04-22-2026
Christopher Perry owns and operates 13 restaurants across Texas under the name Perry’s Steakhouse and Grille (“Perry’s”). Two plaintiffs brought a collective action against Perry’s for violating the Fair Labor Standards Act. They alleged that Perry’s mandatory tip pool violated the FLSA because it required tip-eligible workers to share tips with non-tip-eligible employees.
The FLSA permits employers to pay tipped workers an hourly wage below the minimum wage, provided tips from customers make up the difference. To qualify for this “tip credit,” employers must adhere to strict rules governing employee tips, including tip pools. A tip pool gathers a percentage of tips employees receive from customers and redistributes the total collection among a larger group of workers. Some employers require that employees use these tip pools. If the employer chooses to use a tip credit to cover the gap between hourly wages and the minimum wage, the mandatory tip pool can only be shared with employees who “customarily and regularly receive tips.” Determining which employees “customarily and regularly receive tips” requires evaluating the extent to which employees interact with customers. Employers cannot use the tip credit if they require tipped employees to share their tips with non-tipped workers. If employers use the tip credit in this manner, they must pay tipped workers the full minimum wage.
Across its 13 locations, Perry’s required servers to remit 4.5% of their total sales each week to a mandatory pool. The pool was distributed to the other staff, many of whom worked shifts before the restaurant opened for service. Those employees had little customer interaction. The Texas district court found Perry had “willfully” violated the mandatory tip pool rules and lacked good faith in failing to seek legal advice before creating the policy. Perry’s also chose to keep its tip credit policy during the years-long litigation. Consequently, Perry’s must pay $21 million, broken down as follows: over three million in unpaid minimum wages plus an equal amount in liquidated damages; over seven million in misappropriated tips, plus an equal amount in liquidated damages; and more than two hundred thousand for unpaid FICA taxes. The court encouraged the plaintiffs to file a motion to recover attorneys’ fees.
Takeaways: This case is an expensive reminder for employers to research applicable wage and hour laws at all levels in their jurisdictions. Failure to comply with applicable laws could result in very steep penalties.