By: Glenn S. Grindlinger
On February 1, 2013, a federal court in Manhattan issued a decision that will impact all
New York City restaurants. The decision clarified two important – but unsettled – areas of law.
Specifically, in Allende, et al v. PS Brothers Gourmet, Inc., et al, Civil Action No.: 1:11-cv-05427
(S.D.N.Y.), United States District Court Judge Alison J. Nathan held that employers do not have
to reimburse employees for the cost of “uniforms” if the “uniform” consists of nothing more
than regular street clothes and does not contain the employer’s logo. In addition, Judge
Nathan held that employers may not deduct fees charged by internet delivery service providers
such as SeamlessWeb from employee tips even when the customer pays for the tip through the
internet delivery service provider.

In Allende, Plaintiffs were former dishwashers and delivery persons for an Indian
restaurant, Indus Valley, on the Upper West Side of Manhattan owned by PS Brothers Gourmet,
Inc. Plaintiffs alleged, among other things, that Indus Valley required its delivery persons to
wear black shirts, black pants, black shoes and cap, which they contended constituted a
“uniform.” Plaintiffs claimed that Indus Valley violated the Fair Labor Standards Act (“FLSA”)
and the New York Labor Law (“NYLL”) by failing to reimburse Plaintiffs for the cost of the
“uniforms” and by failing to give Plaintiff additional monies to maintain (i.e., launder) the
uniforms (the “Uniform Claim”). Plaintiffs also alleged that Indus Valley violated the FLSA and
NYLL when it deducted the service fee charged by internet delivery service providers such as
SeamlessWeb and GrubHub from employee tips when customers added tips to their internet
delivery service orders (the “Tip Claim”). After discovery closed, Indus Valley moved for partial
summary judgment on both Plaintiffs’ Uniform Claim and their Tip Claim.

With respect to the Uniform Claim, the 2011 Hospitality Wage Order is quite clear that
under the NYLL, an employer must reimburse employees for the cost of required uniforms and
must pay employees a maintenance allowance if the employer does not launder the uniforms.
However, the 2011 Hospitality Wage Order excludes from the definition of “uniform” clothing
“that may be worn as part of an employee’s ordinary wardrobe.” Because the only
requirement with respect to the clothing worn by Indus Valley delivery persons was that it be
black and the clothing did not contain Indus Valley’s logo or insignia, the Court found that the
required clothing was not a “uniform” under the NYLL. As such, the Court dismissed that
portion of Plaintiffs’ Uniform Claim that arose under the NYLL.

Although the NYLL aspect of the Uniform Claim was straightforward, the FLSA portion of
this claim was less clear because unlike the NYLL and the 2011 Hospitality Wage Order, the FLSA
does not define the term “uniform.” As a result, there was conflicting legal authority on the
issue. A handful of federal courts had implied that as long as the employer required the
employees to wear specific clothing, whether it be a specific color or style, the required clothing
was a “uniform” and the employer must reimburse employees for the cost to purchase and
lauder the uniforms if the employees were minimum wage employees (as was the case in
Allende). Other federal courts and the United States Department of Labor had held that if the
required clothing was “basic street wear” then such clothing does not constitute a uniform.
The Allende Court clarified this issue by holding that basic street clothing that did not contain
the employer’s logo was not a uniform under the FLSA and there was no requirement by Indus
Valley to reimburse employees for the cost to purchase and launder the required clothing. The
Allende Court also noted that the handful of other cases that reached the opposite conclusion
were not persuasive after an examination of the facts of those cases. Indeed, the Court noted
that in each of the cases relied upon by Plaintiffs, despite their broad language, the required
clothing either contained the employer’s logo or required special maintenance and thus the
employees at issue in those cases did not wear ordinary street clothes. Therefore, the Court
dismissed Plaintiffs’ Uniform Claim in its entirety.

Plaintiffs’ Tips Claim is more problematic for employers. As is becoming increasingly
popular for New York City restaurants – and indeed restaurants around the country – Indus
Valley contracted with internet delivery service providers, which allowed customers to log onto
their websites and order food from Indus Valley for delivery. For this service, the internet
delivery providers charged Indus Valley a fee which was equal to a percentage of the value of
each order (usually between 10%-12%). When a customer added a gratuity to the order, the
internet service provider charged Indus Valley the same fee as it did with the customer’s main
order.

