Lack of compliance costs a restaurant chain dearly in FLSA penalties

Fair Labor Standards Act (FLSA)

Ruby Tuesday Inc., a nationwide chain that operates more than 750 restaurants, recently agreed to pay out a staggering $3 million to settle a class action wage-and-hour lawsuit involving over 4,000 non-exempt former employees. The District Court in New York certified the suit as a Fair Labor Standards Act (FLSA) collective action in June 2013. Ruby Tuesday was alleged to have violated the FLSA by failing to compensate employees for all hours worked, and for denying employees overtime pay that they were otherwise entitled to receive.

Ruby Tuesday’s corporate policies discouraged overtime and required employees to perform “off the clock” work. Restaurant managers allegedly avoided overtime compensation by “shaving” time off employee timecards that were close to hitting the 40 hour threshold, requiring employees to work “off the clock” before and after shifts, and by not allowing employees to clock in until the scheduled start of their shift, or until after attending pre-shift meetings.

The strict timekeeping policies that the company had in place were partially to blame for this litigation mess. According to the class and collective action complaint, Ruby Tuesday’s had implemented a company-wide labor-scheduling system. Employee hours were tracked through an electronic timekeeping system, which required a manager’s authorization before an employee could even successfully clock in. Each restaurant in the chain was running “End of Day” Reports on a daily basis, which tracked how many hours each employee worked, and were monitored by both corporate headquarters as well as management at individual restaurant locations.

What is so shocking in this case is the level of insight into daily labor costs that the company’s management across the country was privy to. The company monitored its labor costs so closely and so frequently that it would be extremely hard, if not impossible, for any manager who had access to this information to claim that they did not know what was going on. The problem was that labor costs overshadowed labor compliance. The labor analytics available to the company were so comprehensive that there was plenty of opportunity for someone within the company to have connected the dots as to what was going on.

Yet compliance was put on the backburner, because curtailing labor costs took precedence. Nobody took a step back and questioned whether there were any unintended consequences resulting from corporate policies intended to control overtime costs. These “End of Day” Reports, accordingly the complaint filed in the lawsuit, could not be run until all employees were clocked out.

One of the many preventable solutions that could have helped the company avoid this entire mess could have been as simple as adding a screen prompt before these reports were run, requiring managers to indicate whether or not all employees had left the work premises. Reports with a “no,” indicating that employees were still on the premise, would have been red flags alerting corporate management to potential “off the clock” work. However, nothing of such nature was done, and that mistake is now costing Ruby Tuesday’s $3 million.

This case is just one example of compliance efforts being sidestepped due to the lack of a system to monitor potential FLSA violations.

Jon Burns
ABOUT THE AUTHOR
Jon Burns
Jon is a Product Manager at Replicon who leads the Global Compliance Team. Replicon is an industry leader in global compliance and has a dedicated team which pro-actively monitors international labor regulations for ensuring proper adherence with specific country rule requirements.
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