Tag Archives: 29 U.S.C. § 203(m)

S.D.N.Y.: Existence of Arbitration Agreements for Some (Not All) Employees in Putative Class, Irrelevant re “Similarly Situated” Inquiry at Stage I

Romero v La Revise Associates, L.L.C.

This case was before the court on plaintiff’s motion for conditional certification. The case concerned allegations of impermissible tip credit, inadequate notice of same (under 203(m)), and other allegations of unpaid minimum wages. As further discussed here, defendants largely focused their attack on their twin contentions that the class proposed by plaintiff was not similarly situated to him and/or was too broad, because it contained English speakers (the plaintiff did not speak English) and employees and former employees who had signed arbitration agreements (the plaintiff did not). The court rejected both of these contentions, and reasoned that neither of these factors were appropriately considered at Stage I, the conditional certification stage.

Rejecting the defendant’s arguments in this regard, and holding that such issues were more properly reserved for Stage II or decertification analysis, the court reasoned:

The Court disagrees with defendants’ arguments. Case law imposes only a very limited burden on plaintiffs for purposes of proceeding as a conditional collective action. “[C]ourts have conditionally certified collective actions under the FLSA where plaintiffs, based on their firsthand observations, identify an approximate class of similarly situated individuals.” Hernandez v. Immortal Rise, Inc ., 2012 WL 4369746, at *4 (E.D.N.Y. Sept. 24, 2012). Here, Romero has done just that, stating in his declaration that he “personally observed … Defendants’ policy to pay below the statutory minimum wage rate to all tipped employees,” that he and other tipped employees were compensated “all at rates below the minimum wage,” that he has never seen a tipped employee “receive proper notice explaining what a tip credit is,” that he and other tipped employees had to spend more than 20% of their daily time in non-tipped related activities, that he observed defendants engaging in time-shaving, that he observed when employees were sent home without call-in pay if the restaurant was not busy, and that he “personally observed that all non-exempt employees received the same form of wage and hour notice.” Romero Decl. ¶¶ 2–9. The affidavit of a plaintiff attesting to the existence of similarly situated plaintiffs is sufficient for the purposes of a motion to approve a collective action. See Cheng Chung Liang v. J.C. Broadway Restaurant, Inc., 2013 WL 2284882, at *2–3 (S.D.N.Y. May 23, 2013) (“For the purposes of this motion, … plaintiffs’ evidence—in the form of [one employee's] affidavit—is sufficient to establish that … there may be class members with whom he is similarly situated.”). Thus, Romero has made a sufficient showing that he and potential plaintiffs “were victims of a common policy or plan that violated the law.” Hoffman, 982 F.Supp. at 261.

Defendants’ principal argument is that because other employees signed arbitration agreements, Romero is not similarly situated to these other employees. Def. Mem. at 6–14. Defendants assert that the claims here are “properly pursued solely in arbitration, on an individual basis, by all of Ruhlmann’s employees who signed such an agreement” and therefore that “Ruhlmann’s employees are dissimilar from Plaintiff Romero and must pursue any claims they may have in an arbitral forum rather than federal court.” Def. Mem. at 8–9. Romero challenges both the enforceability and the validity of these arbitration agreements. He argues that the agreements are not enforceable because they violate the fee-shifting provision of the FLSA. Reply at 6–7. Romero also argues that defendants caused several of these agreements to be signed by coercion, that it is highly likely that several employees did not actually sign arbitration agreements, and that the validity of the signatures on several agreements are questionable. Reply at 7–9; Pl. May 31 Letter at 2. Additionally, he asserts that the agreements are unenforceable because they limit the statute of limitations on employees’ claims to six months and because they were not provided to employees in their native language. Pl. Aug. 20 Letter at 2–3.

As already noted, the question on a motion to proceed as a collective action is whether the proposed plaintiffs are similarly situated “with respect to their allegations that the law has been violated.” Young, 229 F.R.D. at 54; accord Meyers, 624 F.3d at 555 (in conditional collective action approval, question is whether the proposed plaintiffs are similarly situated to the named plaintiffs “with respect to whether a FLSA violation has occurred”). The arbitration agreements do not create any differences between Romero and the proposed plaintiffs with respect to Romero’s claims that defendants have violated the FLSA. That is, the validity vel non of the agreements is unrelated to any claims of a violation of the FLSA. Under this reasoning, the existence of differences between potential plaintiffs as to the arbitrability of their claims should not act as a bar to the collective action analysis. Indeed, courts have consistently held that the existence of arbitration agreements is “irrelevant” to collective action approval “because it raises a merits-based determination.” D’Antuono v. C & G of Groton, Inc., 2011 WL 5878045, at *4 (D.Conn. Nov. 23, 2011) (citing cases); accord Hernandez, 2012 WL 4369746, at *5;Salomon v. Adderly Indus., Inc., 847 F.Supp.2d 561, 565 (S.D.N.Y.2012) (“The relevant issue here, however, is not whether Plaintiffs and [potential opt-in plaintiffs] were identical in all respects, but rather whether they were subjected to a common policy to deprive them of overtime pay ….”) (alteration in original) (internal citation and quotation marks omitted).

In support of its argument that the existence of arbitration agreements merits denial of collective action approval, defendants make arguments about the eventual enforceability of the arbitration agreements and rely on cases in which courts granted motions to dismiss and compel arbitration because of such agreements. See Def. Mem. at 6–7. Critically, defendants do not even address the cases holding that consideration of the validity of arbitration agreements is inappropriate in the context of a motion to approval an FLSA collective action. The situation here is thus akin to the situation in Raniere v. Citigroup Inc., 827 F.Supp.2d 294 (S.D .N.Y.2011), rev’d on other grounds, 2013 WL 4046278 (2d Cir.2013), in which the court remarked:

Defendants have failed to cite a single authority finding that due to the possibility that members of the collective [action] might be compelled to bring their claims in an arbitral forum, certification is not appropriate. Such arguments are best suited to the second certification stage, where, on a fuller record, the court will examine whether the plaintiffs and opt-ins are in fact similarly situated.

