Feature

Deadbeateries

One quarter of New York’s famed diners rip off their workers, paying as little as $2.50 an hour. Here’s how law-breaking owners get away with it.
Published November 14, 2018 | 25 min read

When Miguel Garcia left his home in Tlaxcala, Mexico, for New York nearly 30 years ago, he quit his job as a local milkman and said goodbye to his pregnant wife and two young children. Like other immigrants, he went in search of better paying work to support his family.

“New York was my best chance to find a job and make more money than I could somewhere else,” said Garcia.

In 1990 he thought he found just the right position when he got hired as a dishwasher at the Waverly Diner, where his brother-in-law had been employed. The diner, a quaint all-night fixture of Greenwich Village, provided more than income. It was a window into the city itself, a place where waiters slung coffee and burgers to locals, NYU students, artists and actors. Philip Seymour Hoffman was a regular. Patti Smith loved it there.

During its four decades of operation, the restaurant has earned many raves, including being ranked 17th in Time Out’s list of the nation’s 20 best diners in 2017.

“The Waverly still touts its colorful neon sign, retro dark-wood paneling and a long list of greasy-spoon U.S. standards, including jaw-busting triple-decker sandwiches, thick, meaty burgers and slurpworthy milkshakes,” the magazine wrote.

But behind that public praise, the Waverly had a dark secret.

The owner, Nick Serafis, 76, was systematically ripping off his workers.

The employees, mostly Mexican immigrants, had no clue how badly Serafis mistreated them, though he demanded they pull long shifts at a fraction of the hourly minimum wage. Twenty-five bucks for 12 hours on the job? You just had to live with it, Garcia reasoned. He simply didn’t know any better.

He said that on his first day, when he met his new boss in the Waverly kitchen, Serafis seemed pleasant enough.“What’s your name?” the owner asked. “Miguel or Mike,” Garcia answered. Serafis preferred Mike. “I had a good impression of Nick in the beginning,” said Garcia. “I thought Nick was friendly.”

Over the next two decades, however, Serafis illegally underpaid him and other employees by tens of thousands of dollars, flouting the federal minimum wage of $7.25 per hour and taking advantage of their immigrant status and ignorance of the law, according to a federal civil court ruling and lawsuit filed by the National Labor Relations Board.

All while the diner allegedly racked up profits that in some years topped half a million dollars.

“I thought it was normal,” Garcia, 56, said about his pay, which ranged from $3.88 to $5.70 per hour during his 25 years of employment at the Waverly, where he logged 72-hour weeks.  

It’s a problem that plagues thousands of foreign-born restaurant workers in New York City, and especially those in diners and coffee shops, according to experts and city data analyzed by The Hatch Institute.

Those records show that at least one-quarter of all city diners are illegally underpaying their workers.  

According to the data we examined from New York City’s Health Department inspection records, there were 371 eateries in the five boroughs that identified themselves as diners or coffee shops, and workers have sued 92 of those establishments during the last decade, which is 24.8 percent of them.

The lawsuits, alleging violations of the Fair Labor Standards Act that requires employers to pay workers the federal minimum wage and overtime if they put in more than 40 hours per week, reference a range of wage-theft claims.  

They include:   

  • Claims by 15 former servers and busboys of the Galaxy Diner in Hell’s Kitchen, who filed suit in 2016 saying they earned between $2.50 and $3.50 per hour.
  • Allegations by a former employee at the D&D Coffee Shop in Borough Park, Brooklyn, who said she got paid $20 per 8½ -hour shift.
  • Claims by three former workers of the Tick Tock Diner on 34th Street in Manhattan, who said in their 2016 complaint that the restaurant’s owner paid them for 30 to 40 hours of work each week, though they actually put in more than 60 hours.  

The Hatch Institute’s finding does not reflect how often such violations occur, experts say. They say the number of offenders is likely much higher, as abuses often go unreported, and illegal practices do not always result in lawsuits.  

“We do find that the employers sometimes threaten the employee [to stop them] from calling other agencies on them,” said Favio Escudero, an investigator with the New York Department of Labor. “They’re undocumented workers. They want to fly under the radar. They’re very afraid of their status and what could happen with their employment.”

