Manhattan restaurants to appeal ruling on unclaimed tip settlement funds

Two Manhattan Chinese restaurants are preparing an appeal after a federal judge struck down a provision in a $1.75 million wage-and-tip settlement that would have let the eateries keep unclaimed settlement funds. The deleted provision required the parties to revisit how any leftover monies would be handled, and the restaurants have said they will challenge that ruling, setting up an appellate fight over control of unclaimed class-action funds.

The original settlement resolved allegations that the restaurants failed to distribute tips or service charges lawfully to employees. As negotiated, the deal included a mechanism for dealing with checks or payments that were not claimed by class members, a common feature of class-action settlements intended to prevent idle balances. The judge’s order invalidated that unclaimed-funds term, effectively forcing the parties to reconsider whether leftover dollars should be redistributed to workers, remitted to government entities, or handled in another way.

For restaurant workers and managers, the stakes are practical. Tip and service-charge disputes go to the heart of how hourly pay and gratuity-sharing arrangements operate in busy kitchens and dining rooms. When settlements address alleged shortfalls, unclaimed funds can represent meaningful, if uneven, recoveries for workers who do not cash settlement checks or whose whereabouts are unknown. How courts allow those funds to be treated influences whether more money ultimately reaches workers or is diverted elsewhere.

Legally, the appeal will test how appellate courts review district judges’ oversight of class settlements in wage-and-hour litigation. The dispute highlights the tension courts face between honoring negotiated settlements and ensuring fair, judicially supervised distributions to the class. Appellate guidance could clarify acceptable approaches to unclaimed funds in similar tip and wage cases, including whether courts should require reallocation to class members, payment to the government, or distribution to third-party charities under cy pres principles.

Pending the appeal, affected employees face uncertainty about whether they will receive additional money beyond initial distributions. Employers and plaintiffs’ lawyers who settle wage-and-tip claims will be watching for a ruling that could prompt changes in settlement drafting, notification efforts, and mechanisms for locating absent class members.

The appellate case will likely shape how future tip-and-wage class actions structure unclaimed-funds provisions and how judges police those terms. For workers, the outcome could determine whether leftover settlement dollars are more likely to land in paychecks, public coffers, or elsewhere; for restaurants, it could affect the final cost and closure of class claims.