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Keep Lawyers Out of Your Restaurant

Keep Lawyers Out of Your Restaurant

By Paul Kennedy & Lori Melton

RESPECT: If one of your workers leaves to serve, you must rehire him or her upon their return.

You have enough on your plates with increased competition, high employee turnover and skyrocketing commodity prices, but more than ever you also need to stay ahead of rapidly changing workplace laws and regulations. Legal missteps are increasingly common and costly. Just ask executives at Chuck E. Cheese and Taco Bell, which combined, paid nearly $6 million to settle cases with employees over wage and hour disputes.

In today's litigious world, no operator is immune from the threat of legal action related to workplace policies and practices. New laws, court decisions and government regulations have created a legal minefield that must be traversed with great care. For chains, defending workplace lawsuits can suck millions from the bottom line. For smaller operators, one lawsuit can be fatal.

Here is a look at three of the biggest legal challenges on the horizon and strategies you can use to proactively confront them.

Preventing Super-sized Settlements
While this business is increasingly difficult to predict, there is one troubling certainty—you can expect increased threats from employees looking to cash in on the class action lawsuit craze.

With more than 12 million workers, the restaurant industry holds vast potential for opportunistic plaintiff's lawyers seeking huge payoffs for uncovering what is often inadvertent non-compliance, especially with recent changes in overtime laws. Currently, wage and hour violations are the single-biggest source of employee class action lawsuits.

Pizza Hut and Claim Jumper are fighting the class-action status of pending overtime lawsuits, while the Cheesecake Factory recently placed $4.5 million in a legal reserve fund to fight charges that it violated California labor laws on rest and meal breaks.

But wage and hour violations are just the beginning. Tipping, uniforms and other various types of harassment and discrimination— from gender to appearance and age—are increasingly putting operators on the legal defensive. With more and more employees saying, "I'll see you in court," smart operators are focusing attention on prevention, which should include:

  • Thoroughly reviewing employees' job descriptions and actual job duties to reconfirm which workers are exempt from overtime pay, based on the latest labor guidelines.
  • Auditing employment policiesand practices to ensure they are complete and comply with all state and federal laws.
  • Training employees, especially managers and supervisors, on employment policies and ensuring their training is documented.
  • Monitoring changes in federal and state labor codes, updating policies and retraining employees, as needed.

Also, be aware of specific workplace practices that leave employers legally vulnerable to enforcement actions. Skipped work breaks and meals top the list. To prevent trouble, consider a policy that insists workers take and record the required breaks. However, if an employee resists because they think their time off the floor cuts into tips, the employee should sign a statement saying the break was offered by you and refused by them.

Challenges to vacation policies are rising. Companies-should consider eliminating use-it-or-lose-it rules, which are illegal in some areas, and substituting policies capping vacation accrual after a reasonable time, such as 18 to 24 months.

Operators should also note that gender-based grooming and dress codes are under increased scrutiny, although one recent case was favorable to the industry. Late last year, a federal court affirmed the dismissal of a Harrah's female bartender for failing to comply with her employer's dress and grooming standards, which included a requirement to wear makeup.

According to Littler Mendelson attorney Patrick Hicks, who represented Harrah's, the decision upholds the right of employers to enforce reasonable dress and grooming standards as long as they do not impose unequal burdens on either sex. Despite the win, it's important that you be prepared with a business justification for any gender-based differences in policy, such as requiring women to wear makeup and prohibiting it on men.

What You Don't Know Will Cost You
The war in Iraq and other overseas military actions requiring reservists are the latest challenge to operators struggling to attract and retain workers. In addition to staffing issues, operators risk legal action—and negative publicity—if they do not fully understand their obligations to provide military leave and jobs for service personnel when they return home.

The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) was designed to strengthen and expand the employment and reemployment rights of all uniformed service members. It applies to all employers in the U.S., regardless of the size of their business. Of special concern to you is the protection the act extends to part-time employees, unless their employment is for a brief, non-recurring period and is not expected to last indefinitely.

Employees are eligible for reemployment if they meet the following five criteria:

  1. The employee must have given notice that he or she was leaving to perform military service.
  2. The job he or she left must be in the civilian sector.
  3. The cumulative period of military service must not have exceeded five years (although there are some exceptions).
  4. The employee must have been released from service under honorable or general conditions.
  5. The employee must have reported back to work or applied for reemployment within the time constraints prescribed by law.

Operators also should be aware that they are required to provide notice of the rights, benefits and employees' obligations under USERRA. The notice can be distributed in a number of ways, including posting it where employee notices are normally placed, handing or mailing it out or via electronic mail, as long as the full text of the notice is provided.

