Labor & Employment Law Daily Wrap Up, WAGE-HOUR—MINIMUM WAGE—N.D. Ala.: Employer unlawfully retained portion of servers’ tips; but unclear if co-owner was ‘employer’, (Sep 28, 2026)

By Ronald Miller, J.D.

The undisputed evidence established that the employer used at least a portion of servers’ tips for prohibited uses, namely bonuses for managers and wages for employees who performed non-tipped work.

A federal court in Alabama granted restaurant servers a motion for partial summary judgment on their claim their employer had a policy of taking a percentage of servers’ tips for itself, which it used for bonuses for managers and to pay non-tipped employees. The employer deducted from the servers’ paychecks at least three percent of the gross sales the tip-credit employees generated each shift. Employees who were paid more than the minimum wage shared in the three or four percent of wages deducted from the wages of tipped employees. However, as to the status of a part-owner as an “employer” under the FLSA, the court concluded that the evidence created a disputed issue of fact regarding his status (Woods v. Stone Age Korean BBQ LLC, No. 5:23-cv-00838-MHH (N.D. Ala. Sept. 22, 2026)).

Minimum wage claims. Five servers at a restaurant alleged that the employer violated the FLSA in three ways: it did not pay the servers at least the minimum wage for the pre—and post—shift time and other time the employees spent performing non—tip producing duties; it did not pay the servers for work in excess of 40 hours a workweek, time—and—one—half of their regular rate of pay; and it fired two servers because they filed this lawsuit.

The parties filed cross-motions for partial summary judgment. The employees asked the court to find that a part-owner of the restaurant was an “employer” under the FLSA; that the restaurant’s policy and practice of taking a percentage of servers’ tips for themselves violates 29 U.S.C. § 203(m)(2)(B); and that the plaintiffs’ compensatory damages include the tip credit plus the tips the defendants wrongfully withheld from them. The employer asked the court to dismiss the employees’ state-law claims and dismiss their FLSA claims against the part-owner.

Restaurant’s part-owner. The employer operates a restaurant in Huntsville, Alabama, and employed the servers. A part-owner owned 20 percent of the restaurant. He admitted that he “possessed authority to act on behalf of Stone Age.” His duties included managing the kitchen, approving payroll, and writing checks and making payments for supplies. Although all owners were authorized to sign payroll checks, the part-owner normally signed them.

According to his declaration, the part-owner did not hire or fire employees, control their schedules, determine their rates of pay, maintain their payroll records, or handle the distributions of the tips. However, the part-owner instructed managers to terminate the employment of two employees after he was served with the complaint in this action.

Tip credit. The plaintiffs are tipped employees whom Stone Age hired either as servers or server captains. The restaurant claimed a tip credit for every one of its tipped employees. Servers received cash and credit card tips. The restaurant paid the plaintiffs the same $2.13 or $4.00 hourly rate while they were performing other non—tipped duties, such as pre—opening tasks and cleaning the restaurant before closing.

The employer deducted from the servers’ paychecks at least three percent of the gross sales the tip credit employees generated each shift. It used this money to cover expenses. Employees were required to sign a form stating that “[t]o accommodate general costs and expenses incurred by [Stone Age],” its employees were “required to contribute” either “3%” or “4% of total gross sales as a deduction from [their] paycheck[s to] cover the cost of employee food, credit card fees, bartender tips, busser tips, food runner, and general wear and tear of the establishment.”

Bussers were paid between $8.75 and $12 per hour plus tips. Bartenders were paid between $8.75 to $12 per hour plus tips. The restaurant paid its managers a salary. Managers and bartenders were also paid a commission on alcohol sold. Employees whom Stone Age paid more than minimum wage shared in the three or four percent of wages deducted from the wages of tip credit employees.

The three or four percent deducted from the servers’ paychecks was deposited into the company’s “general account.” Because the tipped employees complained about performing non—tipped pre—opening and closing duties at that rate, the employer increased the three percent deduction to four percent of total gross sales to cover wages for the additional staff to perform non—tipped cleaning and sorting duties.

Employer status. “To be an employer under the Act, a supervisor ‘must either be involved in the day—to—day operation or have some direct responsibility for the supervision of the employee.’” Here, the part-owner asserted that he does not hire or fire employees, control their schedules, determine their rates of pay, maintain their payroll records, or handle the distributions of the plaintiffs’ tips. He described his duties as managing the kitchen, signing off on payroll, and writing checks and making payments for supplies. However, text messages indicated that the part-owner instructed managers to terminate the employment of two employees.

A reasonable jury could find this evidence sufficient to establish that the part-owner was involved in the restaurant’s day—to—day business operations and had control over the company’s purse strings and was sufficient to raise a genuine issue of material fact regarding his status as an employer. However, the evidence created a disputed issue of fact regarding the part-owner’s status as an FLSA employer. Accordingly, a jury must determine whether the part-owner was the servers’ employer.

Tipped employees. The FLSA allows employers to pay “tipped employees” such as restaurant servers less than $7.25 per hour if the difference is supplemented with the employees’ tips. “Section 203(m)(2)(B) prohibits employers from keeping ‘tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.’”

The record established that the employer violated 29 U.S.C. § 203(m) in two ways. First, the employer retained a portion of the servers’ tips and redistributed them to managers and other non—tipped employees, i.e., employees who do not customarily and regularly receive tips. Second, it retained a portion of tips in its general account.

The part-owner testified that managers received a portion of the retained tips as a bonus. He also testified that the employer increased the deduction from the servers’ tips to cover wages for staff hired to clean and sort—work it initially required of tipped employees to perform at their reduced hourly rates.

Even if the employer used some of the tip pool to pay for expenses and wages allowed under the FLSA, the court concluded that the undisputed evidence established that it used at least a portion of the plaintiffs’ tips for prohibited uses, namely bonuses for managers and wages for employees who performed non—tipped work.

Damages. The servers also sought partial summary judgment on the issue of whether their compensatory damages included the amount of the tip credit plus the wrongfully retained tips. Here, the court declined tohold as a matter of law that the wrongfully retained tips are available as damages. The servers did not present evidence that the part-owner retained their tips for himself, and they did not identify Eleventh Circuit precedent on this issue.

The case is No. 5:23-cv-00838-MHH.

Judge: Haikala, M.

Attorneys: Alexandria Parrish (The Evans Law Firm) for Caleb Woods, Isabella Meserole, and Ayana Varnes. Dustin D. Key (Harrison & Gammons) for Stone Age Korean BBQ LLC and Shaozhou Jiang aka Sam Jai-Ang.

Companies: Stone Age Korean BBQ LLC

Cases: WageHour MinimumWage CoverageLiability RemediesDamages AlabamaNews