To read the headlines, you’d think Jessica Biel was a monster. Biel and her business partners are accused of “stealing hundreds of thousands of dollars from employees” at their kid-friendly L.A. restaurant, Au Fudge. In reality, Biel and company are being sued for conduct that isn’t necessarily illegal. This lawsuit is an important lesson for employers; not about pay practices, but about perception.
Biel and her team are being sued by nine former employees for a pay practice that’s fairly common in the restaurant industry; they charged an automatic 22% gratuity for private events and kept that income for themselves rather than pass it to their employees. While some may see it as unethical, there’s nothing illegal about this practice.
Automatic gratuity is considered corporate income under federal law and belongs solely to the business. Employers can, and often do, share that income with their employees, but absent an agreement to the contrary, they have no legal obligation to do so. The problem for Biel and her partners is that none of their managers could explain this to their employees.
In addition to having legally compliant pay policies, it’s equally important that your employees understand them. Confusion breeds suspicion of wrongdoing, particularly when your employees describe themselves as “young adults new to the workforce and new to Los Angeles.” From a lawsuit prevention standpoint, it’s essential that any questions about pay policies are fully explained and consistently enforced.
Unfortunately, Au Fudge managers took the opposite approach. They blew off their employees’ questions about the automatic gratuity policy, telling them “I don’t think you understand” and “Don’t worry about it.” Now think about it; if you, as the employer or manager, either do not or cannot explain the company pay policy, how can you expect your employees to know that it isn’t illegal? Silence and obstruction give a very real impression that a business is engaging in less than legitimate practices.
To avoid these issues, every employer should have a clear and comprehensive pay policy written in their employee handbook and, depending on the business, included in an individual compensation agreement. Keep in mind also that inconsistent conduct can change the terms of the written agreement. While the Au Fudge policy on automatic gratuity is unclear, the owners may have created an expectation that the employees would receive the money when they called the issue a “glitch” instead of denying their right to it altogether. Whatever your policy, make sure that it is not only clearly explained in writing, but that it is both consistently communicated and enforced.
DISCLAIMER: The information provided herein is general in nature and may not be applicable in all situations. It should not be acted upon without specific legal advice based on a particular situation.
Lexington Wolff Rykaczewski is a business employment attorney located in Houston, Texas. A former litigator, Lexi spent years defending companies from employee claims and knows how quickly an expensive lawsuit can throw a business into a tailspin. In 2016, Lexi started Lexington Wolff Law, PLLC, exclusively dedicated to helping employers navigate the extensive employment laws and prevent employee lawsuits. Lexi is admitted to practice law in Texas, Colorado, Pennsylvania and West Virginia. www.Lexingtonwolfflaw.com