Chickie's and Pete's agreed to repay $6.8 million in back wages and damages to more than 1,100 current or former workers in a settlement described by the U.S. Labor Department as the largest wage-and-tip violation case in agency history.
Separately, the restaurant announced it would spend nearly $1.7 million to settle private lawsuits with about 90 other employees who alleged unfair pay practices.
"Our employees are the backbone of our company, and they deserve our respect and appreciation," owner Pete Ciarrocchi Jr. said in a statement. "We believe these settlements are in their best interests."
The Labor Department began a yearlong probe of the Philadelphia-area eateries in November 2012. Officials wouldn't say what sparked the investigation, but at least one lawsuit was filed the following month.
Officials found the restaurant illegally paid servers and bartenders a flat rate of $15 per shift instead of $2.13 an hour, the federal minimum for tipped employees.
Staff members were also required to pay a portion of their tips into a pool. About 40 percent of that money went to bartenders, which is legal, according Brian W. Johnson, the department's enforcement director for the Northeast region. But he said the restaurant kept the rest, which is illegal. Employees called it "Pete's Tax," officials said.
"When employers exploit tipped workers, they not only harm their employees who are working hard to earn a living, but also take advantage of the trust of their customers," Laura Fortman, principal deputy administrator for the department's Wage and Hour Division, said in a statement.
In addition, officials said the restaurant illegally required employees to pay for their uniforms; failed to pay overtime; and didn't compensate staffers for time spent in meetings and training.
Kevin Feeley, a spokesman for Chickie's and Pete's, said many restaurants have trouble navigating the "complex regulations" on tip pools and tip credits, which help determine hourly wages.
Still, Johnson called the case "exceptional." During all of last year, he noted, the agency documented about $26 million in wage violations at nearly 3,900 restaurants.
The consent judgment with the Labor Department must be approved by a federal court.
Chickie's and Pete's operates about a dozen restaurants in Pennsylvania and New Jersey.
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