In 2004, the Department of Labor, which enforces USERRA, received nearly 1,500 complaints raising USERRA issues, up 11 percent from the previous year. Both the federal government and individual employees can sue to enforce USERRA requirements. Violation penalties can include paying the employee's lost wages and benefits, attorneys' fees, expert witness fees and other costs.

To avoid violations, adopt a military leave policy or review current policies to ensure you are in compliance. Also, operators should review benefit plans to be certain they conform to federal military leave laws.

Visit for a thorough USERRA description.

Immigration: Hire With Caution
The restaurant industry is one of the nation's largest employers of undocumented foreign workers, putting operators at risk for costly fines and even jail time. According to a Congressional report, there are an estimated 9.3 million unauthorized workers in the U.S. and approximately 700,000, or 8%, are employed by restaurants. For many operators struggling to keep their kitchens and dining rooms staffed, the labyrinth of immigration rules are as confounding as wage and hour regulations.

In early January, federal officials announced that the annual limit of 66,000 visa applications for temporary unskilled workers (the H-2B visa) had been reached, two months earlier than last year. No additional visas will be issued until Oct. 1, the start of the next federal fiscal year. Although legislation offering more H-2B visas is pending before Congress, operators relying on seasonal workers can expect challenges in filling unskilled jobs this summer. However, substituting undocumented workers can be a costly mistake.

The Immigration Reform and Contract Act (IRCA) of 1986 prohibits companies from hiring unauthorized workers. Under IRCA, U.S. employers must record on an Employment Eligibility Verification Form, commonly known as an I-9, that an employee has shown documentation establishing his or her identity and eligibility to work in the United States. Failing to complete this verification process can lead to fines ranging from a few hundred dollars up to a 2004 case high of $414,000.

It also should be noted that forging or knowingly including inaccurate information on an I-9 carries serious consequences. Such perjury is a separate criminal offense. Penalties can include up to five years in prison and hefty fines.

While making sure workers are eligible to work in the U.S., be aware of recent changes in the labor certification process, used when employers sponsor foreign workers, such as chefs, specialty cooks and managers, for permanent residency.

Effective March 28, 2005, the Department of Labor began processing applications under a program called Program Electronic Review Management (PERM). The labor certification for the permanent employment of aliens in the United States now requires an employer to specifically recruit for an open position prior to filing a labor certification application for a foreign national.

Employers are no longer required to provide recruitment documentation with the application, but they must retain it for five years in case they are audited. The employer also must obtain a prevailing wage determination from the state's workforce agency prior to filing the application and pay 100 percent of that prevailing wage, versus the 95 percent previously required.

Basic recruitment requirements for professional and managerial positions include three steps:

  1. Place a job order with the state workforce agency covering the area of intended employment and maintain it for at least 30 days
  2. Run two local newspaper advertisements on two Sundays
  3. Choose three additional recruitment steps from options provided by the Department of Labor, which can include using job fairs, websites or campus placement offices.

For nonprofessional positions, the employer must place a job order with the appropriate state workforce agency and run two newspaper ads. Finally, for both professional and nonprofessional positions, the job must be posted and information included in any internal media, whether electronic or printed.

Ahead of the Legal Curve
Smart operators do not just keep up with consumer and industry trends; they stay ahead of them. As the American workplace becomes more complex and legally challenging, it's equally important that restaurant owners and operators stay abreast of federal, state and local workplace regulations. Although staying up-to-date on legal issues seems daunting, there are resources available to manage the task. Law firms, restaurant associations, industry consultants and government regulators all provide programs and information to help operators navigate the ever-changing restaurant workplace.

Continuously reviewed and updated employment policies, like tasty appetizers, are a good start. But, as with most other aspects of the restaurant business, training is critical to whether a restaurant succeeds or fails. Managers must not only be aware of employment policies, they must clearly understand them and recognize the importance of enforcing them.

Perhaps most important, operators need to make a commitment to providing a work environment that is not only legally compliant, but that is steeped in a culture that promotes fairness and opportunity for all employees. Those who do will be rewarded with their just desserts in the form of fewer legal problems and a happier, more productive and stable workforce.

Paul Kennedy, shareholder, and Lori Melton, senior attorney, are with Littler Mendelson, the nation's largest labor and employment law firm exclusively representing management in employment, employee benefits and labor law matters. The firm's client base ranges from Fortune 500 companies to small business owners. For more information, visit