Id. at 324.

Defendants’ strongest argument is that “[i]t would be a waste of judicial and party resource to force defendants” to send notice to individuals ultimately bound to arbitrate claims. Def. June 4 Letter at 3. But the notice requirement is not unduly burdensome in this case and the defendants’ proposal essentially amounts to an invitation for the Court to adjudicate the validity of the arbitration agreements. But, as already noted, case law makes clear that this sort of merits-based determination should not take place at the first stage of the conditional collective action approval process. Plaintiff has raised at least colorable arguments to support the invalidity or unenforceability of the arbitration agreements, some of which are fact-intensive. Case law holds, however, that issues of fact surrounding arbitration agreements are properly resolved at the second stage of the two-step inquiry. D’Antuono, 2011 WL 5878045, at *5; accord Salomon, 847 F.Supp.2d at 565 (“[A] fact-intensive inquiry is inappropriate at the notice stage, as Plaintiffs are seeking only conditional certification.”) (citing cases); Ali v. Sugarland Petroleum, 2009 WL 5173508, at *4 (S.D.Tex. Dec. 22, 2009) (“The Court will make the determination [of whether to exclude those who signed arbitration agreement from the class] at the conclusion of discovery, when it may properly analyze the validity of the arbitration agreement.”). Defendants not only fail to distinguish these cases, they do not even proffer any argument as to why the reasoning of these cases is wrong.

Defendants have submitted evidence contradicting Romero’s claim that he is similarly situated to other employees with respect to other aspects of his claims, such as his understanding of the tip credit. See Collin Decl. ¶ 9. However, “the two-stage certification process exists to help develop the factual record, not put an end to an action on an incomplete one.” Griffith v. Fordham Fin. Mgmt., Inc., 2013 WL 2247791, at *3 (S.D.N.Y. May 22, 2013) (granting collective action approval where defendant had put forth “contravening evidence”) (emphasis omitted) (internal citations and quotation marks omitted). For these reasons, Romero’s motion for conditional approval of a collective action is granted.

Click Romero v La Revise Associates, L.L.C. to read the court’s entire Opinion & Order.

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D.Colo.: “Expeditor” Proper Participant in Restaurant’s Tip Pool

Giuffre v. Marys Lake Lodge, LLC

This case was before the court on the defendant’s motion for summary judgment. At issue was whether its tip pool- which included its “expeditors”- complied with the FLSA. Holding that the defendant-restaurant was entitled to include the expeditor in the tip pool, the court reasoned that: (1) the expeditor was properly deemed a “front-of-the-house” employee with requisite duties to be deemed a “tipped employee;” (2) the expeditor was not an “employer” under the FLSA; and (3) the defendant had properly put plaintiff on notice of its intention to take the tip credit. Thus, the court granted the defendant’s motion.

Briefly discussing the chief issue of interest, the court explained:

MLL utilized the expeditor position on busy nights to assist in its restaurant. Defendants contend that the expeditor is a “front of the house” position that falls within the definition of a “tipped employee” for purposes of the FLSA, thus barring plaintiff’s claim that the tip credit is invalidated by the sharing requirement. See Roussell v. Brinker Int’l, Inc., 441 F. App’x 222, 231 (5th Cir.2011) (“Customarily, front-of-the-house staff like servers and bartenders receive tips. Back-of-the-house staff like cooks and dishwashers do not, and thus cannot participate in a mandatory tip pool.”). In arguing about whether the expeditor could share in tips, the parties focus on the position’s level of interaction with customers. See id. (“Direct customer interaction is relevant because it is one of the factors distinguishing these two categories of workers.”); see Townsend v.. BG–Meridian, Inc., 2005 WL 2978899, at *6 (W.D.Okla. Nov. 7, 2005) (“The cases that have considered whether a given occupation falls within the definition of a tipped employee have focused on the level of customer interaction involved in that occupation.”).

Plaintiff admits that, during the time he worked at MLL, the expeditor position was usually filled by Mikilynn Wollett. See Docket No. 64 at 3, ¶ 8; Docket No. 92 at 3, ¶ 8. Ms. Wollett descibes the expeditor as a “front of the house” position with the following responsibilities: “checking the plates as they come out from the kitchen cooks to make sure they match the tickets; placing the food on the serving trays; taking the serving trays to the tables and delivering the food to customers; checking in with customers about their meals and exchanging food if the customer has [a] complaint; refilling beverages; chatting with customers; and assisting the wait staff in any other way necessary.” Docket No. 64 –1 at 2, ¶¶ 1–2. According to Ms. Wollett, the “position is very similar to that of a waiter, and the attire is nearly identical, but the expeditor/food runner does not take the customers’ orders.” Id. at 1, ¶ 2.

Curiously, the court appears to have resolved factual issues with regard to the alleged duties of the expeditor and simply rejected plaintiff’s proffered evidence in that regard. As such, the court seemed to imply that with a stronger factual record- supported by testimony other than that of the named-plaintiff alone- it may have reached a different result, at least at the summary judgment stage. Thus, it’s not clear how much precedential value this case will have, if any.

Click Giuffre v. Marys Lake Lodge, LLC to read the entire Order.

