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Minnesota Restaurateurs: 5 Steps to Take Now to Avoid a Tip-Pooling Class-Action Lawsuit

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Plaintiffs’ lawyers are exploiting Minnesota’s confusing tip-pooling laws to bring class-action lawsuits against restaurateurs. These cases entail substantial costs, both in defending them and in potential damages. Thankfully, restaurants can take proactive steps to address possible compliance issues to limit potential liability or to avoid a lawsuit altogether. Here are five actions restaurants can take now.

  1. Audit your tip-pooling practices
    Minnesota law limits the ways in which restaurants can implement, manage, and participate in employee tip-pools. Given the ubiquity of tip-pools in the industry, restaurants are often surprised at how little involvement they can have in the tip-sharing process. The best way to assess your risk for litigation is to comprehensively audit your tip-pooling practices, including:

      • reviewing the origin and history of any tip-sharing arrangements;
      • assessing which types of employees (e.g., servers, bartenders, bussers, hosts) participate in the pool;
      • measuring how different employees are contributing to or receiving payouts from the pool; and
      • considering how new employees learn about and become members of the pool.
  2. Fix your documents
    Restaurants should review, and possibly revise, what their handbooks and policies say about tip-pooling. But handbooks are just the start. Other documents that may need fixing:

      • formal tip-pooling agreements;
      • new hire training documents;
      • daily tip check-out reports;
      • menus;
      • postings;
      • customer receipts;
      • time entry systems; and
      • point-of-sale systems
  3. Any of these documents, if worded incorrectly or imprecisely, can be fodder for an aggressive plaintiffs’ lawyer.

  4. Train your managers
    Even with perfect practices and policies, loose-lipped managers can lead to liability. Managers need to be trained and prepared to answer questions about tip pools in ways that do not create risk. Managers and human resources staff need to have a deeper understanding of the law’s complexities to know what they can—and cannot—say.
  5. Implement arbitration agreements with class waivers
    One way to avoid class-action liability is to have employees agree not to initiate or participate in class actions. Arbitration agreements can accomplish that goal. Employees can sometimes be hesitant to sign wide-ranging arbitration agreements. So to address risks specific to tip-pooling, arbitration agreements can be simplified and narrowly targeted just to these sorts of wage claims. Arbitration programs for existing and new staff must be implemented with care to ensure the agreements are enforceable.
  6. Take remedial measures, if necessary
    Despite a restaurant’s best efforts, potential liability may still exist for prior violations. Restaurants can clean their books of this potential liability and risk of litigation by asking employees to accept remuneration in exchange for releasing potential claims. This process of requesting and obtaining releases entails its own risks, so restaurants should take care.

Restaurants must balance the goal of avoiding tip-pooling litigation against their aim of fostering a team-based approach to customer service. The preventive measures described above can help restaurants assess their risk and ensure they can focus on growing their businesses rather than on defending lawsuits.

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