Mac and Bob's will declare bankruptcy while facing class action lawsuit

The restaurant has been a staple in Salem since 1980

SALEM, Va.Mac and Bob's Restaurant in Salem will declare bankruptcy -- but stay open -- all because of tipping dishwashers. 

The popular restaurant in downtown Salem posted the information on its Facebook page along with a GoFundMe to raise money. 

The restaurant requires servers to tip dishwashers, as they might bartenders and hosts. But a former server is suing in a class action lawsuit, saying the practice was wrong.

Now, the restaurant has been told it may have to pay, through a complicated formula, 156 employees a total of more than $1 million. 

Mac and Bob's will seek bankruptcy protection, but stay open. 

You can read the full lawsuit here.

Click here if you're interested in donating to the GoFundMe to help with legal fees and to show support. In only two days, it's raised over $47,000, with the ultimate goal of raising $100,000. 

A community member has created a Facebook event called "Show Bob How Much We Love Him." People are asked to pack the restaurant and "tip the heck out of the servers."

Please read or watch this video to learn about important recent news at Mac and Bob's. Thank you. Video...

Posted by Mac and Bob's Restaurant on Wednesday, September 19, 2018

Below is the transcript of the above video:

For those of you who don’t know me my name is Bob Rotanz and I’m one of the owners of Mac and Bob’s Restaurant. I founded our restaurant back 38 years ago in 1980. There are several reasons why I am posting this on social media. One of those reasons is that what I am going to attempt to describe, to the best of my ability, is the legal situation we found our business in. It is confusing, complicated and unbelievable.

Back in late May of this year, I got a call from a local attorney that we are about to be served with a class-action suit for violating the U.S. Labor Department tip sharing rules. I called our lawyer, Todd Leeson, at Gentry Locke to look into this. Soon thereafter we were served with a class-action suit from a lawyer in Texas.

Totally confused, my lawyer explained to me we have been violating tip pooling by having our servers and bartenders tip out to the dishwashers. It is legal for servers to tip out bartenders, busboys, runners and host staff. Decades ago I decided to have our servers tip out our dishwashers instead of the host staff. In our view the dishwasher has the most difficult job in the restaurant, especially on weekend nights. I did not know this was a violation. We did not pay our dishwashers sub-minimum wage and did not depend on our hard-working servers and bartenders to supplement the dishwashers’ wages. Before the class action suit was brought we were paying our dishwashers anywhere from $9.00 to $12.00 per hour without any tips. The additional tip income made our dishwashers’ hourly wage a very decent income.

I have learned that many restaurants have been sued in class action suits for alleged unpaid wages. In many of those cases I am told that the employer is not treating their employees fairly by, for example, not paying them overtime or requiring employees to give tips to managers. I want to be very clear on this point: Mac and Bob’s has not pocketed a dime from this 1% tip to our hard working dishwashers. 100% went to them.

One of our dishwashers has worked for us for over 20 years and another for 10 years. Another dishwasher, who has worked for us for 8 years, decided to leave now that there was no additional tip income. On July 1, the first day that the no-tip dishwasher policy was enforced, I was walking in the back door by our courtyard and I was approached by three servers, Jose, Heather and Vanessa. They were very concerned about our dishwashers not being tipped. I informed them that we were going to give all our dishwashers a $3.00 per hour raise. On an 8 hour shift this would equate to $24 gross wage increase to help offset the lack of tip income. Additionally, many serves and bartenders are still voluntarily tipping the dishwashers.

This policy of ours has been in place for decades and we have had thousands of tipped employees work at Mac and Bob’s over the years. I was totally open about this policy. We even had printed tip envelopes with 1% stated right on the envelope itself, not knowing it was a violation, which is totally my fault. Not one employee ever mentioned any violation of the Fair Labor Standards Act.

In a recent March 23, 2018 Washington Post article by Tim Carman he writes, “In an investigation of more than 9000 full-service restaurants from 2010 to 2012 the Labor Department’s Wage and Hour Division found that nearly 84% of the establishments had some type of violation including tip violations”. National restaurant chains have recently settled tip sharing violations. Houlihans for 5 million, Bob Evans for 3 million and Ruby Tuesday for $485,000.

There was only one employee who filed this class action suit. This employee worked for approximately 10 months and tipped the dishwashers approximately $1100. If a server’s sales were $300, he or she would’ve made approximately $60. Then $3 was tipped to the dishwashers whether there was one dishwasher or two. Through our attorney we offered this individual $5000, nearly 5 times what he paid to the dishwashers during the 10 months he worked at Mac and Bob’s. He turned this offer down because there was a much bigger payout by moving forward with the lawsuit in Court.