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8th Cir.: DOL’s 20% Rule, As Applicable to Tipped Employees Entitled to “Chevron” Deference; Relaxed Evidentiary Burden on Employees, Where Employer Failed to Maintain Proper Records Distinguishing Between Tipped and Non-Tipped Duties

Fast v. Applebee’s International, Inc.

This case was before the Eighth Circuit on Applebee’s interlocutory appeal of the district court’s denial of its motion for summary judgment.  The primary issue in the case was how to properly apply the “tip credit” to employees whom both sides agree are “tipped employees” but who perform both tipped and non-tipped (dual) jobs for the employer.  Relying on 29 C.F.R. § 531.56(e), the district court applied the so-called 20% rule promulgated by the D.O.L., requiring an employer to pay a tipped employee regular minimum wage to employees who spend more than 20% of their work time in a given week performing non-tipped duties.  Applebee’s challenged the ruling and asserted that the “dual job” regulations were inconsistent with 29 U.S.C. § 203(m) or the FLSA.  Affirming the decision below, the Eighth Circuit held that the D.O.L.’s regulations were entitled to “Chevron” deference and explained:

“Applebee’s argues that neither the statute nor the regulation places a quantitative limit on the amount of time a tipped employee can spend performing duties related to her tipped occupation (but not themselves tip producing) as long as the total tips received plus the cash wages equal or exceed the minimum wage. The regulation, to which we owe Chevron deference, makes a distinction between an employee performing two distinct jobs, one tipped and one not, and an employee performing related duties within an occupation “part of [the] time” and “occasionally.” § 531.56(e). By using the terms “part of [the] time” and “occasionally,” the regulation clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation.  “Occasionally” is defined as “now and then; here and there; sometimes.” Webster’s Third New Int’l Unabridged Dictionary 1560 (1986); see also United States v. Hackman, 630 F.3d 1078, 1083 (8th Cir. 2011) (using dictionary to determine ordinary meaning of a term used in the commentary to the United States Sentencing Guidelines). The term “occasional” is also used in other contexts within the FLSA, such as in § 207, which allows a government employee to work “on an occasional or sporadic basis” in a different capacity from his regular employment without the occasional work hours being added to the regular work hours for calculating overtime compensation. See 29 U.S.C. § 207(p)(2). The DOL’s regulation defines occasional or sporadic to mean “infrequent, irregular, or occurring in scattered instances.” 29 C.F.R. § 553.30(b)(1). Thus, the DOL’s regulations consistently place temporal limits on regulations dealing with the term “occasional.”

A temporal limitation is also consistent with the majority of cases that address duties related to a tipped occupation. The length of time an employee spends performing a particular “occupation” has been considered relevant in many cases. For example, even when the nontip-producing duties are related to a tipped occupation, if they are performed for an entire shift, the employee is not engaged in a tipped occupation and is not subject to the tip credit for that shift. See, e.g., Myers v. Copper Cellar Corp., 192 F.3d 546, 549-50 (6th Cir. 1999) (noting that 29 C.F.R. § 531.56(e) “illustrat[es] that an employee who discharges distinct duties on diverse work shifts may qualify as a tipped employee during one shift” but not the other and holding that servers who spent entire shifts working as “salad preparers” were employed in dual jobs, even though servers prepared the very same salads when no salad preparer was on duty, such that including salad preparers in a tip pool invalidated the pool); Roussell v. Brinker Int’l, Inc., No. 05-3733, 2008 WL 2714079, **12-13 (S.D. Tex. 2008) (employees who worked entire shift in Quality Assurance (QA) were not tipped employees eligible to be included in tip pool even though servers performed QA duties on shifts when no QA was working; court “agrees that such work likely can be considered incidental to a server’s job when performed intermittently,” but distinguished full shifts). The same is true of nontipped duties performed during distinct periods of time, such as before opening or after closing. See Dole v. Bishop, 740 F. Supp. 1221, 1228 (S.D. Miss. 1990) (“Because [the] cleaning and food preparation duties [performed for substantial periods of time before the restaurant opened] were not incidental to the waitresses’ tipped duties, the waitresses were entitled to the full statutory minimum wage during these periods of time.”).  Conversely, where the related duties are performed intermittently and as part of the primary occupation, the duties are subject to the tip credit. See, e.g., Pellon v. Bus. Representation Int’l, Inc., 528 F. Supp. 2d 1306, 1313 (S.D. Fla. 2007) (rejecting skycap employees’ challenge to use of the tip credit where “the tasks that allegedly violate the minimum wage are intertwined with direct tip-producing tasks throughout the day”), aff’d, 291 F. Appx. 310 (11th Cir. 2008).