—–

At the Waverly, Garcia began with 12-hour dishwashing shifts, 9 a.m. to 9 p.m. He worked six days a week, without holidays or sick days off and got paid $280 per week in cash, or $3.88 an hour, which Serafis handed him at the end of each week. He never got a pay stub.

Three years later, Serafis made him a delivery man, so he took food by bicycle to homes and businesses near the diner at the corner of Waverly Place and Sixth Avenue. Serafis made him pay for the bike, which cost $400.

He had a new job but the same schedule, 9 a.m. to 9 p.m., six days a week, and got $25 per day or $150 per week. He also received cash tips, which he was allowed to keep. In the best-paying years of his employment at the Waverly, Garcia’s tips peaked at about $260 per week, he said, meaning he was earning approximately $5.70 per hour. Other times he earned less.

New York State has imposed steadily increasing minimum wage regulations. In 1991, the first full year that Garcia worked at the Waverly, the state’s rate was $4.25 per hour, along with  mandatory time-and-a-half after 40 hours per week, which in Garcia’s case amounted to 32 of the 72 hours of his weekly schedule.

Legally, he should have been paid $382 per week, or $102 more than his actual compensation.

New York increased its minimum wage to $5.15 per hour in 2000, then upped it to $6 in 2005, $6.75 in 2006 and $7.15 in 2007. In each of those years, the state also required employers to pay time-and-a-half for more than 40 hours of work per week.

In 2007, lawmakers passed a federal minimum wage of $7.25 per hour. The measure included time-and-a-half pay for overtime above 40 hours.

Between 2007 and 2015, Garcia’s last year at the Waverly, Serafis was obligated to pay him $10.87 per hour for his overtime. If the Waverly had followed the law, Garcia should have been paid about double of what he was actually earning — a net loss of more than $8,000 a year just in overtime.  

The lost income affected his life in many ways.

For years, Garcia lived with 20 roommates, packed into a three-bedroom house in Jackson Heights, Queens, for which he paid $300 a month in rent. Whatever he could save, he sent to his family in Mexico, where his wife remained until 2015, when she came by herself to New York. Their kids, well into their 20s by then, stayed behind.

Over the years, Garcia saw his son, now 35, and two daughters, 33 and 29, only a handful of times on the few trips they made to visit New York. Mostly he spoke with them on the phone or over FaceTime after the video conference app came out in 2010.

He missed out almost entirely on being there for them as a father.

“It’s difficult to not see my children, but I sacrifice so that they can have a better life,” said Garcia.

“I do not want to see them mopping or washing dishes in someone else’s kitchen. I do not want them to go through what I have gone through. I work hard and support them so that they can go to college and have careers.”

His time with them was constrained by the long hours he worked at the Waverly.  

He and other staff members weren’t given sick days or personal days off. “They’d tell us, ‘No, you’re not allowed,’” said Delfino Lopez, a cashier who worked with Garcia at the Waverly beginning in 1996. “They’d call us donkeys because they worked us so much.”

Not that there was any defined job description.  

For no extra pay, Garcia was required to help in the kitchen, cutting fruit and preparing salads, clean the bathrooms and wash the outdoor façade. Other times, Serafis ordered him to buy him cigarettes or Powerball cards. When it snowed, the owner demanded Garcia clean off Serafis’ car and warm it up.

“I’d ask, ‘Is this part of my job?’” he recalled. “I knew it wasn’t, but they were still making me do it.”

Serafis, who owned the building where the diner is located, relied on the Waverly staff to mop the apartment hallways. When a tenant moved out, his workers were summoned to paint and repair the units. Residents became so accustomed to this arrangement that they’d come down into the diner to ask wait staff to install air conditioning units or replace light bulbs.

Lopez, who started at the Waverly in 1996 as a dishwasher and then worked the counter, earned between $5 and $6 per hour. Waiter Jesus Martinez said he made $20 per 12-hour shift, though he also got tips. Busboy Miguel Gonzalez took home $150 per 66-hour workweek.

—–

New York’s restaurants are seen as a bastion of immigrant progress, where hardworking arrivals from Mexico, Central America, Greece, Italy and other nations feed a hungry city while reaching for their piece of the American Dream.

