Hopefully the hostess and back of the house was tipped out with that 40%. It's also likely that 40% went into the owner's pocket though because that's totally legal! Since it was a non-negotiable service fee the DOL doesn't consider it gratuity (as gratuity is strictly optional) so they don't have to pass it on to their staff. I've seen this happen plenty of times, usually in the catering business, though not to the extent of 40%, usually around 5-10%.

> keeping 40% of it for the owner

Depending on the city and state, this could be illegal. I'd encourage you to ask the server if the 40% goes to the kitchen or the owner. If the latter, write a letter or make a call to your labour law enforcement group.

It's not illegal.

https://www.dol.gov/whd/regs/compliance/whdfs15.pdf

>A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer's gross receipts. Sums distributed to employees from service charges cannot be counted as tips received, but may be used to satisfy the employer's minimum wage and overtime obligations under the FLSA. If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in the application of the tip credit.

Hence my caveat, "depending on the city and state". For example, it's not allowed in California [1].

[1] http://www.tipcompliance.com/polLearningCenter.cfm?doc_id=89

> The implication is that... they're also screwing their employees by keeping 40% of it for the owner...

Probably not. In the restaurant I worked at was customary for the waiters to tip the kitchen and support staff. Owners were not tipped.

I doubt that the 40% goes to the owner, it probably goes to the kitchen staff.

Others have been willing to backtrack:

http://www.seattletimes.com/life/food-drink/seattle-restaura...