Closing a restaurant is hard enough without discovering mid-process that you have legal obligations to your staff you didn't know existed. Most independent restaurant owners have no idea what they owe employees when they close -- not because they don't care, but because no one ever told them. This article covers what the law actually requires, what Texas law specifically says, and how to handle the conversation with your team in a way that doesn't make a hard situation worse.
The WARN Act: Do You Have to Give Notice?
The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more full-time employees to give 60 days advance written notice before a plant closing or mass layoff. For the overwhelming majority of independent restaurant owners, this law does not apply -- most independents run with well under 100 full-time employees.
However, if you operate multiple locations under the same legal entity and your combined full-time headcount approaches or exceeds 100, you need to check this carefully. The threshold is based on the employer entity, not the individual location. If you are unsure, a 30-minute call with an employment attorney is worth it before you announce anything.
Texas does not have a state-level mini-WARN Act, so if the federal threshold does not apply to you, there is no separate Texas notice requirement for closings.
Final Paychecks: What Texas Law Requires
This is where most restaurant owners get tripped up. Under the Texas Payday Law, the timing of final paychecks depends on how the employment ended:
| Situation | Final Paycheck Deadline |
|---|---|
| Employee is laid off or terminated | Within 6 calendar days of the date of separation |
| Employee quits without giving notice | On the next regularly scheduled payday |
| Employee gives at least 1 paycheck's notice | On the next regularly scheduled payday |
When you close a restaurant, your employees are being laid off -- not quitting. That means you have 6 calendar days from the date you let them go to issue final paychecks. This is not the next payroll cycle. It is 6 days.
Final pay must include all earned wages, including any accrued paid time off if your written policy says it is payable upon separation. If you have a policy that says unused PTO is forfeited at termination, that policy governs. If you have no written policy, the safer assumption is that accrued PTO is owed.
The Texas Workforce Commission enforces the Payday Law and can assess penalties and interest on late final wages. Do not miss this deadline.
COBRA: Health Insurance Continuation
If your restaurant offered group health insurance and had 20 or more employees, your employees have rights under COBRA to continue their health coverage for up to 18 months after the qualifying event. You are required to send COBRA election notices within 14 days of the qualifying event.
If you had fewer than 20 employees, federal COBRA does not apply. Texas does not have a state continuation law that mirrors COBRA for small employers.
In practice, most independent restaurant operators run with fewer than 20 employees and do not offer group health insurance, so COBRA is not a factor. But if you do offer coverage and you have 20 or more covered employees, this is a real obligation with real penalties for non-compliance.
Unemployment Insurance: What Your Employees Are Entitled To
Employees who are laid off through no fault of their own -- which is exactly what a restaurant closing is -- are generally eligible for Texas unemployment benefits through the Texas Workforce Commission. You do not need to do anything special to make this happen. Your employees simply need to file a claim.
What you should do: tell your employees directly that they should file for unemployment immediately after their last day. Many hourly restaurant workers do not know they are eligible or assume the process is too complicated. It is not. Filing takes about 20 minutes online.
Your unemployment insurance tax rate may increase after a layoff, but that is a secondary concern. The primary obligation is making sure your people know they have this option.
Accrued Tips and Service Charges
If your restaurant collected credit card tips and distributed them on a payroll cycle, any tips earned but not yet distributed must be paid on the final paycheck. Tips are wages under Texas law. This includes pooled tips that have been collected but not yet allocated.
Service charges -- the automatic gratuity added to large party checks -- are treated differently. They are the restaurant's revenue, not tips, unless your written policy designates them as employee wages. Check your policy and pay accordingly.
Severance: Are You Required to Pay It?
No. Texas and federal law do not require severance pay for restaurant employees. Severance is a voluntary payment. If you have a written severance policy or an employment contract that promises severance, you are bound by that agreement. If you do not, you are not legally required to pay it.
That said, offering a small severance -- even one week's pay for long-tenured employees -- is worth considering if your cash position allows it. It reduces the likelihood of wage claims, preserves goodwill in a community where your reputation matters, and is simply the right thing to do for people who showed up for you.
The Conversation With Your Team
How you tell your staff matters. The legal obligations above are the floor -- the minimum. How you handle the human side of this determines whether you leave the restaurant industry with your reputation intact.
A few principles that hold up:
Tell them in person, not by text or a note on the door. Gather the team before the last service or before the doors close for good. Be direct about what happened and why. Do not blame the economy, the landlord, or bad luck exclusively -- your team is smart enough to know the full picture is more complicated.
Give them as much notice as you can, even if you are not legally required to. Two weeks is better than two days. It lets them start looking for work while they still have income coming in.
Tell them what they will receive and when. Walk through the final paycheck timing, whether PTO is being paid out, and how to file for unemployment. Do not make them figure it out themselves.
If you can write a reference letter for key employees, offer to do it. A strong reference from a closing restaurant carries weight -- it tells the next employer that the employee's situation was about the business, not their performance.
For a more detailed guide on how to structure this conversation, see How to Tell Your Restaurant Staff You're Closing.
The Full Cost Picture
Final payroll -- including the 6-day deadline, accrued PTO, and tip payouts -- is one of the largest cash obligations in a restaurant closing. It often surprises owners who are focused on the lease and vendor payoffs.
According to the National Restaurant Association's workforce data, the average independent restaurant employs between 11 and 25 people. At an average hourly wage of $14 to $18 for kitchen and front-of-house staff, a two-week final payroll cycle for a 15-person team can run $15,000 to $25,000 before payroll taxes. That number needs to be in your closing budget before you make the final call.
For the full picture of what closing will cost -- including payroll, lease exit, equipment, and vendor obligations -- see What Does It Actually Cost to Close a Restaurant?
A Closing Checklist for Employee Obligations
- Determine your WARN Act status (100 or more full-time employees across all entities?)
- Calculate final payroll including all earned wages and accrued PTO per your written policy
- Issue final paychecks within 6 calendar days of the last day worked (Texas)
- Pay out all collected but undistributed credit card tips on the final check
- Send COBRA election notices within 14 days if applicable (20 or more employees with group health)
- Tell employees how to file for unemployment with the Texas Workforce Commission
- Offer reference letters to key employees
- Document everything -- keep records of final pay calculations and delivery dates
The Texas Workforce Commission Employer Handbook is the definitive reference for Texas-specific obligations. If you are outside Texas, your state labor authority will have equivalent guidance.
Closing a restaurant is one of the hardest things an owner goes through. Handling your employee obligations correctly -- legally and humanly -- is one of the few parts of the process you can control completely. Get it right.