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An operator of Houlihan's restaurants in New Jersey and New York has agreed to pay $5 million in a consent judgment after the U.S. Department of Labor accused it of illegally pocketing a portion of servers' and bartenders' tips.

The Department of Labor had accused A.C.E.  Restaurant Group of misappropriating employees' tips, in violation of the Fair Labor Standards Act, and paying tipped employees less than minimum wage, without fully complying with relevant regulations under the FLSA. The Labor Department also charged that A.C.E. allowed some employees to work at two or more of its locations for a total of more than 40 hours per week, without paying overtime to those employees.

The settlement calls for A.C.E. to pay $2.5 million in unpaid minimum wages and back wages and an equal amount in liquidated damages to employees. The settlement proceeds will be divided among roughly 1,400 current and former restaurant employees in varying amounts based on the level of back wages each is owed. The settlement period runs from February 2013 to May 2015. The settlement awaits the approval of U.S. District Judge Joseph Rodriguez.

“The U.S. Department of Labor will not hesitate to pursue appropriate legal measures, such as this consent judgment, so that employers commit to corrective action, restitution, and ongoing compliance with the Fair Labor Standards Act,” Regional Solicitor of Labor Jeffrey Rogoff said in a statement.

Attorneys Daniel Hennefeld, James Wong, Molly Theobald, and Lindsey Rothfeder of the Labor Department's regional Office of the Solicitor in New York litigated the case for the government.

In addition to payment of the back wages and liquidated damages, the consent judgment requires the defendants to comply with the FLSA's minimum wage, overtime, recordkeeping, and anti-retaliation provisions, and provide employees with a notice of their FLSA rights.

The New Jersey restaurants that are the subject of the Department of Labor suit are located in Bayonne, Brick, Bridgewater, Cherry Hill, Eatontown, Fairfield, Hasbrouck Heights, Holmdel, Lawrenceville, Woodbridge, New Brunswick, Paramus, Ramsey, Secaucus and Weehawken. The New York locations are in Farmingdale and Westbury.

The Labor Department suit was filed in September 2015.

The Department of Labor filed its suit in September 2015. A few months earlier, a separate suit was filed on behalf of 26 Houlihan's employees by attorney Deborah Mains, who made similar allegations. That case was filed as a collective action under the FLSA. But no more claimants were allowed to join that case after the government filed its case, said Douglas Weiner of Lipman & Plesur in Jericho, New York, who represented A.C.E. in both cases.

Rodriguez approved a settlement in the first case on March 8. The settlement in that case provided $93,500 to the plaintiffs, $33,000 in legal fees and $7,000 in costs. That case was filed as a collective action under the FLSA.

The Department of Labor suit said A.C.E. required servers and bartenders to contribute a percentage of their tips to a tip pool, and that pool was unlawfully used to pay custodians and kitchen workers. The suit also claimed A.C.E. was keeping a portion of the tip pool rather than fully distributing it.

The government said A.C.E. also required tipped employees to pool their earnings with expeditors, whose job is to assemble the various dishes and side orders, garnish for each party's order and ensur that hot and cold foods are brought to the party's table at the proper temperature, said Weiner.

The Department of Labor has previously made clear that tip pooling is permissible for front-of-the-house restaurant jobs such as host and busser, said Weiner. But whether it is permissible for the job of expediter, who operates in a middle ground between the front of the house and the kitchen, has been unclear, said Weiner. A.C.E. decided to end its practice of tip pooling for expediters in light of the Labor Department's action, he said.

Other restaurant operators won't find much guidance on tip-splitting in the A.C.E. case, said Weiner.

“Unwary employers may find themselves the subject of allegations by the Department of Labor that it has violated laws, even though they took steps to know what the requirements are and to comply with them. It's a tricky area that has gotcha traps,” he said.

A conservative approach to tip-sharing “is likely the safest way to distribute tips until this area has been fully clarified,” Weiner said. That would include any employee that spends more than 80 percent of his or her time on customer service, he said.

Mains, of Costello & Mains in Mount Laurel, New Jersey, who represented the plaintiffs in the first civil suit, did not return a call.