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Courts Support DOL Positions re: Tip-Credit Regs and Classification of Mortgage Loan Officers

More so than any recent Department of Labor in memory, the DOL’s positions have come under attack by several major industries largely under the battle cry that they amount to unfair or “over” regulation. Although the Supreme Court recently handed the pharmaceutical industry a major victory in its industry-wide litigation regarding the outside sales exemption’s application to its so-called pharmaceutical reps or PSRs, the DOL and workers come out on the winning end in 2 district-level cases, both challenging recent DOL pronouncements of its policies. In the first, the DOL’s recent amendment to the rules governing when an employer may take the tip-credit with respect to tipped employees came under fire. In the second, the Mortgage Bankers Association challenged the DOL’s recent Administrative Interpretation 2010–1 in which the DOL took the position that Mortgage Loan Officers (MLOs) performing typical MLO duties were non-exempt.

National Restaurant Ass’n v. Solis

In the first case, the National Restaurant Association, Counsel of State Restaurant Associations, Inc., and National Federation of Independent Businesses sued the Secretary of Labor, Hilda L. Solis, in her official capacity as Secretary of the U.S. Department of Labor; Nancy Leppink, in her official capacity as Acting Administrator of the U.S. Department of Labor; and the U.S. Department of Labor (“the Department” or “DOL”).

The rule at issue, 29 C.F.R. § 531.59(b), which went into effect on May 5, 2011, provided:

Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it has informed its tipped employees in advance of the employer’s use of the tip credit of the provisions of section 3(m) of the Act, i.e.: The amount of the cash wage that is to be paid to the tipped employee by the employer; the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee; that all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and that the tip credit shall not apply to any employee who has not been informed of these requirements in this section.

In its challenge to the regulation, the restaurant tradegroup-Plaintiffs alleged that the DOL violated the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 611, 702 (2006), when DOL promulgated a new regulation, 29 C.F.R. § 531.59(b) (2011), concerning an employer’s obligation to inform tipped employees of the “tip credit” requirements of the Federal Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. §§ 201219 (2006). The parties filed cross-motions seeking judgment in their respective favor. The court held that because the agency complied with the APA notice requirements when it conducted this rulemaking exercise, and the public was fully and specifically informed of the subject matter under consideration, the DOL was within its rulemaking powers when it promulgated the new tip-credit notice rules.

Click National Restaurant Ass’n v. Solis to read the entire Memorandum Opinion.

Mortgage Bankers Ass’n v. Solis

In the second case, the Mortgage Bankers Association, a trade group for mortgage bankers challenged the DOL’s issuance, in 2010, of Administrative Interpretation, the 2010 AI, which expressly withdrew a DOL’s 2006 Opinion Letter, regarding the exempt status of typical Mortgage Loan Officers (“MLOs”). Whereas, previously the DOL had taken the position that MLOs, performing typical duties of MLO positions met the requirements for application of the administrative exemption, the 2010 Administrative Interpretation took the opposite view- that typical MLOs are non-exempt.

Discussing the AI, the court explained:

The 2010 AI relies on a District of Minnesota decision, Casas v. Conseco Finance Corp., No. Civ.00–1512, 2002 WL 507059 (D.Minn. March 31, 2002) in addition to several other cases, as support for its position that mortgage loan officers are non-exempt employees. Id. at 105. In Casas, loan originators asserted they were entitled to overtime compensation from the defendants under the FLSA, requiring the court to decide whether the plaintiffs were exempt from FLSA overtime pay provisions. The court found that because “Conseco’s primary business purpose [was] to design, create and sell home lending products,” the mortgage loan officers’ primary duty was to sell those lending products on a day-to-day basis, not ” ‘the running of [the] business [itself]’ or determining its overall course or policies.” Casas, 2002 WL 507059, at *9 (citation omitted) (alterations in original). Relying on the ruling in Casas, the 2010 AI reasons that “because Conseco’s loan officers’ duties were ‘selling loans directly to individual customers, one loan at a time,’ ” the administrative exemption did not apply to them. A.R. at 105 (Administrator’s Interpretation No.2010–01) (internal citation omitted). The 2010 AI further notes that the 2004 amended regulations examined the difference between mortgage loan officers who spend the majority of their time selling mortgage products to consumers, like the Casas plaintiffs, as compared to those who “promot[e] the employer’s financial products generally, decid[e] on an advertising budget and techniques, run[ ] an office, hir[e] staff and set[ ] their pay, service [ ] existing customers …, and advis[e] customers.” Id. at 105 (citing 69 Fed.Reg. at 22145–46). The 2010 AI concluded that in order for mortgage loan officers to be properly classified as exempt employees, their primary duties must be administrative in nature. Id. at 105.