Because the regulations do not define “occasionally” or “part of [the] time” for purposes of § 531.56(e), the regulation is ambiguous, and the ambiguity supports the DOL’s attempt to further interpret the regulation. See Auer, 519 U.S. at 461. We believe that the DOL’s interpretation contained in the Handbook—which concludes that employees who spend “substantial time” (defined as more than 20 percent) performing related but nontipped duties should be paid at the full minimum wage for that time without the tip credit—is a reasonable interpretation of the regulation. It certainly is not “clearly erroneous or inconsistent with the regulation.” Id. The regulation places a temporal limit on the amount of related nontipped work an employee can do and still be considered to be performing a tipped occupation. The DOL has used a 20 percent threshold to delineate the line between substantial and nonsubstantial work in various contexts within the FLSA. For example, an “employee employed as seaman on a vessel other than an American vessel” is not entitled to the protection of the minimum wage or overtime provisions of the FLSA. See 29 U.S.C. § 213(a)(12). The DOL recognized that seamen serving on such a vessel sometimes perform nonseaman work, to which the FLSA provisions do apply, and it adopted a regulation that provides that a seaman is employed as an exempt seaman even if he performs nonseaman work, as long as the work “is not substantial in amount.” 29 C.F.R. § 783.37. “[S]uch differing work is ‘substantial’ if it occupies more than 20 percent of the time worked by the employee during the workweek.” Id. Similarly, an employee employed in fire protection or law enforcement activities may perform nonexempt work without defeating the overtime exemption in 29 U.S.C. § 207(k) unless the nonexempt work “exceeds 20 percent of the total hours worked by that employee during the workweek.” 29 C.F.R. § 553.212(a). And an individual providing companionship services as defined in 29 U.S.C. § 213(a)(15) does not defeat the exemption from overtime pay for that category of employee by performing general household work as long as “such work is incidental, i.e., does not exceed 20 percent of the total weekly hours worked.” 29 C.F.R. § 552.6. The 20 percent threshold used by the DOL in its Handbook is not inconsistent with § 531.56(e) and is a reasonable interpretation of the terms “part of [the] time” and “occasionally” used in that regulation.”

Determining that the issue was not properly before it, the court declined to answer the question of what duties are incidental to the tipped employee duties and what duties are not, stating:

“We note that the parties dispute which specific duties are subject to the 20 percent limit for related duties in a tipped occupation and which duties are the tip producing part of the server’s or bartender’s tipped occupation itself. The regulation lists activities such as “cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses” as “related duties in . . . a tipped occupation.”  § 531.56(e). The Handbook repeats these examples and states that the 20 percent limit applies to “general preparation work or maintenance.” (Appellant’s Add. at 32,  DOL Handbook § 30d00(e).) Although the district court stated that “it was for the Court to decide what duties comprise the occupation of a server or bartender” (Dist. Ct. Order at 6 n.3), the order under review did not do so and concluded only that “[e]mployees may be paid the tipped wage rate for performing general preparation and maintenance duties, so long as those duties consume no more than twenty percent of the employees’ working time” (id. at 15). To the extent that questions remain concerning which duties the 20 percent rule applies to, those issues are beyond the scope of this interlocutory appeal, and we do not address them. We hold only that the district court properly concluded that the Handbook’s interpretation of § 531.56(e) governs this case.”

Lastly, citing the Supreme Court’s Mt. Clemens decision, the court held that the “recordkeeping rule” applies in situations where the employer fails to maintain sufficient records to distinguish between time spent performing tipped duties and non-tipped duties.

Click Fast v. Applebee’s International, Inc. to read the entire decision.

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9th Cir.: Tip Pool That Required Tipped Employees To Share Tips With Non-Tipped Employees Did Not Violate FLSA, Because Restaurant Paid Tipped Employees Cash Wages In Excess Of Minimum Wage And Did Not Claim Tip Credit

Cumbie v. Woody Woo, Inc.

This case was before the Ninth Circuit to decide whether a restaurant violates the Fair Labor Standards Act, when, despite paying a cash wage greater than the minimum wage, it requires its wait staff to participate in a “tip pool” that redistributes some of their tips to the kitchen staff.  The Court ruled that such a tip sharing arrangement does not violate the FLSA.

Describing the tip pool at issue, the Court said, “[Plaintiff] worked as a waitress at the Vita Café in Portland, Oregon, which is owned and operated by Woody Woo, Inc., Woody Woo II, Inc., and Aaron Woo (collectively, “Woo”). Woo paid its servers a cash wage at or exceeding Oregon’s minimum wage, which at the time was $2.10 more than the federal minimum wage. In addition to this cash wage, the servers received a portion of their daily tips. Woo required its servers to contribute their tips to a “tip pool” that was redistributed to all restaurant employees .  The largest portion of the tip pool (between 55% and 70%) went to kitchen staff (e.g., dishwashers and cooks), who are not customarily tipped in the restaurant industry. The remainder (between 30% and 45%) was returned to the servers in proportion to their hours worked.”

The Court below dismissed Plaintiff’s Complaint on Defendant’s 12(b)(6) Motion, holding that Plaintiff failed to state a claim for minimum wages, because she acknowledges she was paid in excess of minimum wage, but challenged the legality of Defendant’s tip pool nonetheless.  This appeal ensued.

“On appeal, [Plaintiff] argue[d] that because Woo’s tip pool included employees who are not ‘customarily and regularly tipped employees,’ 29 U.S.C. § 203(m), it was ‘invalid’ under the FLSA, and Woo was therefore required to pay her the minimum wage plus all of her tips. Woo argue[d] that Cumbie’s reading of the FLSA is correct only vis-à-vis employers who take a ‘tip credit’ toward their minimum-wage obligation. See id.”  Defendant, argued that, “[b]ecause [it] did not claim a ‘tip credit,’ it contends that the tip-pooling arrangement was permissible so long as it paid her the minimum wage, which it did.”

Affirming the lower Court’s decision, finding the pay policy at issue to be legal, the Ninth Circuit discussed the applicable law:

“Williams establishes the default rule that an arrangement to turn over or to redistribute tips is presumptively valid. Our task, therefore, is to determine whether the FLSA imposes any “statutory interference” that would invalidate Woo’s tip-pooling arrangement. The question presented is one of first impression in this court.

Under the FLSA, employers must pay their employees a minimum wage. See29 U.S.C. § 206(a). The FLSA’s definition of “wage” recognizes that under certain circumstances, employers of “tipped employees” may include part of such employees’ tips as wage payments. See id.§ 203(m). The FLSA provides in relevant part:

In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee’s employer shall be an amount equal to- (1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and (2) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.

