My favorite tipster over at LexBlog sent me a couple of links this week to an employment related issue in San Francisco. A popular vegan restaurant chain called Cafe Gratitude is closing eight locations over a series of employment lawsuits. Sparing you the gritty details, one lawsuit involves the café’s tipping policy which is a common trouble spot for restaurants. Another involved a salary employee who was not paid overtime which is also very common mistake. The last involves the company’s requirement that employees attend some sort of spiritual healing workshops on their own dime which the owners firmly believed in.
Citing the last lawsuit, you could write off the owners as crazy people with some kind of bizarre cult interwoven into their company business. I would probably be right there with you, but there is a very important lesson to be learned here. In their “fairwell note”, the company owners wrote:
A series of aggressive lawsuits has brought us to this unfortunate choice. Although we believe that we have done nothing wrong and our policies are completely legal, it will cost us too much money to defend them in court. Despite telling the attorneys that brought the lawsuits that the current structure and resources of Café Gratitude are insufficient to sustain and defend our community, they have refused to give up and are forcing us to close.
We appreciate the loyalty of our employees and customers over these past 8 years and are grateful for having had the opportunity to serve each of you. We were happy to tolerate low margins and sustain ourselves on the transformation and personal growth of our people, while providing local organic vegan food to our community in an atmosphere of unconditional love. That commitment is under attack and we are not able to weather this storm . . .
I highlighted the portions that are particularly relevant. Restaurants operate on very low margins and in tight economic times even more profitable businesses are operating on the edge of sustainability. I have seen time and time again, small business totally caught off guard by the cost of defending even a small wage and hour lawsuit or a Department of Labor audit. For a simple overtime claim, employees can recover the overtime wages for up to three years, plus an equal amount in penalties and their legal fees. On top of this, the sued company gets the pleasure of paying its own lawyer to defend the suit. So, even a small suit by one former employee can cost a lot of money. I routinely see clients incur $20,000 or more in cost over one little overtime claim between the settlement and defense fees.
For Café Gratitude, the cost was just too much. And the sad part is, most of these issues could easily (and cheaply) be avoided if the café consulted with a labor lawyer to make sure it was handling everything right.