There’s no doubt about their value in a kitchen or behind a bar.

The late culinary icon Anthony Bourdain hailed foreign-born workers, calling them “the backbone of the industry.” He once told Forbes: “I walked into restaurants and the person always who’d been there the longest, who took the time to show me how it was done, was always Mexican or Central American.”

Even President Trump relies on overseas help to staff his restaurants, despite his hard-line crackdown on illegal immigrants.

In July, his Mar-a-Lago resort in Florida asked the Department of Labor for permission to take on 61 temporary workers to start work this month, including 40 immigrant waiters and waitresses who need H-2B visas, though no experience was necessary for their employment, and 21 undocumented cooks who also require federal approval to work there.

When it comes to city diners, there’s no more obvious example of what they literally bring to the table.

At one’s favorite coffee shop it’s not uncommon to find that the cooks, waiters, bartenders and busboys all come from the same country, if not the same region or even town. As they plate food, clear dishes and scrub floors, often 24/7, these workers become known to their restaurant’s regulars. Customers see them in action, day after day. They learn about them as people.

Many in the trade believe that such workers are particularly important to New York State’s $43 billion restaurant business, with immigrants comprising 64 percent of all industry workers in the city, according to a study done by the U.S. Census Bureau’s American Community Survey.

Yet this study of 4,387 low-income workers in New York, L.A. and Chicago, 63 percent of whom were Hispanic, found that 30 percent of tipped employees did not get paid their state’s minimum wage, and 12 percent had their tips stolen by an employer or supervisor. Of the one-quarter of workers who put in more than 40 hours a week, 76 percent got no overtime.

And it’s not just a local problem.

A 2017 Economic Policy Institute study concluded that 6.5 percent of undocumented workers nationwide — again, a majority of them Hispanic — reported being paid less than the minimum wage, nearly double the 3.8 percent of U.S.-born workers who said they were victimized by underpayments. With an estimated 1.3 million such workers in the American restaurant trade, according to the U.S. Bureau of Labor, that means about 85,000 immigrant eatery employees are getting ripped off each year.

So why don’t more of them speak out?

Being uninformed about their rights and a fear of deportation combine to silence objections, experts say.

“They’re not educated on how to be paid,” said Escudero, the New York state labor investigator. “They accept their wages as the employer tells them, and that’s how they go about their lives.”

There’s also a growing intimidation factor.

“In this country, our labor employment laws, like the minimum wage, apply regardless of immigration status,” said Heidi Shierholz, director of policy at the Economic Policy Institute and the former chief economist at the U.S. Dept of Labor.

“But on average, immigrants are super vulnerable because they know that they could be retaliated against. They could end up in deportation.”

Federal authorities use underpayment disputes to identify and expel foreign-born workers.

In California, Immigration and Customs Enforcement agents have been showing up at wage violation proceedings, where workers must appear after filing complaints against owners. ICE also has asked California state officials for details about ongoing investigations into labor violations at construction sites in Los Angeles.

In New York City, ICE has conducted 665 agency sweeps, with 462 operations reported since Trump took office, according to statistics compiled by the Immigrant Defense Project and the Center for Constitutional Rights.

Agents also have targeted immigrants at work, including Pablo Villavicencio Calderon, the undocumented pizza delivery man from Ecuador who made national headlines when ICE detained him in Brooklyn June 1 after he brought an order to a U.S. Army base. A federal district court judge freed the 35 -year-old father seven weeks later amid intense media coverage of the story.

His was not an isolated case. In November 2016, ICE arrested Antonio Ramos Salazar and two dozen of his fellow workers at four separate Buffalo-area restaurants owned by Sergio Mucino, who was also arrested for harboring undocumented workers. ICE officials swept 98 7-Eleven stores, 16 of which were in New York City, resulting in 21 people being arrested in January.

Garcia said he lived in fear of being detained and deported. “Diners are able to still pay under minimum wage because most [immigrants] are intimidated and afraid because of what’s going on,” he said.

———————

In addition to pressuring employees not to file complaints, unscrupulous owners have found ways to avoid punishment or limit their losses when they do get reported.