The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips. Id.

We shall unpack this dense statutory language sentence by sentence. The first sentence states that an employer must pay a tipped employee an amount equal to (1) a cash wage of at least $2.13, plus (2) an additional amount in tips equal to the federal minimum wage minus such cash wage.  That is, an employer must pay a tipped employee a cash wage of at least $2.13, but if the cash wage is less than the federal minimum wage, the employer can make up the difference with the employee’s tips (also known as a “tip credit”). The second sentence clarifies that the difference may not be greater than the actual tips received. Therefore, if the cash wage plus tips are not enough to meet the minimum wage, the employer must “top up” the cash wage. Collectively, these two sentences provide that an employer may take a partial tip credit toward its minimum-wage obligation.  See29 U.S.C. §§ 203(m), 206(a)(1) (1996).

The third sentence states that the preceding two sentences do not apply (i.e., the employer may not take a tip credit) unless two conditions are met. First, the employer must inform the employee of the tip-credit provisions in section 203(m). Second, the employer must allow the employee to keep all of her tips, except when the employee participates in a tip pool with other customarily tipped employees.

Cumbie argues that under section 203(m), an employee must be allowed to retain all of her tips-except in the case of a “valid” tip pool involving only customarily tipped employees-regardless of whether her employer claims a tip credit. Essentially, she argues that section 203(m) has overruled Williams, rendering tip-redistribution agreements presumptively invalid. However, we cannot reconcile this interpretation with the plain text of the third sentence, which imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees. A statute that provides that a person must do X in order toachieve Y does not mandate that a person must do X, period.

If Congress wanted to articulate a general principle that tips are the property of the employee absent a “valid” tip pool, it could have done so without reference to the tip credit. “It is our duty to give effect, if possible, to every clause and word of a statute.” United States v. Menasche, 348 U.S. 528, 538-39 (1955) (internal quotation marks omitted). Therefore, we decline to read the third sentence in such a way as to render its reference to the tip credit, as well as its conditional language and structure, superfluous. 

Here, there is no question that Woo’s tip pool included non-customarily tipped employees, and that Cumbie did not retain all of her tips because of her participation in the pool. Accordingly, Woo was not entitled to take a tip credit, nor did it. See Richard v. Marriott Corp., 549 F.2d 303, 305 (4th Cir.1977) (“[I]f the employer does not follow the command of the statute, he gets no [tip] credit.”). Since Woo did not take a tip credit, we perceive no basis for concluding that Woo’s tippooling arrangement violated section 203(m).

Recognizing that section 203(m) is of no assistance to her, Cumbie disavowed reliance on it in her reply brief and at oral argument, claiming instead that “[t]he rule against forced transfer of tips actually originates in the minimum wage section of the FLSA, 29 U.S.C. § 206.” Section 206 provides that “[e]very employer shall pay to each of his employees … wages” at the prescribed minimum hourly rate. Id. § 206(a).

While section 206 does not mention tips, let alone tip pools, Cumbie maintains that a Department of Labor (“DOL”) regulation elucidates the meaning of the term “pay” in such a way as to prohibit Woo’s tip-pooling arrangement. She refers to the regulation which requires that the minimum wage be “paid finally and unconditionally or ‘free and clear,’ “ and forbids any “ ‘kick [ ]-back’ … to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.” 29 C.F.R. § 531.35. The “free and clear” regulation provides as an example of a prohibited kick-back a requirement that an employee purchase tools for the job, where such purchase “cuts into the minimum or overtime wages required to be paid him under the Act.” Id.

According to Cumbie, her forced participation in the “invalid” tip pool constituted an indirect kick-back to the kitchen staff for Woo’s benefit, in violation of the free-and-clear regulation. As she sees it, the money she turned over to the tip pool brought her cash wage below the federal minimum in the same way as the tools in the regulation’s example. The Secretary of Labor agrees, asserting that “if the tipped employees did not receive the full federal minimum wage plus all tips received, they cannot be deemed under federal law to have received the minimum wage ‘free and clear,’ and the money diverted into the invalid tip pool is an improper deduction from wages that violates section [20]6 of the Act.”

Cumbie acknowledges that the applicability of the “free and clear” regulation hinges on “whether or not the tips belong to the servers to whom they are given.” This question brings us back to section 203(m), which we have already determined does not alter the default rule in Williams that tips belong to the servers to whom they are given only “in the absence of an explicit contrary understanding” that is not otherwise prohibited. 315 U.S. at 397. Hence, whether a server owns her tips depends on whether there existed an agreement to redistribute her tips that was not barred by the FLSA.

Here, such an agreement existed by virtue of the tippooling arrangement. The FLSA does not restrict tip pooling when no tip credit is taken. Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her, and her contributions to the pool did not, and could not, reduce her wages below the statutory minimum. We reject Cumbie and the Secretary’s interpretation of the regulation as plainly erroneous and unworthy of any deference, see Auer v. Robbins, 519 U.S. 452, 461 (1997), and conclude that Woo did not violate section 206 by way of the “free and clear” regulation.

Finally, Cumbie argues against the result we reach because “[a]s a practical matter, it nullifies legislation passed by Congress.” Her argument, as we understand it, is that Woo is functionally taking a tip credit by using a tip-pooling arrangement to subsidize the wages of its non-tipped employees. The money saved in wage payments is more money in Woo’s pocket, which is financially equivalent to confiscating Cumbie’s tips via a section 203(m) tip credit (with the added benefit that this “de facto” tip credit allows Woo to bypass section 203(m)‘s conditions).

