North Carolina pizza chain Cugino Forno came under fire last week when the Department of Labor reported that 63 workers at its Clemmons, Greensboro, and Winston-Salem locations were denied full wages.
An investigation by the DOL’s Wage and Hour Division found that Cugino Forno paid employees a base rate as low as $1.19 per hour and “failed to pay the required overtime rate when applicable,” according to a news release.
The investigation also determined that the employer improperly distributed customer tips to employees, taking tips left for some workers and using them to pay the wages of others.
Cugino Forno also has locations in Durham and Wilmington, though they were not yet open at the time of the investigation, according to Cugino Forno co-owner Joseph Ozbey.
After the investigation, the restaurant agreed to pay $276,048 in back wages to employees.
While $1.19 per hour sounds insane, it’s actually less than a dollar away from the federal tipped minimum wage, which has been stuck at $2.13 for more than a decade and allows employers to fund the bulk of workers’ hourly pay with customer tips.
The DOL’s news release shows a tinge of cognitive dissonance; the release criticizes Cugino Forno for forcing workers “to rely almost entirely on tips for their income,” but goes on to recognize that this is the case at most restaurants, where employees “depend on the tips they receive from customers for good service to make ends meet.”
In an interview with the INDY, Ozbey says that much of the information stated in the release is misleading or inaccurate. Since opening its first location five years ago, Cugino Forno has always paid all employees at least $10 an hour, according to Ozbey. And unlike many restaurants, Cugino Forno has primarily funded workers’ paychecks using its own money, not customer tips.
Ozbey says he didn’t want workers to fret over how many tips they were bringing in, so he guaranteed employees a minimum of $10 per hour.
“That way, they have some sort of solid income,” Ozbey says. “If I come to you and I say, ‘You’re 100% working on tips,’ you’re gonna say, ‘Joseph, am I gonna be able to pay my rent? Am I gonna be able to pay my utilities, my school money, my car insurance?’”
Cugino Forno has counter service, so patrons generally tip less than they would at a full-service restaurant, he adds.
Ozbey says the restaurant pooled each week’s worth of tips and distributed them evenly to all employees. If the tips didn’t reach $10 per hour for each employee—which they never did, he says—the restaurant would make up the rest, and then some; on average, employees made about $4 an hour in tips and the restaurant paid them an additional $6-8 out of pocket.
By federal law, if an employee makes $4 an hour in tips, a restaurant is only obligated to pay them an additional $3.25 to bring them up to the federal minimum wage of $7.25.
Ozbey isn’t exactly sure where the $1.19 hourly rate stated in the DOL release came from. It seems possible that there may have been a few weeks in which the restaurant raked in more tips than usual, and thus only had to pay $1.19 out of pocket to bring employees up to the promised $10 an hour, though Ozbey and the DOL did not confirm or deny this.
In its release, the DOL describes Cugino Forno’s practice of distributing tips as a violation of the Fair Labor Standards Act, presumably because the act mandates that employers who take the $2.13 “tip credit” allow front-of-house workers to keep their own tips and refrain from sharing tips with the back-of-house. This is a worker protection to ensure that servers earn enough tips to achieve the minimum wage.
But at Cugino Forno, there isn’t a distinction between front-of-house and back-of-house employees, Ozbey says. Employees are cross-trained and shift between positions on a day-to-day basis.
“You could be taking orders one day, making sauce the next day, and delivering pizzas to the tables the day after that,” Ozbey says. “So because of that—this is by law, this is what the Labor Department told us—if you cross-train, then everybody gets some tips equally.”
Ozbey explains that the restaurant’s failure to pay workers the required overtime rate was the result of another miscommunication from the DOL, who he says informed him that “if you’re paying people $2.13, they can work as much as they want.”
According to Ozbey, the restaurant’s main mistake was that it didn’t clearly explain to workers how they were being paid.
“The guy [from the DOL] even said to us, ‘You have done nothing wrong, you didn’t pay them less than the minimum wage, you just didn’t inform them right,’” Ozbey says.
People wouldn’t work for Cugino Forno if they were only making a few bucks an hour, he says, adding that some employees expressed discomfort at receiving back paychecks.
“They were like, ‘You have already paid us and you have paid us more than the minimum wage,’” Ozbey says. “You’re more than welcome to go to any location and ask anyone. We love them, we take care of them, and they’re our family.”
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