A taco chain made servers share their tips with kitchen staff and other workers, the Labor Department says. It could be ordered to pay staff $823,000.

• A taco chain made staff share their tips with other workers, the labor department claims.
• The "invalid" tip pool ultimately meant workers also paid the correct wages, the DOL said.

A taco chain could be ordered to pay $823,000 to workers after a Department of Labor investigation found that it made staff share their tips with other workers.

The DOL filed a lawsuit against three Barrio Tacos locations in Michigan on September 7.

Its investigators found that the restaurants and their owner, Jacob Hawley, "required tipped workers to surrender a portion of their cash and credit card tips to managers after each shift." The managers then redistributed these tips to non-tipped employees, including kitchen staff, the DOL said.

As the restaurants operated these "invalid" tip pools, they weren't eligible to receive a tip credit against servers' and bartenders' wages, which essentially means restaurants can use tips to top up staff's wages to the federal minimum wage of $7.25 per hour.

As the restaurants weren't eligible for a tip credit, the servers' and bartenders' wages minus tips were pushed below the federal minimum wage.

The tip pools also caused the restaurants in East Lansing, Grand Rapids to incorrectly calculate overtime rates for tipped employees.

The restaurants additionally failed to keep accurate records of rates of pay, hours worked, and overtime premiums due.

The lawsuit is seeking $411,662 in back wages for 177 employees to cover tips taken, unpaid minimum wages, and unpaid overtime wages between October 2020 and October 2022, as well as an equal amount in liquidated damages. The DOL also assessed Hawley and the restaurants $23,904 in fines.

Barrio Taco did not immediately respond to Insider's request for comment.

"The business did not take any tips from staff members or profit in any way," Hawley told The Detroit Free Press in response to the lawsuit.

"It was an error in how tips were distributed amongst staff and what positions were tipped out … We are hoping to have this resolved shortly. We will correct any payroll errors as soon as the process has concluded and make it right by our staff if necessary."

Barrio Tacos, founded in Ohio in 2012, has 21 locations, selling tacos as well as cocktails.