S.D.Fla.: Where Defendant Demonstrated Subjective Component Of Good Faith, But Failed To Show Objective Good Faith, Liquidated Damages Appropriate

Wajcman v. Investment Corp. of Palm Beach

Following a verdict in favor of Plaintiffs, on their claims that Defendant violated the FLSA, by illegally allowing certain employees to share in the tip pooling, the issue before the Court was whether Defendant had presented sufficient evidence to demonstrate that its violation of the FLSA occurred in good faith and under the reasonable belief that it was compliant with the FLSA. Because, the Defendant were able to show only subjective good faith (consult with an attorney), the Court awarded full liquidated damages.

The Court explained, “To satisfy the good faith requirement, an employer must show that it acted with both subjective and objective good faith ( Rodriguez, 518 F.3d at 1272), and “upon such reasonable grounds that it would be unfair to impose upon [it] more than a compensatory verdict.” Bozeman v. Port-O-Tech Corp., 2008 WL 4371313, * 15 (S.D.Fla. Sept. 19, 2008)(quoting Joiner, 814 F.2d at 1538)). To demonstrate the subjective component, an employer must show that it had “an honest intention to ascertain what the FLSA requires and to act in accordance with those requirements.” Feniger v. Cafe Aroma, 2007 WL 853735, *3 (M.D.Fla. March 16, 2007)(citing Dybach v. State of Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991)). Proving the objective component of the good faith defense requires the employer to demonstrate that it had a reasonable belief that its conduct conformed with the FLSA. See Chao v. Tyson Foods, Inc., 568 F.Supp.2d 1300, 1322 (N.D.Ala.2008). If the employer can demonstrate that it had both a subjective belief that it was compliant with the FLSA and that it also had an objectively reasonable basis for its belief, then the Court may apply the safe harbor provision and limit or deny an award of liquidated damages. See Stevenson v. Orlando’s Auto Specialists, Inc., 2008 WL 4371830, *4 (M.D.Fla. Sept. 23, 2008). “Absent a showing of both the subjective and objective elements of the good faith defense, liquidated damages are mandatory.” Dybach v. State of Fla. Dept. of Corrections, 942 F.2d 1562, 566-67 (11th Cir.1991)(citation omitted ).

Here, with regard to the subjective component, the Court finds that Defendant has demonstrated that it had “an honest intention to ascertain what the FLSA requires and to act in accordance with those requirements.” Feniger v. Cafe Aroma, 2007 WL 853735, *3 (M.D.Fla. March 16, 2007)(citing Dybach v. State of Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991)). This finding is based on Ms. Lampman’s testimony that she consulted with attorneys, familiarized herself with the law, and ascertained the tip pooling practices of other cardrooms in the local area before implementing Defendant’s tip pool. These activities are sufficient to show that Defendant made some effort to “investigate potential liability under the FLSA.” Feniger, 2007 WL 853735 at *3 (quoting Barcellona v. Tiffany English Pub., Inc., 597 F.2d 464, 469 (5th Cir.1979)). Additionally, Ms. Lampman’s decision to include the floor supervisors in the tip pool, based on what she perceived to be their sufficient level of customer interaction, while excluding other positions that she believed did not have the requisite level of interaction with the patrons, demonstrates an intent to comply with the FLSA.

However, the Court finds that Defendant’s belief regarding its FLSA compliance was not objectively reasonable. First, there are a number of cases which suggest that an employee’s level of customer interaction is the most significant factor in evaluating whether he qualifies as a “tipped employee” under the FLSA. See Roussell v. Brinker Intern., Inc., 2008 WL 2714079 at *7, * 10 (S.D.Tex. July 9, 2008)(agreeing with the Sixth Circuit that the level of customer interaction is “highly relevant ” and that the extent of an employee’s interaction with customers is “critical ” in determining whether an employee may participate in a valid tip pool)(emphasis added)(citing Myers v. Copper Cellar Corp., 192 F .3d 546, 550 (6th Cir.1999); Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 300-02 (6th Cir.1998)). See also Morgan v. SpeakEasy, LLC, 2007 WL 2757170, * 18 (N.D.Ill. Sept. 20, 2007)(court focused on employees’ customer related activities to determine whether they were properly included in tip pool); Townsend v. BG-Meridian, Inc., 2005 WL 2978899, *7 (W.D.Okla. Nov. 7, 2005)(same).

Here, however, the bulk of the evidence before this Court suggests that the floor supervisors in Defendant’s cardroom had only de minimus customer interaction. Although the written job description mentions that floor supervisors will have “[d]aily contact with customers,” the evidence demonstrates that such contact did not rise to the level of customer interaction usually associated with a tipped employee. Indeed, the testimony at trial indicated that the floor supervisors’ interaction with customers was sporadic and only on an as-needed basis for dispute resolution or when hosts, chip runners or waitresses were unavailable. As their job description sets forth, the floor supervisors’ primary responsibility was to supervise the employees on the cardroom floor, which included assigning the dealers’ table rotations, their break times and ensuring employees’ compliance with the dress code.

Based on this testimony, the Court finds that Defendant overstated the customer interaction component of the floor supervisors’ duties to justify their inclusion in the tip pool. The Court further finds that Defendant underestimated the significance of the “customer interaction” test, relying too heavily on industry practice to support its decision to include the floor supervisors in the tip pool. This combination of errors resulted in Defendant’s grossly miscalculated conclusion that the floor supervisors were proper participants in the tip pool. Indeed, the jury’s verdict suggests that an average person outside the gaming industry would not agree with Defendant’s characterization of the floor supervisors as having significant customer interaction and such a skewed perception cannot be construed by this Court as objectively reasonable. See Kennedy v. Critical Intervention Services, Inc., 199 F.Supp.2d 1305, 1307-08 (M.D.Fla.2002)(although court found employer to have satisfied subjective good faith based on its investigation of the FLSA in an effort to avoid violating it, court found employer’s belief that it was compliant with the FLSA was not supported by the evidence and was not objectively reasonable; in reaching this conclusion court relied on jury’s verdict that plaintiff was not an exempt employee). See also Brandt v. Magnificent Quality Florals Corp., 2009 WL 899922, *3 (S.D.Fla. March 31, 2009) (even though employer was aware of FLSA overtime requirements, his belief that his employees never worked more than 40 hours was not supported by the evidence and, thus, was not objectively reasonable).”

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