On August 1, 2019, Minnesota added new laws, and amended existing laws, to curb wage theft. In addition to increasing the penalties for wage theft, the changes require employers to provide specific notices to their employees and to maintain additional records in their personnel files. These new laws also provide $3.1 million in funding to the Department of Labor and Industry to investigate wage theft claims. In other words, the potential consequences for employers accused of wage theft are more serious than ever.

Unfortunately, many employers may be committing wage theft without knowing it. Understanding what constitutes wage theft is thus essential to every business that has employees. Three common types of wage theft are discussed below.

Tip-Pooling

Many restaurant owners believe it is unfair that wait staff make substantially more money in tips while cook staff is toiling away in the kitchen. Such owners commonly react by instituting a form of mandatory tip pooling, where servers are required to share their tips with bartenders, cooks, and bussing staff. A mandatory tip pool, however, can expose an employer to significant liability for wage theft. Moreover, because these tip pools may involve many employees, they can give rise to a devastating class action lawsuit. Surly Brewing, for example, settled a case for $2.5 million in 2016 after several employees brought a class action lawsuit claiming wage theft based on its mandatory tip sharing policy.

Employees will often voluntarily agree to share their tips with their coworkers. Such sharing must be done entirely at the discretion of the employee. Any participation by management, besides facilitating a system initiated by rank-and-file employees, runs the risk of exposing the employer to liability. Further, an employee should always be allowed to opt-out of an employee-run tip sharing system.

An employer may also face liability for wage theft depending on their handling of the ubiquitous tip jar. Because it is impossible to tell what each person earns if those tips are aggregated in a jar (or other receptacle), employers may require employees to share with those who similarly contributed to those tips. If the shifts are staggered, for example, the tips should be shared at the end of each employee’s shift.

Employers should also be cautious about requiring employees to share tips with their supervisors. Court decisions on this exact issue have run the gamut. For example, in 2008, a California court ruled that Starbucks had to pay $100 million to its employees because it required them to share tips with shift supervisors. An appellate court later reversed that decision, but uncertainty remains. Employers should thus work with experienced employment law counsel to develop policies that reduce the risk of facing millions of dollars in liability over a seemingly harmless tip jar.

You Broke It, You Buy It . . . Maybe

Any business operating with employees will eventually suffer property damage due to an employee’s negligence. Worse, some businesses must deal with employee theft. Frustrated by this breach of trust, many owners react by deducting the value of the destroyed or stolen property from the employee’s paycheck. While this may seem fair, it is also arguably wage theft.

If an employee damages property or steals from the employer, the employer may seek recompense by suing the employee. If there is a criminal prosecution, the court may also require the employee to repay the employer through restitution. The employer should not recoup money from the bad actor’s paycheck, however, which would expose the employer to claims of wage theft. Perversely, the employer could then find itself paying more money responding to a wage theft claim than the value of the broken or stolen property.

Yet Another Reason to Avoid Employer-Employee Loans

Many practical and legal complications arise when an employer loans an employee money. These loans add another layer of potential stress to the employment relationship, they may be difficult to collect, the terms of the loans themselves may create liability for the employer, and other employees may wonder why they were not offered a loan. As if this were not enough reason to avoid employer-employee loans, an employer may also face liability for wage theft if it collects a loan payment from a paycheck without taking the proper steps.

If an employer intends to recover the loan from an employee’s paycheck, the employee must agree to this arrangement in writing. A verbal agreement is not enough. The written agreement must also clearly state the terms of repayment.

In general, an employer-employee loan is inadvisable. If the employer intends to loan money to its employees regardless, the employer should contact experienced legal counsel to prepare the terms of the loan and to safeguard the employer from wage theft claims.

Consequences

Claims for wage theft pose a serious threat to employers. An employer who commits wage theft may face punitive damages, attorney fees, and even criminal charges. Further, a claim of wage theft may trigger an investigation by the state and federal Department of Labor and Industry, the Minnesota Department of Revenue, and the IRS. During these investigations, the employer is unfortunately focusing on something besides its business. No business is immune to these claims and, as shown above, high-profile employers have faced millions of dollars in exposure from allegations of wage theft.

For these reasons, an employer should discuss these issues with an experienced employment law attorney to asses the risks of a wage theft claim and to improve the odds of a positive outcome if such a claim ever arises.

Jason Raether practices in the areas of employment and labor law. You can learn more about Jason here, or contact him directly at 612.418.7497 or at jraether@pruvent.com.