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Restaurant Violated Federal Law by Withholding Excessive Credit Card Fees from Server Tips

Aug 16, 2016

In a recent decision, the U.S. 5th Circuit Court of Appeals ruled that a restaurant's deduction of 3.25% from servers' tips to covere credit card processing fees was improper. Steele v. Leasing Enterprises, Ltd., 15-20139, 2016 WL 3268996, (5th Cir. June 14, 2016).  The 3.25% deduction exceeded the fees actually charged to the restaurant by the credit card companies.

This case is important for restaurant employees.  It is a very common practice of restaurants to pay employees who receive tips $2.13 per hour, then rely on the tips received by the employee to make up the difference between $2.13 and the national minimum wage ($7.25 per hour, currently).  But when the restaurant improperly deducts fees exceeding the credit card issuer fees, it violates the Fair Labor Standards Act and cannot credit tips against its obligation to pay the minimum wage.  Restaurants that deduct more than their actual credit card issuer fees from employees tips, do so at their peril.