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What is Labor Law Compliance and Challenges to Look Out For

what is labor law compliance and challenges to look out for

About 10% of the US workforce comes from the restaurant industry. While some restaurants get praised for providing incentives to loyal employees, the high turnover rate and labor shortage plaguing the industry can also lead to challenges when it comes to labor law compliance. Operators can sometimes cut corners and commit labor violations to operate with a full staff.
Earlier this year, a huge chain was slapped with a million-dollar penalty for labor law violations. COVID-19 also brought important issues to the forefront, especially the restaurant industry which has been hit hard by this pandemic.
Since restaurants started reopening all over the country, many owners now contend with possible legal issues when it comes to existing labor laws and the practicalities of ensuring the health and safety of returning employees.

What is Labor Law Compliance?

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Periodic health and safety inspections can expose restaurants that are not compliant with labor laws, so understanding and following the law can help you avoid the hefty costs of penalties and lawsuits. Labor laws include both federal and state labor laws intended to ensure the rights of workers are upheld in the restaurant and foodservice industry.
The U.S. Department of Labor (DOL) administers and enforces over 180 federal laws, and you can find a summary of Major Labor Laws on their website. They also provide a Compliance Assistance Toolkit for restaurant owners.

Federal labor laws apply to all states and are primarily encapsulated in the Fair Labor Standards Act (FLSA), but states can also enact additional protections to workers. For example, restaurants selling more than $500,000 a year are covered under the FLSA, but state laws may vary and set that amount lower.

Fair Labor Standards Act

The FLSA covers minimum wage, hours, overtime pay, record keeping, and child labor standards applicable to both full-time and part-time workers in the private sector at the federal, state, and local government levels. Here's a summary of the requirements you need to comply with-

  • FLSA Minimum Wage is $7.25 per hour. Different states have different minimum wage laws. Employees subject to both state and federal minimum wage laws are entitled to whichever minimum wage is higher.
  • For tipped employees, the FLSA Minimum Cash Wage is $2.13 per hour before tips. This applies to employees who make at least $30 per month in tips.
  • Employers must display the official poster of FLSA requirements as well as keep records showing that the tips their employees receive along with their hourly wage at least come up to the minimum wage.
  • For overtime, FLSA requires that covered nonexempt employees must receive overtime pay for hours worked beyond the typical 40-hour workweek (i.e. a fixed and regularly recurring period of 168 hours seven consecutive 24-hour periods) at a minimum rate of 1.5 times the regular rate of pay.
  • Children cannot work in restaurants unless they are at least 14 years old, subject to specified conditions.
Aside from the FLSA, the U.S. Equal Employment Opportunity Commission (EEOC) and Occupational Safety and Health Administration (OSHA) also enforce federal laws to protect workers.
The EEOC enforces federal laws that prohibit discrimination against employees or applicants for their color, race, sex, religion, national origin, age, disability, or genetic information. OSHA sets and enforces standards to make sure workers are in safe and healthy working conditions. They also provide aid, training, outreach, and education for the safety of the workforce.
These are just summaries of federal labor laws. For more detailed discussions, it is recommended that you check out state-specific labor law posters or consult an employment attorney for all the relevant rules.

Labor Law Compliance Challenges

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Labor law compliance is a big deal for businesses of any size, but the constant updates and changes to the laws and regulations can prove to challenge for some employers.
Failure to comply with the latest employment law could mean penalties and the associated negative publicity for your business. These are just some of the challenges restaurant owners face when it comes to Labor Law.

Employee Classification

Common non-compliance happens among restaurant owners who are confused about classifying employees as exempt or non-exempt, hence some employees are not properly compensated for overtime work. FLSA defines exempt employees as employees in professional or executive roles with salaries of more than $455 per week. Exempt employees are not paid overtime.

Mental Health and Medical Claims

Under the Americans with Disabilities Act (ADA), differently-abled employees should be given reasonable accommodations including those who suffer from emotional and mental health issues. Cases of employees who fail drug tests but hold valid prescriptions for medical marijuana are being treated on a state level due to a patchwork of laws.
For instance, Massachusetts considers it disability discrimination to refuse to hire someone who uses marijuana, especially for medical reasons. On the other hand, in Oregon, it is considered legal to fire someone due to marijuana use because of the federal ban.
This will continue to be a contentious issue, so employers will do well to keep updated on this trend to avoid violations and possible lawsuits.

Salary and Criminal History

Ban the box laws are gaining steam, including in California, which limits companies from asking about an applicant's criminal history. Other states like Hawaii and Connecticut have followed this trend intended to make it easier for certain workers to find employment.
In practice, this means removing the checkbox asking about previous arrests or convictions. Employers are also not allowed to ask about the applicant's criminal history until after the person has been deemed qualified for the job. As this trend catches on, employers need to keep an eye on similar legislation to stay compliant.

Wrongful Termination

Another common source of confusion or misconception is the employment at will regulation which small business owners take to mean they can fire anyone, any time without stating the reason for the termination.

In practice, you can get sued for wrongful termination by employees who claim to be part of a protected class (e.g. gender, national origin, or religion). To avoid such occurrences, companies need to properly record and document performance issues alongside training and counseling.

Labor Code Violations

The Private Attorneys General Act (PAGA) makes it possible for employees to act as private attorneys general. This means they can file lawsuits for labor code violations not just for themselves, but also for other aggrieved employees.

This just adds another challenge to California business owners to the local, state, and federal labor and employment laws.

Key Takeaways

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  • High turnover rate and labor shortage plaguing the foodservice industry can present challenges to labor law compliance with some operators cutting corners and committing labor violations to remain fully staffed.
  • Since periodic health and safety inspections can expose any labor law violations, employers need to understand and adhere to laws and regulations to avoid paying hefty penalties and costly lawsuits.
  • Labor laws include both federal and state labor laws intended to ensure the rights of workers are upheld in the restaurant and foodservice industry.
  • Federal labor laws cover all states and are primarily embodied in the FLSA, but specific states can also enact additional protections to workers.
  • The FLSA enforces minimum wage, hours, overtime pay, recordkeeping, and child labor standards for both full-time and part-time workers in the private sector at the federal, state, and local government levels.
  • FLSA Minimum Wage is $7.25 per hour, while the FLSA Minimum Cash Wage for tipped employees is $2.13 per hour before tips. This can differ from state to state, and employees subject to both state and federal minimum wage laws are entitled to whichever minimum wage is higher.
  • Covered nonexempt employees are entitled to overtime pay 1.5 times the regular rate for hours worked beyond the 40-hour workweek.
  • EEOC enforces federal laws that prohibit specified discrimination against employees or applicants (e.g color, race, sex, religion, national origin, age, disability, or genetic information).
  • OSHA sets and enforces standards for the health and safety of workers.
  • Current labor trends creating labor law compliance challenges for businesses include proper overtime payment and employee classification, medical claims associated with marijuana use, ban the box laws, wrongful termination, and the Private Attorneys General Act (PAGA).