Customers leaving a restaurant without paying, commonly known as a “dine and dash,” represents a direct financial loss for the business. In the service industry, management sometimes attempts to shift this loss onto the employees, particularly the server responsible for the table. This practice raises questions about an employee’s legal liability for business losses they did not cause, making it necessary to clarify the federal and state laws that govern wage deductions in this specific scenario.
The Federal Standard on Wage Deductions
The Fair Labor Standards Act (FLSA) establishes the federal floor for wage protection for most employees across the United States. This law permits an employer to make deductions from an employee’s pay for business losses, including the cost of a dine and dash, but only under a strict condition. The deduction is permissible solely if the employee’s resulting hourly wage does not fall below the federal minimum wage rate.
If a deduction for a customer walk-out causes the employee’s pay to drop below the mandated federal minimum of $7.25 per hour, the deduction is illegal. This standard applies to the employee’s total earnings, including their direct cash wage, salary, and commissions. The federal government considers customer non-payment to be a cost of doing business, and the employer cannot legally transfer that cost to the employee if it infringes upon the guaranteed minimum hourly rate.
Protection of Tips and Gratuities
Federal law specifically classifies tips as the property of the employee, a provision strengthened by amendments to the FLSA. This provision states that an employer cannot keep employees’ tips for any purpose, regardless of whether the employer claims a tip credit toward the minimum wage. This means that even if an employee’s direct cash wage remains above the minimum wage, the employer cannot deduct the cost of a dine and dash from the tips the employee earned.
Tips are protected wages belonging exclusively to the tipped employee or to a valid tip pool shared only among non-managerial employees. The employer cannot use tips to cover operating expenses, including the cost of a customer who fails to pay their bill. Any deduction taken from a server’s earned tips to cover a walk-out is a violation of federal wage law.
State Laws Providing Further Protection
While the FLSA sets a baseline, many states have enacted labor laws that provide stronger protections for employees. The federal rule allows deductions as long as the minimum wage is maintained, but a number of states prohibit these wage deductions entirely. These stricter state laws recognize dine-and-dash losses, along with breakage and spoilage, as fundamental costs of operating a restaurant business.
In jurisdictions like California, Massachusetts, and New York, employers are forbidden from making any deduction from an employee’s wages for business operating expenses, regardless of the employee’s resulting pay rate. This outright prohibition means that even if a waiter earns substantially more than the state’s minimum wage, an employer cannot legally withhold funds to cover a customer walk-out. Employees should consult their state’s Department of Labor regulations, as the level of security against these deductions differs across state lines.
Common But Illegal Employer Practices
Despite clear federal and state laws, many employers continue to use various tactics to pressure employees into covering customer losses.
Repayment Agreements
A common, yet illegal, practice involves managers requiring employees to sign “voluntary” repayment agreements for the lost revenue. These agreements are often unenforceable if they violate minimum wage or tip protection laws, as an employee cannot legally sign away their rights to the minimum wage.
Tip Pool Deductions and Coercion
Another frequent tactic is deducting the loss from the shared tip pool without providing clear notice to the employees. This action violates the protected nature of tips and unlawfully shifts a business expense to the entire tipped staff. Employers may also use threats of termination or reduced shifts to coerce an employee into covering the loss. These actions do not make the underlying deduction legal under federal or state law.
Steps to Take If Forced to Pay
If an employee is illegally forced to cover the cost of a dine and dash, documenting the incident and the resulting deduction is the necessary first step.
Documenting the Violation
The employee should collect and retain copies of all relevant records, including pay stubs showing the deduction, any written manager communications regarding the loss, and notes detailing the date and amount of the customer walk-out. This documentation establishes a clear record of the wage violation.
Filing a Claim
The employee should then file a formal wage claim with their state’s Department of Labor (DOL) or the federal DOL’s Wage and Hour Division. These government agencies investigate claims of unlawful wage deductions and can compel the employer to pay the withheld wages. Successful claims often result in the employee receiving the full amount of the back pay owed, and the employer may be liable for additional penalties and liquidated damages.