Under New York law, it is permissible for a restaurant to deduct from a gratuity the
percentage charged by credit card companies when the customer pays by credit card. There
are also cases holding that this practice is also permissible under federal law.1
The rationale behind permitting this practice is that there is a cost to convert the credit card gratuity into cash for the employee and that cost is imposed not by the employer but by the credit card
company.

Using the credit card processing fees as an analogy, Indus Valley argued that it was
permissible to deduct the fees charged by the internet delivery service companies from
employee gratuities. Indeed, Indus Valley contended that the same rationale that permits an
employer to deduct the processing fee charged by credit card companies applies to the fees

1 Please note that some jurisdictions do not permit the practice even though it may be legal under
federal law. For example, Philadelphia recently passed an ordinance prohibiting the practice and
therefore Philadelphia restaurants may not deduct the processing fee charged by credit card
companies from employee gratuities.

assessed by internet vendors as there is a cost to convert the gratuity left by the customer
through the internet delivery service provider into cash and that cost is not imposed by the
employer but instead is imposed by the internet delivery service provider.

Unfortunately, the Court disagreed. In Indus Valley’s contract with the internet delivery
service providers, it states that the fees charged by the internet delivery service provider
include credit card processing fees as well as advertisement fees, marketing service fees, and
the provider’s commissions. The Court noted that the fees charged by the internet delivery
services providers went beyond what is necessary to turn the credit card gratuity into cash. In
fact, according to the Court, the fees included regular business expenses, such as advertising,
which cannot be deducted from employee gratuities. Therefore, the Court denied summary
judgment to Defendants on Plaintiffs’ Tip Claims. Unfortunately, this is not surprising as this
area of the law is designed to protect employees and whenever there is any uncertainty in the
law it is frequently construed against the employer and in favor of the employee.

This case is a mixed bag for New York City restaurants. The good news is that under
both the NYLL and FLSA, if employers require employees to wear a “uniform” that could
otherwise pass for basic street clothing, there is no requirement to reimburse employees for
the cost of the clothing nor is there any requirement to pay additional monies to employees to
launder the clothing. The bad news is that until SeamlessWeb, GrubHub, and similar
companies change the wording of their contracts, employers cannot deduct from employee
gratuities the fees charged by such internet delivery service companies. This is due to the fact
that the contracts issued by these companies do not differentiate between the fees charged to
process customer credit cards and the other services provided by the internet delivery service
companies. The fees these companies charge include elements that are general business
expenses, which cannot be deducted from employee gratuities. Accordingly, it is strongly
advised that all restaurants immediately cease the practice of deducting from employee
gratuities the fees charged by SeamlessWeb, GrubHub, and similar internet service providers.

Glenn S. Grindlinger is Partner at Fox Rothschild LLP in its New York, New York offices. Mr.
Grindlinger specializes in labor and employment law where frequently represents hospitality
companies in wage and hour disputes. He can be reached at (212) 905-2305 or at
ggrindlinger@foxrothschild.com.

Determining an employee’s status for the requirements of the Affordable Care Act (ACA) can be challenging—especially for hospitality industry employers. With high turnover common at restaurants and hotels and employee hours varying throughout the year, many employees have the potential to be on the cusp of being “full-time.”

IRS Notice 2012-58 provides employers with optional safe harbor methods to determine who is a “full‐time” employee for purposes of the employer “pay or play” mandate which subjects an “applicable large employer,” those who employ at least 50 full‐time‐equivalent employees on business days during the preceding calendar year (2013), to a penalty beginning in 2014 if either:


The employer fails to offer coverage to full‐time employees (and dependents) and at least one full‐time employee receives subsidized coverage from an Exchange, or
The employer offers coverage to full‐time employees (and dependents) that does not provide minimum value or is not affordable to any full‐time employee who then receives subsidized coverage from an Exchange.

