Gregory Zakarian is a restaurant rock star. He appears regularly on The Food Network; owns the well-reviewed Lambs Club restaurant in the Chatwal Hotel off Times Square as well as the National Bar and Dining Rooms in the Benjamin Hotel in Midtown Manhattan; he oversees food and beverages at the luxurious Water Club at the Borgata Casino in Atlantic City and is set to open the Tudor House restaurant in the Dream South Beach Hotel in Miami Beach. So why is he filing for personal bankruptcy?
Because 152 of his former employees (mostly chefs) from his now-shuttered restaurant Country are claiming that Zakarian failed to properly pay them under the Fair Labor Standards Act (FLSA). They are seeking $1,000,000 against Zakarian for unpaid overtime and for meal deductions taken from their checks for meals they did not receive.
Faced with this claim and as his spokesperson said in today’s NY Times “hundreds of thousand s of dollars in legal fees” Zakarian waved the white flag (or napkin in this case) and ran into bankruptcy court. The bankruptcy automatically freezes the lawsuit until the court straightens out what Zakarian owes and what he has.
Like most celeb chefs, Zakarian does nto own these restaurants by himself. He adds his name and his talent and then he gets OPM (other people’s money) to fund the venture. So what about his partners in Country who put up the OPM? The two other investors settled before the filing of the lawsuit for a total of $200,000 (roughly $1,300 per employee). Not only did they settle, one provided an affidavit to the plaintiff’s lawyers that make out a strong case against Zakarian and the other sued him separately to recover the amount he paid the workers, putting all the blame on Zakarian. Ouch.
The case reveals the sordid business of running a chic restaurant in NY. Line cooks are paid $7.50 per hour for long grueling shifts. They claim that Zakarian refused to pay them the $12 per hour they were entitled to when they exceeded forty hours per week. They also claim that Country took out $2.00 per day for “staff meals” even though they had to eat on their feet not to slow down production. At its prime Country grossed $9 million per year and trust me these two financial pictures displayed next to each other will not play well to a jury.
The NY Times had this to say about FLSA claims:
Chefs and restaurateurs have faced lawsuits over pay issues like overtime and distribution of tips with increasing regularity in New York, although bankruptcy does not seem to be the usual outcome.
At my firm, where we have a restaurant trade practice group, FLSA claims have really amped up lately. Plaintiff’s lawyers are visiting churches and community centers in areas where restaurant workers live. They are advertising on Spanish-language TV, radio and newspapers. So we advise restaurant owners to take these claims very seriously as they can add up to large awards when you factor in the hours that the employees work and that the FLSA requires the restaurant to pay the workers’ legal fees if the workers win their lawsuit. The claims can stretch as far back as 6 years in NY and there is a matching penalty of dollar for dollar -that is, if a worker is owed $5,000 in back overtime, the restaurant must pay $10,000 in damages.
Good record-keeping and a good relationship with staff is key to preventing FLSA claims. The chief plaintiff in the case against Zakarian is his former sous-chef, Prince Breland (who earned $33,000 per year). He said in the Times that when workers complained to the chef about the overtime they were told “Go peel some asparagus.” A modern day version of “Let them eat cake” this appears to have driven the workers to court and Mr. Zakarian to the chopping block.