In some cases, they escape with wrist-slap fines or settle with victims on favorable terms.

Jimmy Giapoutzis, the owner of the D&D Coffee Shop, agreed to give $30,000 to Chelsea Anderson, the worker who claimed she’d been underpaid. The settlement was reached prior to the case going to trial, with Anderson’s lawyers agreeing to forego damages or interest. They accepted Giapoutzis’s purported “inability to pay a larger settlement sum,” court documents show.

Owners do face enforcement action in New York and, occasionally, hefty fines and settlements, such as the $325,000 that the Galaxy Diner agreed to pay the 15 plaintiffs who sued the restaurant. The state claims that such results show New York is serious about holding violators to account. Its Labor Department, charged with investigating wage theft allegations, says the agency has returned more than $258 million to 215,335 workers since 2011, including about $35 million to 36,446 workers last year.

But even when found guilty of wage theft, some proprietors have simply ignored settlement agreements or judgments and not paid.

They’ve shut down their businesses, declared bankruptcy or transferred ownership of establishments to a friend, partner or relative. A few have fled the country.

“Unlike other states, New York law does not provide adequate protection against these tactics,” said a 2015 study, “Empty Judgments: The Wage Collection Crisis in New York. “As a result, many workers never get paid the wages they earned, even when they engage in a lengthy legal process.”

The study found that New York employers have skipped out on $125 million in court-ordered restitution, more than 20 percent of which is owed by restaurant owners.

———————–

Garcia, Lopez and other workers decided to take a stand against Serafis.

Throughout 2015, the “tide began to change, and Nick really started to treat us like trash,” said Martinez.

When Lopez and another employee were fired after missing a few days of work for personal reasons, he sought the advice of a lawyer to see if he had a case for wrongful termination. Through a friend, he got the contact information for New York labor lawyer Lou Pechman, and after speaking with him a few times, realized that he and his co-workers could sue for unpaid wages stemming from years of alleged wage theft.

So the group filed suit in August 2015 in Manhattan federal court seeking back pay.

The Waverly promptly slashed the workers hours, they said.

Gomez, who had consistently logged 72 hours per week, was cut back to 50 hours. He said that the Waverly’s manager told Gomez that the employees “didn’t know what they were doing” and that “dropping the case would be worth it.” Serafis, he was told, would give them $6,000 if they walked away, Gomez says.

When the group rejected that offer, Gomez says his shifts dropped to three days a week.

“If you’re not happy, why do you insist on staying here?” he quoted Serafis asking him in October 2015, according to the suit’s filings.

“If you don’t want me here, then I’ll leave,” Gomez answered.

When Serafis asked when he’d leave, Gomez responded, “Now.”

“You cannot leave now,” was the reply, he says. “You have to wait for somebody to replace you,” Serafis answered. Later that night, he says, Serafis fired him, saying “I don’t want to see you around my business.”

Garcia says his schedule was reduced to just two four-hour shifts a week in late August 2015, so he left and found another job. Martinez quit after he was cut back to four days a week.

Despite all that, the workers were hopeful. They had turned to the courts to find a resolution, and, in Pechman, they’d hired had an experienced labor lawyer with a track record of success.

There was no reason to doubt that a judge or jury would side with their claims.

The court, according to filings, found that Serafis and the Waverly did not comply with minimum wage and overtime requirements, significantly underpaying the employees for years  Additionally, the National Labor Relations Board found that the Waverly “discriminatorily discharged” the workers, and ruling that the diner must “offer them reinstatement to their former positions” and to “make them whole for any loss of earnings and other benefits resulting from their discharge.”

What they didn’t realize was that Serafis was planning his next move, putting in place a strategy to avoid having to pay for what he’d done.

——-

His first step was to put the Waverly business in his daughter Christine’s name. She lives in Greece. Doing so meant he was “free to run the restaurant as he sees fit and made himself ‘judgment-proof’ because any judgment cannot be collected against him because he has no assets in his name,” said Pechman.

Earlier this year, Serafis declared personal bankruptcy under Chapter 7 and filed Chapter 11 bankruptcy for the business. “This put a stay or a hold on the legal proceedings,” explained Pechman. “The plaintiffs are listed as creditors in the bankruptcy proceedings, and the bankruptcy court may grant Nick Serafis a discharge of all debts that he personally owes the plaintiffs.”

