affirming a lower court's finding following a bench trial.

A Perry's executive testified at trial that the company chose to pay out tips in cash on a daily basis “to attract better employees,” Higginson said. But “this cash delivery was a business decision, not a fee directly attributable to its cost of dealing in credit," he said, joined by Judges Edith H. Jones and Jacques L. Wiener Jr.

“Perry’s paid its servers their charged credit card tips in cash each night at their request, and it incurred substantial costs to comply with that request,” Lionel Schooler, an attorney for the restaurant chain, told Bloomberg BNA June 15. “Perry’s respects the judicial process and will proceed accordingly,” he said.

Sturm Law, PLLC represented the servers. Jackson Walker LLP represented Perry's. An attorney for the servers didn't immediately respond to requests for comment.

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com