More than 1,200 current and former employees of a well-known bar/restaurant chain in Philadelphia are going to share in an $8.5 million settlement over allegations that the eatery’s owner illegally demanded servers’ tips and also failed to pay minimum wage and overtime to tipped employees.

Among some folks in the Philadelphia area, Chickie’s & Pete’s is a beloved spot to grab some beer and some crab fries while watching a game at the bar; there are even Chickie’s locations at Philly sporting venues and in the airport.

But for some of the people who worked at the chain in recent years, the behind-the-scenes pay issues left a bad taste in their mouths.

The Fair Labor Standards Act allows for restaurants and other businesses with tipped employees to pay the workers as little as $2.13/hour, so long as the tips they receive make up the difference between that lower wage and the $7.25/hour federal minimum wage.

Complaints from employees alleged that they were only paid $15 per shift, meaning they were making below #2.13/hour when a shift stretched beyond seven hours.

Tips are also legally the property of the employee who receives the money. The only case in which a tipped employee can possibly take home less than the amount given to them during a shift is when they are part of a legitimate, agreed-upon tip-sharing pool. In any case, non-tipped employees and management are never allowed to demand a portion of a server’s tips.

However, some Chickie’s workers claim they were required to pay the so-called “Pete’s Tax” of between 4-6% of total table sales. About 40% of that would be paid out to the restaurants’ bartenders, which may be okay under the law if the pool is agreed-upon in advance. But what wasn’t legal was that the remainder of the docked pay allegedly went into the pockets of management.

Making matters worse, this “tax” was expected to be paid at the end of each shift, regardless of whether the server had received enough cash tips to make the payment. Thus, says the Labor Dept., which investigated the allegations, some workers had to borrow cash or go to an ATM just to pay the money they should not have been required to turn over in the first place.

Investigators calculated that employees at the chain’s 12 locations lost out on a total of $4.5 million in just the 32 months leading up to Dec. 2012.

“These just weren’t violations,” explains a Labor Dept. rep. “This was part of [the] business model.”

In a statement that is presumably ignorant of the irony dripping from every syllable, the chain’s owner explains that he agreed to the $8.5 million settlement because “Our employees are the backbone of our company, and they deserve our respect and appreciation.”

According to the Philadelphia Inquirer, $6.8 million of the total settlement will be split by 1,159 current and former employees to resolve the Labor Dept investigation. Another $1.68 million is going to settle federal lawsuits filed by about 90 Chickie’s workers.

The restaurant’s owners must also pay a $50,000 civil penalty. The settlement will not be finalized until a court signs off on it.

Chickie’s & Pete’s to pay $8.5M in short-tipping case [Philly.com]

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