A federal court has ordered the owner of three Michigan taco restaurants to pay $823,000 in back wages and damages due to an illegal tip pool and other labor violations.
At a Glance
- Jacob Hawley, owner of Barrio Tacos, must pay $823,000 for labor law violations
- Illegal tip pooling, minimum wage, and overtime calculation issues were found
- 177 employees will receive compensation from the court order
- The U.S. Department of Labor pursued legal action after failed negotiations
- Hawley claims the issue was a tip distribution error with no financial benefit to the business
Federal Court Rules Against Barrio Tacos
The U.S. District Court for the Western District of Michigan has ruled against Sparty Tacos LLC, TC Tacos LLC, GR Tacos LLC, and owner Jacob Hawley in a case involving labor law violations. The court order requires payment of $411,663 in back wages and an equal amount in liquidated damages, totaling approximately $823,000.
The case stems from a Wage and Hour Division investigation that uncovered violations of the Fair Labor Standards Act (FLSA) at Hawley’s Barrio Tacos restaurants in Grand Rapids, East Lansing, and Traverse City. The investigation revealed several infractions, including requiring tipped employees to surrender tips to managers, failing to pay the federal minimum wage, and incorrectly calculating overtime payments.
Illegal Tip Pooling and Wage Violations
The court found that the restaurants operated an illegal tip pool, forcing tipped employees to share their earnings with managers and non-tipped staff. This practice violates federal labor laws, which stipulate that tips can only be shared among employees who customarily receive them as part of their wage compensation.
“If an employer claims the tip credit, tips may only be shared by employees who customarily receive tips as part of their wage compensation,” Wage and Hour Division District Director Mary O’Rourke said. “There are specific legal rules for how tips must be distributed, how overtime is calculated and requiring the payment of minimum wage. Employers should verify that they are always following the law.”
In addition to the tip pooling violation, the restaurants failed to pay the federal minimum wage of $7.25 per hour to tipped employees and incorrectly calculated overtime based on the tip credit rate. The Department of Labor also cited the establishments for failing to maintain accurate payroll records.
Department of Labor Takes Action
The U.S. Department of Labor pursued legal action after initial attempts at negotiation failed. The department emphasized its commitment to enforcing labor laws and protecting workers’ rights.
“This case shows the U.S. Department of Labor will take all necessary legal action to prevent employers from utilizing illegal tip pools,” Regional Solicitor of Labor Christine Z. Heri said. “In this case, the court correctly concluded that the tip pool violated the FLSA and that an equal amount of liquidated damages was appropriate.”
The court order will result in compensation for 177 employees affected by the labor law violations. Additionally, the Wage and Hour Division previously assessed $23,904 in civil money penalties, which is being litigated separately.
Jacob Hawley, the owner of Barrio Tacos, maintains that the issue was a result of a tip distribution error and not an intentional violation. “We took zero money from staff,” Hawley stated, emphasizing that his business did not benefit financially from the oversight.
