Employment Update
September 2004



A class action has been filed against Pizza Hut, Inc. and a Pizza Hut franchisee alleging violations of the California Labor Code including failure to provide breaks and meal periods, failure to pay tips, failure to reimburse delivery drivers for mileage, and failure to pay delivery drivers reporting time pay. The Complaint seeks substantial damages, including four years of back pay, penalties, injunctive relief and restitution.

According to the complaint, Pizza Hut delivery drivers use their own vehicles to deliver pizzas and are paid $.50 per delivery. The plaintiff alleges that this amount is not sufficient to reimburse drivers for the cost of gas and wear and tear on their vehicles. Additionally, delivery drivers were allegedly not paid reporting time pay when they showed up for work as scheduled and did not work, or worked less than half of their scheduled shift. The complaint also alleges that Pizza Hut customers were charged a discretionary service charge for pizza delivery which constitutes a "tip" and must be paid to the employee. The plaintiff claims that Pizza Hut customers were led incorrectly to believe that the drivers were paid the discretionary service charge; however, Pizza Hut only occasionally paid the service charge to its drivers.

It is unclear whether the "discretionary service charge" will be characterized as a "tip" under the law. If you are a restaurant that charges a service charge for delivery, we recommend that the charge be clearly defined, in any written policies as a charge for the additional cost that the restaurant incurs for providing a delivery service. Alternately, you may clearly characterize the charge as a tip that is paid to the employee. It is important to be consistent in how you explain the purpose of the delivery service charge.

As numerous lawsuits are being filed for wage and hour violations, Plaintiff's attorneys are focusing on restaurants. Employees are reading about the lawsuits the newspaper. Round Table pizza franchisees have also been named defendants in class actions alleging failure to provide meal periods and breaks. Another class action has just been certified against Pizza Hut alleging failure to pay overtime compensation to its restaurant managers. The complaint alleges that the working managers performed the same duties as subordinates and therefore were not exempt from overtime requirements under California and federal law. This class action, pending in the United States District Court in the Central District of California, allows all current and former Pizza Hut employees employed nationwide as a restaurant General Manager or Training Manager from August 2000 to the present, to join the class action. The alleged damages could total in the tens of millions of dollars.

This is clearly a precarious situation. To make matters worse, in California, Labor Code § 2699 (the Labor Code Private Attorneys General Act of 2004) now allows employees to bring civil suits for Labor Code violations, on behalf of other current and former employees without overcoming the hurdle of class certification. Whether or not these claims can be proven depends on the actual facts of each case. The job duties of a manager will be examined to ascertain whether they qualify as exempt from overtime under California and federal law. If you don't already have them, written job descriptions should be prepared. The job descriptions may assist in proving the exempt duties that a manager performs. The payroll records kept by the restaurant, in addition to time cards and work schedules, are particularly important in successfully defending wage claims by establishing when employees worked and that all employees were paid the wages they were due under the law. Your record retention policy for timesheets/timecards, work schedules and personnel files should be at least five (5) years. These class actions, and other similar lawsuits, should be a strong incentive to employers to review their procedures to ensure that they comply with the California Labor Code.

This update is only a summary. The Law Offices of Peter A. Singler can help you understand the full impact this law may have on your business. If you have any question, please contact Sandra G. Wickland at (707) 823-8719 or SGW@singler-law.com.

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