Red Lobster Workers Seeing Red

August 20, 2024, 9:15AM. By Jane Mundy

A proposed class action filed by a Red Lobster employee in Maryland federal court accuses the seafood chain of wage theft and more.

Baltimore, MDA Red Lobster employee has filed a proposed wage and hour class action in federal court accusing the seafood chain of violating the Fair Labor Standards Act (FLSA) and Maryland Wage and Hour Law. The plaintiff claims the company has not been paying its tipped employees all their wages owed. Rather, workers are paid less than minimum wage with the expectation that tips will make up the difference.

Below Minimum Wage

Plaintiff Maggie Hill worked at a Red Lobster in Frederick, Maryland, from May 2019 to December 2021. According to her complaint, Red Lobster made workers perform excessive non-tip-generating work that drove their take-home pay below minimum wage. And it gets away with paying less than minimum wage by taking advantage of federal and state tip credit provisions: Employers can legally pay less than the minimum wage rate because federal tip credit provisions allow employers to pay less than the minimum wage, with the expectation that tips will make up the difference.

But Red Lobster doesn’t completely follow the law. Hill’s lawsuit also accuses the restaurant chain of not telling its workers in advance that tip credits will be taken out of their wages.

If that isn’t bad enough, Red Lobster also requires employees to purchase specific clothing to work without reimbursement, which further reduces their wages.

Wait, there’s one more reason to get paid below minimum wage: Managers at Red Lobster restaurants are eligible for bonuses partially based on meeting or exceeding certain labor cost targets, which provided incentives for them to keep the tipped employees' wages low, Hill said and reported by Law360.

Tip Credit

According to the lawsuit, under the tip-credit provisions, an employer of tipped employees may, under certain circumstances, pay those employees less than the minimum wage rate by taking a “tip credit” against the employer’s minimum wage obligations from the tips received from customers. However, both the FLSA and the MWHL set forth strict requirements for an employer to take advantage of the “tip credit.”

The FLSA states that an employer can take a tip credit toward its minimum wage and overtime obligation(s) for tipped employees. An employer that claims a tip credit must ensure that the employee receives enough tips from customers, and direct (or cash) wages per workweek to equal at least the minimum wage and overtime compensation required under the FLSA.

An employer must pay a tipped worker at least $2.13 per hour. An employer can take an FLSA tip credit equal to the difference between the direct wage, or the cash wage it pays directly to the tipped employee, and the federal minimum wage, which is currently $7.25 per hour. The maximum tip credit that an employer can currently claim is $5.12 per hour: ($7.25 - $2.13 direct (or cash) wage = $5.12). Only tips actually received by the employee count when determining whether the employee is a tipped employee and in applying the tip credit.

Employers claiming a tip credit must be able to show in each workweek that tipped employees receive at least the full federal minimum wage when direct (or cash) wages and the tip credit amount are combined. If an employee’s tips combined with the employer’s direct (or cash) wages do not equal the minimum hourly wage of $7.25 per hour in each workweek, the employer must make up the difference. 

Under the FLSA, proper notice requires that the employer inform the employee of a minimum of the following:

(1) of the amount of the cash wage that is to be paid to the tipped employee;
(2) of the amount by which the wages of the tipped employee are increased on account of the tip credit;
(3) that all tips received by the employee must be retained by the employee except for tips contributed to a valid tip pool;
(4) that the tip credit shall not apply to any employee who does not receive the notice.

Non-tipped Work

Servers and bartenders are required to perform excessive amounts of nontipped work, such as making salads, cleaning the kitchen, sweeping and mopping floors, taking out trash, deep cleaning the restaurant and doing the dishes. They are also responsible for setting up tables, refilling condiments, rolling silverware, making tea and coffee, and folding napkins, according to the complaint. Tipped employees can legally perform untipped work, as long as it is less than 20 percent of their shift and for no more than 30 consecutive minutes. However, Hill said the untipped tasks took far longer than that and Red Lobster did not pay them full minimum wages for that time.

Similar Lawsuits and Settlement

Red Lobster may have been wise to research previous settlements reached over alleged wage theft by similar restaurant owners. For instance, a class action filed in 2022 against Famous Dave’s resulted in an approximate $1 million deal to resolve claims it failed to properly pay all servers, bartenders, hosts and other tipped employees who worked for its Maryland restaurant between Feb. 2016, and Oct. 31, 2017, and who were not paid the full minimum wage based on a “tip credit” deducted from their wages. 

And Rare Hospitality International in early 2023 was hit with a class action claiming it failed to pay all the minimum wages owed to workers at its LongHorn Steakhouse restaurants who were compensated on a hybrid sub-minimum wage and tips basis. Like Red Lobster, the plaintiff claimed that LongHorn Steakhouse tipped employees were underpaid since they were allegedly required to perform “non-tipped side work” that was “unrelated to the tipped profession.

Clearly, it doesn’t make financial sense to pay less than minimum wage. And Red Lobster is again in the red: A USA Today headline (May 2024) reads, “Amid Red Lobster closings, loyal diners ask: Will beloved chain sleep with the fishes?”