Cheesecake Factory and Contractors Fined $4.6 Million: Don’t Commit the Same Wage and Hour Violations

avoid wage and hour violations

Liz Strikwerda

Content strategist and corporate blogger (2000+ posts). Her work has been featured on G2's Learning Hub, Human Resources Today, CloserIQ, Better Buys and over 500 business websites. She plays bluegrass mandolin and enjoys hiking in the red rock wilderness of southern Utah. Connect with me on LinkedIn

The Cheesecake Factory Restaurants, Inc. is the latest high-profile US employer to be cited for labor violations.

The restaurant chain, along with contractors Americlean Janitorial Services and Magic Touch Commercial Cleaning, share liability in a $4.6 million settlement.

The California labor commission alleges the entities committed wage theft against 559 janitors who worked at eight restaurants in southern California. (The chain had 214 locations as of April 2018.)

The labor commissioner fined them for shorting workers overtime pay and failing to provide mandated break periods. Magic Touch owner, Zulma Villegas, was also cited for failing to provide itemized pay stubs to employees.

The damages include back wages plus $632,750 in penalties.

The investigation was launched in 2016 in response to a tip from the Employee Rights Center, a San Diego-based non-profit employee rights group. The complaint alleged that Cheesecake Factory managers mistreated janitors hired by Magic Touch. The commissioner expanded the probe to review all the California locations which used Magic Touch workers.

In 2015, California passed a law which holds companies liable for the labor violations of contractors they hire. The law doesn’t let the contractor off the hook—it just expands the liability to all entities in the chain.

“This case illustrates common wage theft practices in the janitorial industry, where businesses have contracted and subcontracted to avoid responsibility for ensuring workers are paid what they are owed. Client businesses can no longer shield themselves from liability for wage theft through multiple layers of contracts. Our enforcement benefits not only the workers who deserve to be paid but also legitimate janitorial businesses that are underbid by wage thieves.” California labor commissioner Julie A. Su

The Labor Commission news release said that janitors started their shifts around midnight. Then they worked until morning without meal or break periods. The employees were not allowed to leave until Cheesecake Factory managers came in and assessed their work. When the workers didn’t pass the review, they were required to perform additional tasks. This extra time often exceeded forty hours for the week. The workers were not paid for the overtime.

This judgment can’t be a complete surprise to the restaurant chain. In 2007 and 2010, its janitorial sub-contractors were also accused of breaking labor laws.

Their ongoing negligence is going to cost them millions.

Employers can use workforce management software to protect themselves. While software can’t protect companies from intentional violations—it can help honest employers stay within the laws.

The Cheesecake Factory case involved the following illegal practices:

  • Denying mandated meal and rest breaks
  • Failing to pay overtime wages
  • Failure to provide itemized pay stubs

It’s important to note that violations compound. For example, requiring workers to clock out before the end of their shift could result in both minimum wage and overtime violations. Requiring on-call work could create a predictive scheduling infraction. And all scheduling practices have Family Leave implications.

In California and many other states, a company has shared responsibility with sub-contractors for wage and hour practices regarding employees. In some jurisdictions, this is called “joint employment” or “integrated employment.”

Companies use subcontractors for a variety of reasons. It can save money on overhead. It can allow them to focus on their core business. A subcontractor may have expertise that’s only needed for one project. Subcontracting can help growing companies meet production requirements.

The Cheesecake Factory isn’t the only restaurant chain to run afoul of labor laws in the past few years. T.G.I. Fridays committed similar violations and were implicated in a 19.1 million dollar action.

The Department of Labor and the Restaurant Industry

Twenty percent of DOL wage and hour cases involve the restaurant industry. This includes fast food, restaurants, bars, and mobile food trucks. From 1986 to 2016, over 23,000 food and beverage establishments were prosecuted. The fines levied in the industry added up to $247 million. Note that this figure represents only Federal cases. The industry is the target of thousands of actions brought by private employment attorneys.

Why Are Restaurants Prosecuted So Often?

There are a number of factors which make restaurants particularly vulnerable to wage and hour infractions. Restaurant workers are among the lowest paid. If hours aren’t calculated correctly, business owners can incur a minimum wage violation. Companies usually have multiple locations. This complicates timekeeping and scheduling. Restaurants are open longer than many other retail businesses. Some establishments have employees working around the clock. This puts owners at risk of overtime abuses.

How To Protect Yourself

Restaurant owners can protect themselves by using workforce management to ensure compliance.

Don’t Deny Employees Meals and Breaks

Employee break laws vary throughout the country. It’s important to know the laws in your state or city. Use wfm software to track both paid and unpaid breaks. Schedule lockout features prevent employees from clocking in too early from a mandated break period. In The Cheesecake Factory case, the janitors were working overnight. Note that these regulations apply equally to every shift—not just days or evenings.

Make Sure Your Contractors Comply

The restaurant managers in The Cheesecake Factory case could have been 100% compliant with wage and hour laws regarding their own employees. But they didn’t take responsibility for the labor practices of their contractors. The managers could have used restaurant workforce management tools to track time and attendance for contracted employees, regardless of which company actually paid the workers.

Don’t Misclassify Employees as Independent Contractors

Labor laws vary by employee type. A business owner doesn’t need to pay an independent contractor the same as an employee. But there are rigorous standards for the classification.

Don’t Overlook Overtime

Restaurant owners are fined repeatedly for overtime violations. The laws are fairly straightforward. Employers get in hot water when they don’t accurately track hours. Use a biometric time clock to protect yourself from Fair Labor Standards Act (FLSA) violations as well as employee time card padding.

Make Sure Tips Are Handled Correctly

Though it wasn’t a factor in The Cheesecake Factory case, tip violations are common in the industry. The Department of Labor defines a tipped employee as one who receives more than $30 per month in tips. Employers typically can use an employee’s tips as a credit for minimum wage compliance. In other words, in some states, an employer can pay a server less than minimum wage if their tips make up the difference. Tips are the property of the employee. Tip pooling is a common practice where tips are shared with non-tipped workers who also interact with the guests. For example, servers might be required to give a percentage to their table clearer. Note that it’s illegal for managers to take any of the tips.

In March 2018, the FLSA added clarification to the laws regarding tip pooling. Employers that don’t take a tip credit and pay employees the full minimum wage may share tips with back-of-house staff. However, employers that do take a tip credit must limit the tip pool to employees who customarily receive tips.

Some states have additional laws that affect tip pooling. Restaurant owners who use tip pooling need to know the intricacies of Federal and State tip pooling regulations. Owners can err on the side of caution and never pay tipped or untipped employees less than the minimum wage.

Use Restaurant Workforce Management to Avoid Costly Violations

Workforce management software helps restaurant owners avoid wage and hour violations. Some of the most popular restaurant tools include the following:

  • Multi-location scheduling
  • Overtime alerts
  • Multiple pay grades
  • Skills tracking
  • Meals and break tracking
  • Predictive scheduling compliance
  • Stores and maintains records
  • Mobile time tracking
  • Cloud-based 24/7 access
  • Employee self-service
  • PTO tracking
  • Absence management
  • Online shift exchange board
  • Schedule adherence
  • Tip tracking
  • Shift forecasting

SwipeClock workforce management solutions help restaurants thrive in a highly competitive industry while avoiding costly violations. To learn more about how SwipeClock can help your business, see SwipeClock for Food and Beverage.

By Liz Strikwerda

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