A Philadelphia sports bar with locations in Cape May and Atlantic counties was ordered to pay $6.8 million for wage-and-hour violations for charging its servers a bogus fee that came to be known as “Pete’s tax.”

Chickie’s & Pete’s, which has restaurants in Egg Harbor Township, Atlantic City, Ocean City and Wildwood, signed an agreement Thursday with the U.S. Labor Department to pay 1,159 employees more than $6.8 million in back wages earned between May 2010 and December 2012.

The restaurant chain, which calls itself “the No. 1 sports bar in America,” forced servers to contribute a portion of their tips to managers in cash at the end of their shifts. The chain’s management called this “Pete’s tax,” and in some cases forced servers to make cash withdrawals from automated teller machines to pay the fee if their customers paid through credit cards that night, U.S. Labor Department spokeswoman Leni Fortson said.

The settlement covered wage-and-hour violations uncovered at the Egg Harbor Township restaurant on the Black Horse Pike and at 11 other restaurants in Philadelphia and its suburbs.

No violations were identified at the Boardwalk restaurants in Ocean City or Wildwood or at the restaurant at the Tropicana Casino and Resort in Atlantic City, Fortson said.

“This case is the largest tip-worker case since the wage-and-hour division started collecting data,” Fortson said.

Meanwhile, the restaurant chain in a statement Thursday announced it settled lawsuits with 90 current or former employees for $1.68 million for violations identified by the Labor Department.

The restaurant’s owner, Peter Ciarrocchi Jr., also agreed to pay a $50,000 civil penalty.

“The penalty was assessed because of the egregiousness of the violations,” Fortson said.

The agreement signed Thursday must be approved by the federal court. Once the settlement is paid, employees will be reimbursed for lost wages, she said.

According to the Labor Department, the restaurant chain violated federal minimum wage, overtime and record-keeping requirements.

“The egregious actions by Chickie’s & Pete’s harmed real people and violated the promise that a fair day’s work deserves a fair day’s pay,” U.S. Secretary of Labor Thomas E. Perez said in a statement. “Restaurant servers are among the lowest-paid workers in this country, with many earning incomes below the poverty line. Tipped workers deserve better, and this action shows that the Department of Labor is ready to stand up for them.”

A manager at the Egg Harbor Township restaurant referred calls to the corporate office, which issued a statement.

“I’ve always said that we want to do the right thing by our employees, many of whom are families who have worked with us for many years,” Ciarrocchi said in the statement. “And that’s what we are doing.”

The statement noted that competing restaurant chains have faced similar wage-and-hour violations in recent years.

Servers in New Jersey restaurants typically share tips with certain co-workers but never management, said Marilou Halvorson, president of the New Jersey Restaurant Association.

“You would contribute to bartenders or busboys, people who help you service that table,” she said. “But typically managers are not entitled to tips.”

Wage-and-hour violations like this are unusual today, she said.

“I don’t think it’s prevalent in the industry. Credit card transactions are pretty well documented,” she said.

She noted that Chickie’s & Pete’s is not a member of the association.

Besides paying back wages and a fine, the settlement calls for 18 months of monitoring to ensure compliance, employee training on federal labor rights and a stipulation requiring the restaurant to provide to employees written details about who is eligible to participate in a tip pool and in what percentages.

Ciarrocchi also agreed to write an article for a restaurant trade publication that addresses employer obligations under federal labor laws.

Contact Michael Miller:

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