California cites seven Bay Area restaurants for $10 million wage theft

People walk past Kome Buffet, Thursday, June 7, 2018, in Daly City, Calif. People walk past Kome Buffet, Thursday, June 7, 2018, in Daly City, Calif. Photo: Santiago Mejia / The Chronicle 2018 Buy photo Photo: Santiago Mejia / The Chronicle 2018 Image 1 of / 1 Caption Close California cites seven Bay Area restaurants for $10 million wage theft 1 / 1 Back to Gallery

Showing an aggressive approach to the multibillion-dollar problem of wage theft in California, state investigators have cited seven Bay Area restaurants for more than $10 million in stolen wages.

The Division of Labor Standards Enforcement said Thursday that it cited the restaurants for wage violations. Half of the $10 million comes from wages allegedly stolen from 133 workers at a single restaurant, Kome Japanese Seafood Buffet in Daly City.

The allegations of wage violations include failure to pay minimum wage and overtime, as well as illegal accounting for tips, the state said.

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Wage theft, worker advocates and state officials say, affects vulnerable populations and is a drag on the state’s economy. Restaurant owners and lawyers representing them, meanwhile, say that record keeping and compliance with a variety of laws is a challenge, particularly for small operators.

David Leung, an owner of Kome, denies the claims against his restaurant, and said he plans to appeal the citation.

“Servers are liars, they always want more, they want more money,” Leung told The Chronicle.

Leung said his staff’s dissatisfaction began three years ago, when a new owner bought part of the restaurant. Leung would not name the new owner, but a statement of information filed by Leung in November 2016 shows a new corporate secretary, Bai Dong Zhang, and a new chief financial officer, Jun Zheng. The statement also lists Zheng and Yan Lu as directors of the company.

The state’s complaint names Leung, Zhang and Zheng as among the restaurant’s owners.

Julie Su, the California labor commissioner, said the yearlong investigation was part of the state enforcement division’s new strategy for dealing with wage theft.

“We are choosing to investigate employers who have made a business practice out of not paying workers correctly,” Su said.

Wage theft costs California workers up to $2 billion a year, a report from the Economic Policy Institute estimates. Recent citations issued by the Division of Labor Standards Enforcement, which Su oversees, include a $7 million charge against six residential care facilities in Los Angeles and a $500,000 charge against a Los Angeles restaurant.

The rest of the Bay Area citations were issued to a Burmese restaurant chain that operates six locations in San Francisco and on the Peninsula under the Rangoon Ruby and Burmese Ruby names.

Su said the most recent investigation in the Bay Area shows how widespread wage theft is.

According to the state, Kome owes 133 current and former employees about $5.16 million. All of the workers affected are immigrants, says Shaw San Liu, an organizer for the Chinese Progressive Association, a San Francisco nonprofit that helped workers organize and formally complain to Kome management. Su said the state could not comment about the workers’ immigration status because it did not ask them.

Liu said the workers included Chiu Ping Tam, an immigrant from Hong Kong who spent six years working at Kome and had his tips taken from him; Yuan Ming Gong, who emigrated from Kaiping, China, and said he was terminated after taking an employer-approved vacation for his daughter’s wedding; and Chris Liu, who worked at Kome for eight years, first as a busboy and now as a server, and said he was paid below minimum wage and was not compensated for overtime. The workers could not be reached for comment.

“The problem with a number, even as large as $5 million, is that it does not capture the 130 people who have lost income, and lost the ability to sustain themselves,” said Shaw San Liu of the Chinese Progressive Association. “It’s all too common, and all too often in the restaurant industry.”

Yelp reviewers note that Kome frequently adds a 15 percent service charge to bills. Their reviews note some disagreements with servers over whether the charge is a service fee or tip.

Paula Weber, a partner in the San Francisco office of the Pillsbury law firm that specializes in employment law, says the confusion between service fees and tips is “fairly difficult.”

Service charges are imposed by the employer and added to the amount of the bill. A tip is an amount left for the workers. Under California law, tips and service charges are treated differently. Tips cannot be “pooled,” or shared with kitchen workers who do not serve customers, while service charges can be distributed as an employer sees fit.

“A lot of employers add the service charge on so the back-of-the-house workers can also share in on the money,” Weber said.

Service charges distributed to workers are viewed by the Internal Revenue Service as wages. In some states, tips and service charges paid to employees can be deducted from minimum wages, but in California, they can’t.

Leung said his restaurant kept the service charge. Employees, however, say that the restaurant took tips and counted them against their minimum wages.

“We are collecting the service charge that all employers take, not the tip, which I have explained to employees,” he said. “Servers always want more, they always expect more, we never steal tips. The only thing they’re concerned is they think the service charge belongs to them.”

The state cited Kome for “the illegal counting of tips received as part of the minimum hourly wage” as well as failing to pay overtime and split-shift premiums.

Natasha Mascarenhas is a San Francisco Chronicle staff writer. Email: natasha.mascarenhas@sfchronicle.com