That includes a federal judgment against Waverly from last year, which found that Waverly “is liable to the employees for unpaid wages,” with the potential damages hovering around $2.2 million.

“The bankruptcy is a blatant attempt to avoid paying the back wages owed to the restaurant’s workers,” said Pechman.

———

Reform advocates say that efforts to fix the problem of illegal underpayments are misguided and won’t work.

They point in particular to a campaign by New York Governor Andrew Cuomo, who wants to replace the restaurant industry’s tipped wage system with one he hopes will cure the two main ills of the industry — low wages and sexual harassment.

Cuomo’s system would guarantee workers a $15 hourly wage by eliminating the so-called tip credit, which allows employers to pay their tipped staff as little as $2.13 per hour as long as these workers’ gratuities push the total past $7.25, the federal minimum wage.

The groping and crude commentary female servers endure to get tips will end, the governor proposes, because wait staff will no longer have to rely on the kindness of their customers to make a decent living. That onus would now be on their bosses.

As would be the case for immigrant workers like Garcia, who could finally earn a livable wage, the proposal’s proponents say.

There’s one problem with the plan. Restaurant workers don’t want it. Many believe that Cuomo’s measure would cost them money and jobs.

They’re convinced that successful restaurants — after having to raise their food and drink prices to cover the $15 hourly rate — will go out of business, and there will be a substantial drop in tips and under-the-table cash payments for workers, which are important to those who might not have a social security number or don’t report every penny of their income.

“It’s no secret why we do this kind of work,” said one bar employee in Manhattan who asked not to be identified by name. “We get paid pretty well and it’s a cash business. That’s a serious benefit. Getting paid in cash lets you stay off the radar and keep more of your money.”

Census data supports that claim. Restaurant servers and bartenders in New York put their current actual hourly earnings at $17.24 across the state and nearly $20 in New York City, as Crain’s recently pointed out. A trade group survey cited in Forbes says that figure is closer to $25.

As for the wage theft happening at diners, one New York nightlife veteran employee said: “Yeah, some of our fellow workers are being taken advantage of because they don’t have their green cards. That’s horrible and I feel bad for those people. But the answer isn’t to force a minimum wage on us, which is only going to hurt the industry. What they should do is go after the bad owners who are stealing from their workers.”

So far, seven states have enacted measures similar to what Cuomo has in mind. It hasn’t gone well.

In California, which last year approved a minimum wage of between $10.50 and $11, depending on staff size, restaurant workers rallied against the law, saying servers now take home less than before it was enacted. Harvard economists found that each $1 dollar increase in the minimum wage at 3.5-star eateries in San Francisco led to a 14 percent increase in restaurant closures.

In Maine, voters approved a referendum to eliminate the tip credit, raising the hourly wage to $12. They thought they were helping workers, but employees launched a campaign against the provision, saying it hurt their income. Facing an outcry, lawmakers reinstated the tip credit last year.

In New York, restaurateur Danny Meyer got rid of tipping, installed a minimum wage for all workers and raised menu prices at his upscale eateries. In February, he said he’d lost 40 percent of his front-of-house workers and that his servers and bartenders now made 20 percent less.

The new laws do nothing to address illegal underpayments to undocumented workers, critics say.

“For workers at diners, the debate over the proposed elimination of the tip credit is largely irrelevant as many diners don’t even pay the tipped minimum wage, cheat employees out of overtime pay, and create fraudulent records to hide unlawful pay practices,” said Pechman.

—-

The Waverly plaintiffs remain frustrated over the failure to bring Serafis to account. “After robbing us for so many years, he has the money to pay us,” said Gomez. “I feel defrauded.”

But Pechman holds out hope.

“Christine Serafis owns the Waverly, owns the building, and has her signature on the workers’ paychecks,” he said. “She might be enjoying the beach in Chios, Greece, now, but there will come a time when she is held accountable for the wage violations at Waverly.”

—-

*Fearing retribution, the Waverly Diner workers requested partial anonymity. As a result, their names have been changed.  

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