Hospitality companies with workers whose hours vary or who employ seasonal workers should review the full‐time employee safe harbor rules to avoid potential costly penalties. The guidance offers an employer flexibility to determine the full‐time workforce and provides methods to help mitigate the impact (and possible confusion) that may ensue if an employee’s hours continually fluctuate above and below the 30 hour per week full‐time benchmark1. In general, the rules allow an employer to “look back” at an employee’s hours over a specified measurement time period to determine full‐time status (average 30 hours of service per week during this period) and to assume the same “status” will apply for a designated future stability time period. The following summarizes key issues addressed in Notice 2012-58:

There are separate safe harbors for “ongoing employees” and “newly hired employees.”
New concepts such as “initial measurement period, “standard measurement period,” “stability period,” and “administrative period” are introduced.
An employer will not be subject to a penalty when a newly hired full‐time employee is not offered coverage while they are in the process of satisfying the plan’s waiting period.
An employer will not be assessed a penalty if the coverage offered to an employee is affordable (an employee is not required to pay more than 9.5% of wages for self‐only coverage for the lowest cost option made available by the employer) based on the employee’s W‐2 taxable wages reported in Box 1. This determination is made after the end of the calendar year on an employee‐by‐employee basis. However, an employer could use this affordability safe harbor to design a contribution strategy on a prospective basis to help avoid penalties.

The full-time employee safe harbor rules introduce new terminology that is important for employers to understand:

Initial Measurement Period (IMP): Period of time selected by the employer that is between 3 and 12 months from the date of hire to measure completed hours of service for newly hired hourly and seasonal employees to determine whether an employee completed an average of 30 hours of service per week during this time period.

Standard Measurement Period (SMP): Period of time selected by the employer that is between 3 and 12 months to determine each ongoing employee’s continuing full‐time status. The employer may select the months in which the SMP begins and ends and must consistently apply the SMP on a uniform basis for all employees in the same category. Employers may use different SMPs for these employment classifications — hourly and salaried employees, collectively and non‐collectively bargained employees, employees of different entities, and employees located in different states.

Ongoing Employee: An individual employed for at least one complete SMP.

Stability Period (SP): Period of at least 6 consecutive calendar months that is no shorter in duration than the SMP and begins after the SMP and any applicable Administrative Period for an employee determined to be a full‐time employee during the SMP.

Administrative Period (AP): Time between the SMP and the SP to determine which ongoing employees are eligible for coverage. The AP may not reduce or lengthen the measurement or stability period and may only last up to 90 days following the SMP.
Employers may rely on the guidance in this Notice at least through the end of 2014 and will not be required to comply with subsequent guidance that is more restrictive until at least January 1, 2015.

For additional information, please contact Jill Bergman, CEBS, Vice President – Compliance, CohnReznick Benefits Consultants, at jbergman@cohnreznickbenefits.com or 516-247-3386, or Gary Levy, CohnReznick Partner and Director of the Firm’s Hospitality Industry Practice, at gary.levy@cohnreznick.com or 646-254-7403.

1 Proposed regulations are expected to provide that 130 hours of service in a calendar month would be treated as the monthly equivalent of 30 hours of service per week.

For more information on this topic please email Rick Casmass at Valiant or Click Here for a free assessment.

(This post was written by Jon Hyman, author of the nationally recognized and award winning Ohio Employer’s Law Blog)

The business community needs to pay careful attention to cases such as Fresenius USA Manufacturing. The NLRB continues to dangerously regulate employers rights to control and remedy workplace misconduct, all in the name of “protected concerted activity.”

Hopefully you’re not getting tired of me railing against the National Labor Relations Board for its parade of opinions designed to undermine the rights of employers to regulate the workplace. As long as the NLRB keeps pumping out these opinions under the generic umbrella of “protected concerted activity,” I feel a moral obligation to continue writing about them.


The latest victim is Fresenius USA Manufacturing, which concluded that an employer cannot discipline or terminate employees who make vulgar, offensive, or threatening statements.

In this case, an open and active supporter of the union, employee Kevin Grosso, anonymously scribbled vulgar, offensive, and threatening statements on several union newsletters left in an employee breakroom. The anonymous notes included “Dear Pussies, Please Read!” and “Warehouse workers, RIP.” No one disputed that Grosso was attempting to encourage his fellow employees to support the union in an upcoming decertification election.

In a good-faith response to female employees’ complaints about those statements, Fresenius investigated the statements. The investigation included questioning Grosso, during which he lied about writing the statements. Upon confirming Grosso’s authorship, the company suspended and discharged him for making the statements and lying about writing them.

