Chickie’s & Pete’s to pay $6.8 million to settle allegations it improperly withheld tips from workers

Popular Philadelphia sports bar and restaurant chain Chickie’s & Pete’s has agreed to pay more than 1,100 current and former employees $6.8 million to settle claims that it improperly withheld customers’ tips from them.

The consent judgment, which was announced on Feb. 20 by the U.S. Labor Department, also settles allegations that the business violated minimum wage and overtime laws as well as record-keeping requirements.

The accord follows one of the Labor Department’s largest tipped employee investigations in recent years.

The company and its owner, Peter Ciarrocchi, Jr., have agreed to pay $6,842,412 to 1,159 employees at the company’s various locations, plus a $50,000 civil monetary penalty.

The consent judgment, which was filed at the U.S. District Courthouse in Philadelphia, still requires judicial approval.

During the course of their investigation, government officials discovered that the business forced restaurant servers to contribute a portion of their tips to an improper “tip pool,” or tip-sharing arrangement, which comprised about 2 to 4 percent of a server’s daily tables, according to the Labor Department.

Ciarrocchi then retained about 60 percent of the tip pool in what soon became known as “Pete’s Tax.”

The servers were required to pay this co-called levy to the restaurant’s manager in cash at the end of each shift, even if the server received his or her tips through credit cards.

In some cases, the Labor Department stated, the company even forced employees to withdraw money from personal accounts through an ATM or borrow the cash from a coworker.

The government also announced that servers and bartenders were paid only a flat rate of $15 per shift at all of the company’s locations, except for the establishment at Philadelphia International Airport, an amount that would not sufficiently cover the minimum wage of $2.13 per hour that must be paid to a tipped employee when an employer claims a tip credit under federal law.

Chickie’s & Pete’s also failed to pay required overtime wages to the employees when they worked in excess of 40 hours per week.

Additionally, investigators determined that workers weren’t paid for time spent in mandatory meetings and training sessions and that they were improperly instructed to pay for their uniforms.

“The egregious actions by Chickie’s & Pete’s harmed real people and violated the promise that a fair day’s work deserves a fair day’s pay,” U.S. Labor Secretary Thomas E. Perez said in a statement. “Restaurant servers are among the lowest paid workers in this country, with many earning incomes below the poverty line. Tipped workers deserve better and this action shows that the Department of Labor is ready to stand up for them.”

Investigators from the Labor Department’s Wage and Hour Division in Philadelphia and southern New Jersey conducted investigations at Chickie’s & Pete’s locations in Northeast Philadelphia, South Philadelphia, the airport, Parx Casino in Bensalem, Pa., Warrington, Pa., Drexel Hill, Pa., Audubon, Pa., Egg Harbor Township, N.J. and Bordentown, N.J.

At all locations, investigators discovered that the company had improperly retained a fixed portion of the servers’ tips, according to the Labor Department.

Under the Fair Labor Standards Act, tips are the property of the employee who receives them, although a business can benefit by claiming a credit based on the tips toward their obligation to pay the employees a full minimum wage.

If the tips combined with the worker’s direct wages don’t equal minimum wage, however, an employer must make up the difference during the pay period.

“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,” Laura Fortman, principal deputy administrator for the Labor Department’s Wage and Hour Division, said in a statement. “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.”

As part of the consent judgment, Chickie’s & Pete’s will pay minimum wage and overtime back wages and will return the improperly retained tips to the bar and restaurant workers, and they will also pay liquidated damages.

The business also agreed to an 18-month period of external compliance monitoring, an additional 18-month period of internal compliance and will provide training to all employees on their rights under the Fair Labor Standards Act.

The company will also provide a statement to any employee required to contribute to a tip pool detailing the amount that was contributed by the worker, the job categories of workers included in the pool, and the specific percentage each category receives.

Lastly, Ciarrocchi, the company’s owner, has agreed to pen an article for a restaurant trade publication that talks about an employer’s obligations under the FLSA.

The tip controversy had also been the subject of numerous lawsuits.

Media reports late last week said that in addition to the $6.8 million consent judgment, the company also agreed to a $1.68 million settlement with the approximately 90 past or current employees who sued over “Pete’s Tax."