Most restaurant employment lawsuits don't start with a dramatic incident. They start with scheduling conflicts, tip disputes, and the normal friction of high-turnover, high-stress operations. At Anchor Insurance, we've seen how small management decisions - often made with the best intentions - can escalate into costly EPLI claims.
This guide walks through the three most common sources of employment claims in restaurants: scheduling practices, tip management, and turnover-related terminations. Understanding where claims start helps you prevent them - and ensures you have the right EPLI coverage when prevention isn't enough.
Scheduling: Where Discrimination Claims Often Begin
Scheduling decisions feel operational, but they're actually employment decisions - and when they're inconsistent, unexplained, or perceived as unfair, they create legal exposure.
Common Scheduling-Related Claims
- Discriminatory shift assignments: A server alleges they were given slower shifts or less desirable sections based on age, race, appearance, or pregnancy status
- Retaliation through scheduling: An employee's hours are cut or their schedule changed punitively after they complained about harassment, requested accommodation, or filed a workers' comp claim
- Failure to accommodate: An employee requests time off for religious observance, medical treatment, or family leave - and is denied without clear explanation or told 'we're too busy'
- Constructive discharge: An employee's schedule is changed so drastically (overnight shifts, inconsistent hours, back-to-back doubles) that they're forced to quit
- Favoritism claims: Employees allege that certain workers (often those friendly with management or of a certain demographic) get preferential treatment in scheduling
Real-World Example
A pregnant server at a full-service restaurant requests a modified schedule to attend prenatal appointments. The manager, under pressure to maintain floor coverage, tells her 'we can't make special exceptions.' The server is placed on slower daytime shifts, her hours are reduced, and she eventually quits. She files a pregnancy discrimination claim, alleging constructive discharge. Even if the manager's intent was purely operational, the lack of documentation, the sudden schedule change, and the refusal to accommodate created a textbook EPLI claim.
How to Reduce Scheduling-Related Claims
- Use objective criteria for shift assignments (seniority, performance, availability) and document them
- Have a clear process for handling schedule change requests, especially for medical, religious, or family leave reasons
- Train managers to recognize when a scheduling decision could be perceived as discriminatory or retaliatory
- Avoid making sudden, unexplained changes to an employee's schedule - especially after they've complained or requested accommodation
Tips and Wage Disputes: The Fastest Path to a Claim
Tipped employees are hypersensitive to anything that affects their take-home pay - and for good reason. Tip pooling, credit card fees, cash handling, and overtime calculation errors are among the most common triggers for employment claims in restaurants.
Common Tip and Wage-Related Claims
- Illegal tip pooling: Servers claim that managers or owners are taking a share of the tip pool, or that tips are being distributed to non-tipped employees (like dishwashers or cooks) in violation of state or federal law
- Tip credit violations: An employer takes a tip credit against minimum wage but fails to properly notify employees, or allows tipped employees to spend more than 20% of their time on non-tipped duties
- Unpaid overtime: Hourly employees (including tipped workers) are asked to work off the clock, not paid for prep or closing duties, or have their hours miscalculated
- Deductions from tips: The restaurant deducts credit card processing fees, cash register shortages, or walkouts from employee tips - which may be illegal depending on state law
- Misclassification: A delivery driver, shift supervisor, or other worker is classified as exempt or as an independent contractor when they should be a non-exempt W-2 employee entitled to overtime
Real-World Example
A bartender notices that the tip pool is being split with the kitchen manager. Under federal law (and most state laws), managers cannot participate in tip pools. The bartender raises the issue with ownership, who dismisses it as 'how we've always done it.' The bartender quits and files a wage claim with the Department of Labor and a wrongful termination/retaliation lawsuit. The restaurant faces back wages, penalties, legal fees, and potential EPLI coverage questions if the policy excludes wage and hour claims.