The NLRB concluded that the employer was within its rights to investigate the statements and question Grosso, but could not suspend or discharge him as a result.

[A]lthough we find that Fresenius did not violate the Act by investigating and questioning Grosso, we find … that Fresenius did violate the Act by suspending and discharging him…. Grosso’s handwritten comments encouraged warehouse employees to support the Union in the decertification election. We therefore conclude that, in writing them, Grosso was engaged in protected union activity…. Fresenius discharged Grosso for writing those comments.

You might be thinking to yourself, why can’t we circumvent all this nonsense with a simple conclusion that the employer was within its rights to terminate Grosso for his dishonesty? Well, the NLRB has an answer to that question, too … and you’re not going to like it either:

Fresenius’ discharge letter to Grosso also cited his false denial of responsibility for the comments, but Fresenius could not lawfully discipline him on that ground…. Fresenius’ questioning of Grosso put him in the position of having to reveal his protected activity, which Board precedent holds an employee may not be required to do where, as here, the inquiry is unrelated to the employee’s job performance or the employer’s ability to operate its business…. As a result, although Fresenius had a legitimate interest in questioning Grosso and lawfully did so, Grosso had a Sec. 7 right not to respond truthfully.

Do you read that quote the same way I do? Did the NLRB really say that investigating complaints of harassment, consistent with an employer’s obligations under Title VII, is “unrelated to the employee’s job performance or the employer’s ability to operate its business.”

Perhaps the dissenting opinion put it best:

Notwithstanding their disavowals, my colleagues thereby impermissibly fetter the ability of employers to comply with the requirements of other labor laws and to maintain civility and order in their workplace by maintaining and enforcing rules nondiscriminatorily prohibiting abusive and profane language, sexual harassment, and verbal, mental, and physical abuse.

The business community needs to pay careful attention to cases such as Fresenius USA Manufacturing. The NLRB continues to dangerously regulate employers rights to control and remedy workplace misconduct, all in the name of “protected concerted activity.” Forcing employers into a Hobson’s Choice between the NLRA and Title VII is just plain silly. If the NLRB continues its path, employers will be left with little recourse against misbehaving employees, and at-will employment may become an historical relic.

For more information on this topic please email Rick Casmass at Valiant or Click Here for a free assessment.

The New York State Department of Taxation and Finance (“the Department”) recently announced that it is enhancing its Sales Tax Web File system to assist taxpayers in complying with its sales tax laws and in paying the appropriate tax.

The changes to the online service will allow the following:

• Electronic filing of all schedules;
• Electronic filing of late and amended tax returns;
• Electronic filing of credit or refund request applications; and
• Saving banking information for future payments.

The changes will also require taxpayers to report additional information in three areas:
1. Sales information:

• Total non-taxable and exempt sales; and
• Total debit and credit card deposits.

2. Credit information:

• Separately report receipts, purchases, and credits claimed for each jurisdiction; and
• Inform about the credits claimed.
3. Income Information:


• The ID number of the taxpayer that will report (for income tax purposes) the income from the sales reported on the sales tax return, which will be a FEIN (for a business) or a social security number (for an individual).

The Department’s new system will be phased in for sales tax returns due after September 20, 2012. The state recognizes that the new system may require taxpayers to change recordkeeping or reporting systems. For that reason, the phase-in period will continue through May 2013. The Department requests that once a taxpayer’s recordkeeping/reporting systems have been updated, that the taxpayer begin to include the new information when web filing. The new reporting requirements will become mandatory with returns having filing periods beginning on or after June 1, 2013. For annual filers, the requirements become mandatory for returns due March 20, 2014.

In addition, the new system will include some additional features such as the ability to prepay sales tax on motor fuel and diesel motor fuel, the ability to file zero returns, attach supporting documents for credits/refunds, and provide information about the sale of business assets. 

For more information on these or other state and local tax matters, please contact Scott Smith, senior manager in the Firm’s State and Local Tax Practice, at Scott Smith or call 973-364-7720, or Patrick J. Duffany, CPA, JD, partner and director of the Firm’s State and Local Tax Practice, at Patrick J. Duffany or call 860-368-3607.

For a FREE Valiant Assessment or More Information, please contact us!