What is shocking and unfair are the potential penalties for our practice of having dishwashers as tipped employees:

Take the $1100 that this individual paid to the dishwashers and double it to approximately $2200. Then determine how many hours he worked as a server for 10 months which was approximately 1450 and multiply that by $5.12, which is the difference between $7.25, minimum wage, and the $2.13 we paid him. That totals to about $7425. That figure is then doubled to $14850. Combined with the $2200 it totals over $17,000. Plus, we have to pay for his attorney’s fees and interest. This is just for one employee. 
The law states we had to go back at least two (and possibly three) years and contact every employee that worked for us and calculate the amount of penalties. The total amount for 156 employees during this three year period was over $825,000 not including attorney fees or interest. This would be the amount if every employee during a three year period joined the class action suit. Simply put, Mac and Bob’s does not have over $1,000,000 to pay all servers and lawyers in a suit.

In shock, our attorney advised us to settle with this individual instead of having his Texas attorney continue with the class action suit. This former employee then refused to sign a non-disclosure. His attorney filed a document requesting that he go public using Facebook and other social media to try and get more current and former employees to sign up. My immediate reaction was to go public ourselves. I wanted to call an employee meeting and explain the situation myself and also go on Facebook and our company website. Our attorney indicated that if we settled the lawsuit, the chances of a second class-action suit is rare. I feel his advice was correct and we settled the lawsuit. However, I had a very bad feeling that this former employee was might try and recruit more former employees for this attorney in Texas.

The statute of limitations is at least two years so the date that this ends would be June 30, 2020. The thought of waiting for another possible law suit for two years would have been unbearable.

We are now facing another class-action suit from a different employee. I believe it is not a coincidence that the attorney involved is the same attorney in Texas. We didn’t have to wait two years. It only took a week. We confirmed that Mac and Bob’s could never afford to litigate a class action suit like one of those national restaurant chains. With the advice of our attorneys we decided we had no real choice other than to file for Chapter 11 bankruptcy reorganization. This attorney in Texas apparently thinks we have the revenue of a national chain. I drive a 2001 pick-up with 323,000 miles on it.

In many ways I’m glad this happened so quickly. Now I can get this out in the open and not be worried about when I will get the next call. Also, I want to tell our employees first, in person, before they hear about it from another source.

We will not be settling this second class-action suit because we cannot afford to do so. In so doing, we are committed to being as fair to our servers as we can.

What does that mean for Mac and Bob’s? We have decided to file Chapter 11 for protection but we will NOT be closing. It means all 100 of our hard working employees still have their jobs while we go through this legal process. For all of our wonderful customers and dear friends we will still be open for business as usual and we hope you still come to dine with us. My partner and I are not ready to retire. We each have a daughter getting married next year. Many companies and corporations have gone through Chapter 11 reorganization and have come out of it successfully. We plan on getting through it as well and as soon as possible.

Thirty eight years ago I was 24 when I opened Mac and Bob’s and I am now 62. This is affecting many people at Mac and Bob’s, not just my partners and our families, but loyal employees like Keith Griswold, our General Manager, who has worked for us all 38 years. Beth Jones, our service manager has worked 16 years. Sandy Muse, one of our dishwashers has worked for over 20 years. Tuoi Iott, a cook, has worked in our kitchen since 1986. Jose Tapia, a server, just celebrated his ten year anniversary with us. The only place Seth Guthrie has ever worked is Mac and Bob’s. He started as a high school student rolling silverware, worked in the kitchen through college and is now at 26 years old our current kitchen manager. Finally, Joey Dishaw, my partner’s son, is 24 years old and is currently one of our managers. We hope he too will have a future with our restaurant.

I would like to thank our attorneys Todd Leeson and Andy Goldstein. I am extremely lucky to call them both very good friends even before this all happened. They both live a few blocks from me right here in Salem. They are extremely good attorneys and I’m fortunate to have them on our team. 
I would also like to thank Keith Griswold who has been with us since the beginning in 1980. He and Beth Jones, have worked diligently behind the scenes, along with my wife, Wendy, to generate all the employee data necessary to file. And finally, Steve Mason and Stuart Maxey for producing this video.

Thank you for listening and I hope to see you soon at the restaurant.