How to Reduce Tip and Wage-Related Claims
- Audit your tip pooling practices to ensure they comply with federal and state law (no managers in the pool, clear written policy, proper distribution)
- Review your tip credit usage and make sure you're meeting notification and duty requirements
- Use a reliable payroll system that accurately tracks hours, calculates overtime, and handles tipped vs. non-tipped time
- Avoid deducting breakage, spillage, cash shortages, or credit card fees from employee wages or tips unless clearly permitted by state law and documented in writing
- Consult an employment attorney before implementing any changes to tip policies, especially if you operate in multiple states
EPLI and Wage & Hour Coverage
Traditional EPLI policies often exclude wage and hour claims. However, many modern policies now offer limited defense cost coverage (with sublimits), and some carriers offer full Employment Practices Liability and Wage & Hour policies. Because tip and wage disputes are so common in restaurants, we strongly recommend confirming your EPLI policy includes at least defense cost coverage for these claims. Anchor Insurance compares how different carriers handle wage and hour exposure and helps you choose the right policy structure.
High Turnover: More Terminations = More Claims
Restaurants have some of the highest employee turnover rates of any industry - often exceeding 70% annually. Every hire and termination is a potential claim, especially when terminations are rushed, poorly documented, or perceived as unfair.
Common Turnover-Related Claims
- Wrongful termination (discriminatory): An employee claims they were fired because of their race, age, pregnancy, disability, or other protected characteristic - not for the stated performance or conduct reason
- Retaliatory termination: An employee is fired shortly after filing a workers' comp claim, complaining about harassment, reporting a health code violation, or requesting FMLA leave
- Constructive discharge: An employee quits due to intolerable working conditions (harassment, schedule manipulation, hostile environment) and claims they were effectively fired
- Failure to follow progressive discipline: An employee handbook promises warnings before termination, but the employee is fired on the spot - creating an implied contract claim
- Disparate treatment: An employee is terminated for a rule violation that other employees routinely commit without consequence
Real-World Example
A line cook injures his hand and files a workers' compensation claim. Two weeks later, he's terminated for 'performance issues' - even though his last performance review was satisfactory. The cook files a retaliation claim, arguing that the real reason for termination was the workers' comp claim. The restaurant has weak documentation of the alleged performance issues, no prior warnings, and no clear termination process. The claim settles for $45,000, plus legal fees.
How to Reduce Termination-Related Claims
- Document performance and conduct issues in real time - not after you've already decided to terminate
- Use a consistent termination process: warning, written notice, final conversation, documentation
- Avoid terminating employees immediately after they've filed a complaint, requested accommodation, or taken protected leave - even if there's a legitimate reason
- Review your employee handbook to make sure it doesn't create implied contract obligations (avoid language like 'employees will be terminated only for cause')
- Train managers to separate operational frustration from legal termination standards
Why These Claims Matter for EPLI Coverage
Even when you've done nothing wrong, defending against harassment, discrimination, or wrongful termination claims costs tens of thousands of dollars in legal fees. EPLI covers:
- Legal defense costs: Attorney fees, discovery, depositions, court costs - regardless of whether the claim has merit
- Settlements and judgments: If the claim is settled or goes to trial, EPLI pays covered damages up to your policy limit
- Regulatory defense: Many policies also cover defense costs if you're investigated by the EEOC, DOL, or state labor agencies
At Anchor Insurance, we help restaurant owners choose EPLI policies that actually cover the claims you're most likely to face - including wage and hour defense, tip disputes, and retaliation allegations. We work with multiple carriers to find coverage that fits your workforce, your practices, and your risk profile.
Frequently Asked Questions
Can an employee sue me even if I fired them for a legitimate reason?
Yes. Employees can file claims alleging discrimination, retaliation, or wrongful termination regardless of whether the termination was justified. Your defense is that you had a legitimate, non-discriminatory reason - but you still need to defend the claim in court or through settlement. That's exactly what EPLI is for: paying your legal defense even when the claim is baseless.
Does EPLI cover employees who quit on their own?
It can. If an employee quits and then claims constructive discharge - meaning they were forced to quit due to intolerable working conditions, harassment, or discrimination - that's a covered claim under most EPLI policies. Constructive discharge claims are treated the same as wrongful termination claims for coverage purposes.
What if I'm investigated by the Department of Labor or EEOC?
Many EPLI policies include coverage for administrative proceedings and regulatory investigations, including those by the Equal Employment Opportunity Commission (EEOC), Department of Labor (DOL), or state labor agencies. This typically covers defense costs and, in some cases, settlements or consent decrees. Make sure your policy includes this coverage - Anchor Insurance reviews this as part of our carrier comparison process.