Even if Cumbie were correct, “we do not find [this] possibility … so absurd or glaringly unjust as to warrant a departure from the plain language of the statute.” Ingalls Shipbuilding, Inc. v. Dir., Office of Workers’ Comp. Programs, 519 U.S. 248, 261 (1997). The purpose of the FLSA is to protect workers from “substandard wages and oppressive working hours.” Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981) (citing 29 U.S.C. § 202(a)). Our conclusion that the FLSA does not prohibit Woo’s tip-pooling arrangement does not thwart this purpose. Cumbie received a wage that was far greater than the federally prescribed minimum, plus a substantial portion of her tips. Naturally, she would prefer to receive all of her tips, but the FLSA does not create such an entitlement where no tip credit is taken. Absent an ambiguity or an irreconcilable conflict with another statutory provision, “we will not alter the text in order to satisfy the policy preferences” of Cumbie and amici. Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 462 (2002).

The Supreme Court has made it clear that an employment practice does not violate the FLSA unless the FLSA prohibits it. Christensen v. Harris County, 529 U.S. 576, 588 (2000). Having concluded that nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken, we perceive no statutory impediment to Woo’s practice. Accordingly, the judgment of the district court is affirmed.”

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5th Cir.: FLSA Does Not Require Employer To Reimburse H-2B Visa Workers’ Recruitment, Transportation or Visa Expenses, Absent Showing of “Kick-Back” To Recruiter

CASTELLANOS-CONTRERAS v. DECATUR HOTELS LLC

The aftermath of Hurricane Katrina required New Orleans hotelier Decatur Hotels, L.L.C. (“Decatur”) to look to foreign sources of labor. A group of these employees (collectively, the “guest workers”), who held H-2B visas while working for Decatur, contend that Decatur violated the Fair Labor Standards Act (“FLSA”) by paying them less than minimum wage, free and clear, when Decatur refused to reimburse them for recruitment, transportation, and visa expenses that they incurred before relocating to the United States to work for Decatur.

Decatur filed a motion to dismiss and/or for summary judgment, and the guest workers filed a cross-motion for summary judgment. The district court denied Decatur’s motion, granted the guest workers’ motion in part, and certified its order for interlocutory appeal. A motions panel of this court authorized Decatur to file an interlocutory appeal. In this interlocutory appeal under 28 U.S.C. § 1292(b), Decatur raised three issues of first impression for this court: whether, under the FLSA, an employer must reimburse guest workers for (1) recruitment expenses, (2) transportation expenses, or (3) visa expenses, which the guest workers incurred before relocating to the employer’s location. The 5th Circuit held that the FLSA does not require an employer to reimburse any of these expenses, and reversed the district court’s order, and rendered judgment in favor of Decatur. The Court discussed each of the three reimbursement claims (recruitment costs, transportation and visa expenses) and found that none created a FLSA obligation on behalf of the employer.

“The guest workers contend that they are entitled to reimbursement because, under 29 U.S.C. § 203(m), the expenses they incurred are de facto deductions from cash wages received for their first week of work, leaving a balance owed them by Decatur. In other words, they liken these expenses (in an inverse way) to employer-furnished “facilities,” such as room and board, which the employer may deduct from an employee’s wages; only here, the guest workers contend that Decatur must reimburse them for expenses that they incurred before their first workweek began.

Section 203(m) defines wages as cash or “the reasonable cost … to the employer of furnishing [the] employee with board, lodging, or other facilities, if such board, lodging, or other facilities are customarily furnished by such employer to his employees.” (Emphasis added.) The provision’s plain language thus permits employers flexibility in the method of paying employees. This section of the FLSA, contrary to the guest workers’ suggestion, does not impose liability upon employers for expenses that employees incur. See Donovan v. Miller Props., Inc., 711 F.2d 49, 50 (5th Cir.1983) (per curiam) (“[S]ection 3(m) of the Fair Labor Standards Act, 29 U.S.C. § 203(m), … allows an employer to credit toward its obligation to pay the minimum wage ‘the reasonable cost … of furnishing [an] employee with board, lodging, or other facilities’ ….”) (emphasis added). Section 203(m) provides no ground for Decatur to have violated the FLSA by refusing to reimburse the guest workers for recruitment, transportation, and visa expenses that they incurred.

We thus turn to the argument that Decatur’s failure to pay these pre-employment expenses encumbered the guest workers’ wages, so that Decatur did not pay the wages “finally and unconditionally or ‘free and clear’ “:

Whether in cash or in facilities, “wages” cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or “free and clear.” The wage requirements of the Act will not be met where the employee “kicks-back” directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee. This is true whether the “kick-back” is made in cash or in other than cash. For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer’s particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act.
29 C.F.R. § 531.35.

The above-quoted regulation does not define when an employee-incurred expense constitutes a kick-back. Our precedents, however, clarify that an employer-imposed condition of employment is a kick-back if it “tend[s] to shift part of the employer’s business expense to the employees.” Mayhue’s Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1199 (5th Cir.1972).

We now consider whether, under 29 C.F.R. § 531.35, the guest workers are entitled to reimbursement of their recruitment, transportation, or visa expenses.

We begin with the visa expenses. Although § 531.35 does not specifically address employers’ obligation to reimburse guest workers for these expenses, other regulations clarify that employee-paid expenses to obtain H-2B visas more properly belong to the guest worker than to the employer. See
22 C.F.R. §§ 40.1( l )(1) (requiring nonimmigrant visa applicants, such as the guest workers here, to submit processing fees when they apply for visas). The expense of applying to become a sponsoring employer of H-2B employees, by contrast, more properly belongs to the employer. See
8 C.F.R. §§ 103.7(a), 103.7(b)(1), 214.2(h)(2)(i)(A) (requiring, collectively, that a U.S. employer submit certain forms and filing fees to become an H-2B visa sponsor). These regulations, which assign H-2B visa processing fees to visa applicants and H-2B sponsorship-application fees to employers, show that requiring the guest workers to bear the visa expenses at issue did not tend to shift part of Decatur’s business expense to the guest workers. We hold that Decatur has no FLSA responsibility to reimburse the guest workers for the visa expenses that the employees incurred.

