San Diego Deli Pays $500K in Back Wages After DOL Finds Flat-Rate Pay Violated the FLSA
A San Diego sandwich shop has paid out $500,256 in back wages to just six workers after a federal investigation found its pay practices ran afoul of wage and hour law. The U.S. Department of Labor's Wage and Hour Division investigated Chau Deli, operating as A Chau Sandwich, and concluded the employer's flat daily pay left workers earning below minimum wage with no overtime for their long weeks.
The math is stark. The deli paid its employees a flat rate of $100 per day regardless of hours worked, yet those workers often put in 11-hour days and averaged 55 hours a week. Spread across that many hours, the daily rate pushed their regular rate of pay below the applicable local minimum wage before overtime even entered the picture.
"The Wage and Hour Division remains committed to upholding federal labor law protections for workers supporting their families."
— Andrew Rogers, Wage and Hour Division Administrator, U.S. Department of LaborWhere the Flat-Rate Model Broke Down
Under the Fair Labor Standards Act (FLSA), a flat daily rate isn't illegal on its own, but employers still have to clear two separate hurdles: every hour must meet the applicable minimum wage, and any hours beyond 40 in a workweek must be paid at a time-and-a-half overtime premium. Chau Deli's arrangement failed both tests. Investigators found the regular rate came in under the local minimum, and no overtime premium was paid for the roughly 15 hours a week each worker logged above the 40-hour threshold.
The result was a substantial recovery: each of the six workers received approximately $83,000 in back wages. For a small operation, an average payout of that size per employee is the kind of liability that can threaten a business's survival, and it stemmed from a pay structure that likely looked simple and manageable on paper.
"A flat daily rate is only lawful if it clears both the minimum-wage floor and the overtime premium — every single week."
— The compliance lesson at the heart of this caseWhat HR and Employers Should Do Now
The takeaway isn't that day rates are forbidden; it's that they demand ongoing verification. Employers using flat rates should track actual hours worked, then confirm each pay period that the effective hourly rate stays above minimum wage and that overtime is layered on top for hours over 40. The DOL also points employers toward its compliance-assistance toolkits and its PAID program, which lets employers self-report and resolve potential minimum wage and overtime issues before an investigation ever begins.
For businesses in food service, retail, and other hourly-heavy industries, this case is a reminder that "simple" pay schemes carry real exposure. A quick audit of how flat or salaried nonexempt pay maps onto actual hours is far cheaper than a five- or six-figure back-wage bill per employee.
$500K recovered for six workers. The DOL's Wage and Hour Division recovered $500,256 in back wages from Chau Deli (A Chau Sandwich) in San Diego.
$100/day for 55-hour weeks. Workers were paid a flat $100 daily rate despite often working 11-hour days and averaging 55 hours per week.
Two separate FLSA failures. The regular rate fell below the local minimum wage, and no overtime premium was paid for hours over 40 in a workweek.
~$83,000 per employee. Each of the six workers received roughly $83,000, an enormous liability for a small operation to absorb.
Audit flat-rate pay regularly. Track actual hours, verify the effective rate beats minimum wage, and add overtime; the DOL's PAID program lets employers self-correct early.