NEW YORK (Main Street) — Philadelphia is a legendary sports town with equally famous fans known for being loud, proud and rowdy. But one of Philly's most popular sports bars has committed a personal foul and is being fined half the distance to the goal. Chickie's & Pete's has been slapped with a multi-million judgment for requiring servers to contribute to a "tip pool" and violating federal minimum wage, overtime and record-keeping requirements.
The company and its owner, Peter Ciarrocchi, Jr., have agreed to pay more than $6.8 million in back wages and penalties to 1,159 employees at nine of the company's locations, plus a $50,000 civil money penalty. Chickie's and Pete's is also settling private lawsuits alleging unfair pay practices for nearly $1.7 million.
Known as "Pete's Tax," the tip-sharing arrangement required servers to contribute 2%-4% of their daily table sales to the pool. Payment was required to be given to the manager, in cash, at the end of each shift. Tips placed on credit cards were included, so many servers had to use their own cash, borrow it from another server or withdraw the cash from a nearby ATM to cover their contribution. The owner kept 60% of the total.
In addition, most servers and bartenders were paid a flat rate of $15 per shift – far short of the minimum tip wage of $2.13 per hour. Workers weren't paid overtime or for time spent in mandatory meetings and training – and were required to buy their own uniforms.
Under the Fair Labor Standards Act, tips are the property of the employee who receives them; however, an employer that claims a tip credit is required to pay a tipped employee only $2.13 an hour in direct wages, provided that amount plus tips received equals at least the federal minimum wage of $7.25 an hour. If they don't, the employer must make up the difference.
The federal minimum wage of $7.25 per hour was last increased in 2009 and the federal tip credit's cash wage requirement of $2.13 has not been increased since 1991.
"It's unconscionable that under federal law tipped workers have been frozen at $2.13 an hour for more than two decades," Secretary of Labor Thomas E. Perez said at a recent event in Columbus, Ohio. "The tipped workers I talk to tell me that some weeks, the amount in their paycheck after taxes are taken out is zero. So they're relying entirely on cash tips to survive. One out of every seven of them is on food stamps, and they live in poverty at three times the rate of the entire U.S. workforce. Is this any way to honor the dignity of work?"
Under the provisions of the consent judgment filed in U.S. District Court for the Eastern District of Pennsylvania, and subject to court approval, the company will pay minimum wage and overtime back wages and is required to return the improperly retained tips to the servers, as well as pay liquidated damages.
"When employers exploit tipped workers, they not only harm their employees who are working hard to earn a living, but also take advantage of the trust of their customers," said Laura Fortman, principal deputy administrator for the department's Wage and Hour Division. "Customers might not realize it, but their tips frequently are paying part of their servers' wages, not just giving them a little extra to go with their pay. Chickie's and Pete's behavior is troubling because they both unlawfully took tips from their workers and failed to pay them even the $2.13 per hour the law requires when an employer takes a tip credit."
—Written by Hal M. Bundrick for MainStreet