We next consider the transportation expenses. For many years, the Department of Labor interpreted the FLSA and its implementing regulations as requiring employers to bear guest workers’ inbound transportation expenses. See Wage & Hour Div. Op. Ltr., 1990 DOLWH LEXIS 1, at *3 (June 27, 1990) (“Under the FLSA, it has always been the position of the Department of Labor that no deduction, that cuts into the minium wage, may be made for transportation of workers from the point of hire and return to that point…. [S]uch transportation costs [are] primarily for the benefit of the employer.”). The agency, however, has called this interpretation into question. See Labor Certification Process and Enforcement for Temporary Employment in Occupations Other Than Agriculture or Registered Nursing in the United States (H-2B Workers), and Other Technical Changes, 73 Fed.Reg. 78020, 78041 (Dec. 19, 2008) (“[T]he cost[ ] of relocation to the site of the job opportunity generally is not an ‘incident’ of an H-2B worker’s employment within the meaning of 29 CFR 531.32, and is not primarily for the benefit of the H-2B employer.”); Withdrawal of Interpretation of the Fair Labor Standards Act Concerning Relocation Expenses Incurred by H-2A and H-2B Workers, 74 Fed.Reg. 13261, 13262 (Mar. 26, 2009) (“DOL believes that this issue warrants further review. Consequently … DOL withdraws the [December 19, 2008,] FLSA interpretation … for further consideration and the interpretation may not be relied upon as a statement of agency policy ….” (footnote omitted)); see also De Luna-Guerrero v. N.C. Grower’s Ass’n, 338 F.Supp.2d 649, 659 (E.D.N.C.2004) (“[T]he issue [of an employer's liability for transportation expenses] has been under review by the DOL…. DOL’s policy regarding de facto deductions [of transportation expenses] is anything but clear.”); Rivera v. Brickman Group, Ltd., 2008 U.S. Dist. LEXIS 1167, at *37-39 (E.D.Pa. Jan. 7, 2008) (“The DeLuna-Guerrero court refused to rely on the opinion letters because it believed the Department of Labor’s position to be too unclear. I agree, and in so doing, I note that the Department of Labor’s position is not merely unclear, but untenable. * * * Given the apparent (and now more than thirteen-year-old) incoherence at the Department of Labor with regard to this issue, I am not persuaded that I should accord the older opinion letters any significant weight [under Auer v. Robbins, 519 U.S. 452 (1997), or Skidmore v. Swift & Co., 323 U.S. 134 (1944) ].”).

We agree with the Rivera court that Auer deference to the DOL’s older interpretation seems inappropriate. Furthermore, inasmuch as the DOL never fully explained why it adopted that interpretation in the first place, we agree with the Eleventh Circuit that Skidmore deference seems inappropriate. See Arriaga v. Fla. Pac. Farms, 305 F.3d 1228, 1239 (11th Cir.2002) ( “Because of this lack of explanation, it is impossible to weigh the ‘validity of its reasoning’ or the ‘thoroughness [ ] in its consideration.’ ” (quoting Skidmore, 323 U.S. at 140) (alteration in original)). Relying on case law that defers to the interpretation similarly seems inappropriate, and thus we can accord no weight to the guest workers’ cited authorities such as Marshall v. Glassboro Service Ass’n, 1979 U.S. Dist. LEXIS 9053, at *6 (D.N.J. Oct. 19, 1979); and Torreblanca v. Naas Foods, Inc., 1980 U.S. Dist. LEXIS 13893, at *13 (N.D.Ind. Feb. 25, 1980).

As is the case with visa expenses, the regulation addressing employer kick-backs does not specify whether an H-2B guest worker’s inbound transportation expenses belong more properly to the employer or to the guest worker. Other statutory and regulatory provisions may guide this determination.

Two provisions have some relevance. Under the Immigration and Nationality Act, an H-2B guest worker’s outbound transportation expenses sometimes belong to the employer. See 8 U.S.C. § 1184(c)(5)(A).FN4 Under U.S. Citizenship and Immigration Service regulations, an H-2A agricultural guest worker’s inbound transportation expenses sometimes belong to the employer. See 20 C.F.R. § 655.102(b)(5)(i). No provision, however, requires an employer to bear an H-2B guest worker’s inbound transportation expenses. We find silence in this context indicative that Congress most likely did not intend for the employer to bear H-2B guest workers’ inbound transportation expenses.FN5

The guest workers do cite two cases which, without relying on the DOL’s now-unclear FLSA interpretation, hold that employers must bear guest workers’ inbound transportation expenses. See Arriaga, 305 F.3d at 1244 (11th Cir.2002); Rivera, 2008 U.S. Dist. LEXIS 1167, at *42-44. Arriaga involves H-2A guest workers. It holds that employers must bear guest workers’ inbound transportation expenses because the expenses are “incident of and necessary to” the guest workers’ employment. See 305 F.3d at 1241-44. We find Arriaga distinguishable insofar as its analysis derives from the case’s H-2A, as opposed to H-2B, origins. Arriaga also is distinguishable because its “incident of and necessary to” standard originates from 29 C.F.R. § 531.32 instead of § 531.35. Section 531.32 implements 29 U.S.C. § 203(m); and, as we have said, our Donovan precedent from 1983 informs us that, under Fifth Circuit law, § 203(m) imposes no obligation on employers to bear employee-incurred expenses. We will not follow Arriaga.

