Editor’s note: This story has been updated to clarify the former owner of Smoky Hearth Restaurant Bar and Grill paid $17,000 to resolve a Fair Labor Standards Act violation. The restaurant’s new ownership was not involved in the Department of Labor’s dispute over back wages.

PORTLAND, Ore. (KOIN) — A Sandy restaurant paid the U.S. Department of Labor $17,087 in back wages, as well as $1,257 in civil penalties after claims it withheld customer tips to restaurant staff.

Labor Department investigators found Smoky Hearth Restaurant LLC, operator of Smoky Hearth Restaurant Bar and Grill at 16607 Champion Way, kept all tips earned by tipped employees to pay wages and other business expenses. The Labor Department says this is a violation of the Fair Labor Standards Act.

One of the restaurant’s owners told KOIN 6 News in an emailed statement that the move was actually part of a “fair plan” to keep the restaurant alive during the pandemic.

“Coming out of the pandemic, the shutdowns, and the employee shortage, we implemented a fair plan to pool tips for our employees,” Bonnie Gritsch said. “At no point did we take any of our employees’ tips or wages. We are proud our employees were paid significantly above the minimum wage.”

Investigators say the money is owed to eight employees.

In a prepared statement, Carrie Aguilar, the department’s Wage and Hour Division director for the Portland area, said they were “determined” to make sure employers don’t keep money that isn’t theirs.

“Customers’ tips to restaurant staff belong to those who earned them, such as servers, bartenders and other front-line workers. Any attempt by an employer to keep these tips is a labor law violation,” Aguilar said. “The U.S. Department of Labor is determined to protect workers’ rights to keep all their earnings, including tips, and prevent employers from paying wages with money that does not belong to them.”

Gritsch defended management’s actions though, telling KOIN 6 News they only settled with authorities because it was too expensive to fight it in court.

“We maintain that we did nothing wrong,” Gritsch said. “However, we settled the Department of Labor’s investigation to avoid long and costly litigation.”

Since that time, owners Bonnie and Mark Gritsch, sold the business.

“We are passing the torch and we are very excited for the new owners,” they said in a follow-up email.