Rivera essentially does follow Arriaga, albeit in the H-2B context. Rivera quotes 29 C.F.R. § 531.35 at length, 2008 U.S. Dist. LEXIS 1167, at *36-37, but ultimately decides the issue of transportation expenses under 29 U.S.C. § 203(m): “point-of-hire transportation is primarily for the employer’s benefit, both because it is dissimilar to lodging and board, and because the expense arises out of Brickman’s decision actively to recruit workers in foreign countries.” Id. at *43. We do not necessarily agree with Rivera that Arriaga ‘s reasoning extends so readily from H-2A guest workers to H-2B guest workers. In any event, Donovan forecloses us from following Rivera ‘ s § 203(m)-based analysis. Just as we will not follow Arriaga, we will not follow Rivera.

On the authorities before us, we hold that the FLSA does not obligate Decatur to reimburse its guest workers for their inbound transportation expenses.FN6

Finally, we consider whether the FLSA obligates Decatur to reimburse its guest workers for the expenses that they incurred with foreign recruitment companies. The FLSA’s provisions do not require reimbursement of these employee-incurred expenses. See
29 U.S.C. § 201 et seq. Neither do the FLSA’s implementing regulations-unless the expenses were “kick-backs” to Decatur. See 29 C.F.R. § 531.35.

We hold that the recruitment expenses were not kick-backs within the meaning of § 531.35. The expenses differed in all fundamental characteristics from the expenses that our court has labeled kick-backs. See Mayhue’s Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1199 (5th Cir.1972) (deduction from cashiers’ wages to pay for every shortage in employer cash-register accounts, regardless of the reason for the shortage); Brennan v. Veterans Cleaning Serv., Inc., 482 F.2d 1362, 1370 (5th Cir.1973) (employee’s wage deduction in favor of employer to recover the cost of a wrecked company truck). The expenses were not treated as an employer obligation by custom or practice of Decatur’s industry. In sum, there is no basis in custom, practice, or law to include the recruitment expenses as part of Decatur’s business expense.

Our attention, however, has been brought to two relatively new regulations that for the first time address unscrupulous practices in recruiting workers to participate in the H-2B visa program. Effective January 18, 2009, the Department of Labor requires an employer seeking H-2B labor certification to attest that “[t]he employer has contractually forbidden any foreign labor contractor or recruiter whom the employer engages in international recruitment of H-2B workers to seek or receive payments from prospective employees, except as provided for in DHS regulations at 8 CFR 214.2(h)(5)(xi)(A).” 20 C.F.R. § 655.22(g)(2). Also effective January 18, 2009, the Department of Homeland Security forbids an employer, employer’s agent, recruiter, or similar employment service from collecting any “job placement fee or other compensation (either direct or indirect)” from a foreign worker as a condition of an H-2B job offer or as a condition of H-2B employment. 8 C.F.R. § 214.2(h)(6)(i)(B).FN7 These regulations ultimately may influence whether H-2B employers will reimburse the recruitment expenses of future guest workers, but they do not affect Decatur’s obligations here. See, e.g., Sierra Med. Ctr. v. Sullivan, 902 F.2d 388, 392 (5th Cir.1997) (“Generally, courts will not apply regulations retroactively unless their language so requires.”); 20 C.F.R. § 655.5 (indicating, by creating a transition period for implementing the Department of Labor’s January 2009 changes to 20 C.F.R. part 655, that the changes do not apply retroactively); 73 Fed.Reg. 78103, 78127-30 (Dec. 19, 2008) (giving no indication that the Department of Labor’s January 2009 changes to 8 C.F.R. part 214 apply retroactively). Furthermore, because the regulations for the first time forbid an H-2B employer from permitting guest workers to bear such recruitment expenses, they strongly suggest that the guest workers’ recruitment expenses incurred long before the regulations became effective were not part of Decatur’s business expense.

Finally, our conclusion is not disturbed by the one case that the guest workers cite holding recruitment expenses can be part of an employer’s business expense. See Rivera, 2008 U.S. Dist. LEXIS 1167, at *47-*50. The employer there, Brickman, required guest workers to hire a particular recruitment company, which charged them fees. See id. at *48-*49. Because the employer required the guest workers to use the recruitment company, the court concluded “that fees associated with Brickman-designated workers’ representatives [we]re costs ‘primarily for the benefit of the employer,’ and that Brickman, therefore, was not allowed to pass those costs along [to the guest workers] to the extent that doing so reduced their wages below the FLSA minimum.” Id. at *50.

Assuming the correctness and continued validity of that case’s reasoning, the case is distinguishable. Here, there is no evidence that Decatur even knew about the foreign recruitment companies, much less that the companies charged a fee to the guest workers as a condition of receiving an offer of employment. Decatur paid Pickering $300 per job position filled, which itself was in the nature of an employer-paid recruitment fee. Although the record does show that the guest workers knew of no other way to obtain employment with Decatur, the record also shows that Decatur did not require, or approve, any guest worker to pay any sum to anyone as a condition of an H-2B job offer or as a condition of H-2B employment.

For all of the foregoing reasons, we hold that the FLSA does not obligate Decatur to reimburse the guest workers for their recruitment expenses.

In sum, we hold that Decatur incurred no FLSA liability to reimburse its guest workers for the recruitment fees, transportation costs, or visa fees that they incurred to work in the United States. We REVERSE the summary judgment, RENDER judgment in favor of Decatur, and REMAND for entry of same.”

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