Relying on the facts that a significant portion of mortgage loan officers’ compensation is composed of commissions from sales, that their job performance is evaluated based on their sales volume, and that much of the non-sales work performed by the officers is completed in furtherance of their sales duties, the 2010 AI concluded “that a mortgage loan officer’s primary duty is making sales.” Id. at 106–07. And because their primary duty is making sales, the 2010 AI further concludes that “mortgage loan officers perform the production[, not the administrative,] work of their employers.” Id. at 107.

After concluding that the work of mortgage loan officers is not related to the general business operation of their employers, the 2010 AI considered another factor that could provide the basis for finding that mortgage loan officers are subject to the administrative exemption. Id. at 108. The AI states that “[t]he administrative exemption can also apply if the employee’s primary duty is directly related to the management or general business operations of the employer’s customers.Id. In making this assessment, the 2010 AI notes that “it is necessary to focus on the identity of the customer.” Id. The 2010 AI finds that “work for an employer’s customers does not qualify for the administrative exemption where the customers are individuals seeking advice for their personal needs, such as people seeking mortgages for their homes.” Id. However, it recognizes that a mortgage loan officer “might qualify under the administrative exemption” if the customer that the officer is working with “is a business seeking advice about, for example, a mortgage to purchase land for a new manufacturing plant, to buy a building for office space, or to acquire a warehouse for storage of finished goods.” Id. Nevertheless, the 2010 AI concludes that the typical mortgage loan officers’ “primary duty is making sales for the employer [to homeowners], and because homeowners do not have management or general business operations, a typical mortgage loan officer’s primary duty is not related to the management or general business operations of the employer’s customers.” Id. at 109.

Finally, the 2010 AI took exception with the 2006 Opinion Letter’s apparent assumption “that the example provided in 29 C.F.R. § 541.203(b) creates an alternative standard for the administrative exemption for employees in the financial services industry.” Id. Rather, the 2010 AI states that 29 C.F.R. § 541.203(b) merely illustrates an example of an employee who might otherwise qualify for the exemption based on “the requirements set forth in 29 C.F.R. § 541.200.” Id. Thus, the 2010 AI clarifies that “the administrative exemption is only applicable to employees that meet the requirements set forth in 29 C.F.R. § 541.200.” Id. In providing this clarification, the 2010 AI states, “[t]he fact example at 29 C.F.R. § 541.203(b) is not an alternative test, and its guidance cannot result in it ‘swallowing’ the requirements of 29 C.F.R. § 541.200.” FN4
Id.

In summation, the DOL through the issuance of the 2010 AI explicitly withdrew the 2006 Opinion Letter “[b]ecause of its misleading assumption and selective and narrow analysis[.]” Id. Before taking this action, the DOL did not utilize the APA’s notice and comment process. Compl. ¶¶ 32–33.

The Mortgage Bankers Association relied on two different theories in seeking that the court strike down the AI at issue. First, relying on Paralyzed Veterans, 117 F.3d at 586, the plaintiff argues that once an agency issues an authoritative interpretation of its own regulation, it must utilize the notice and comment process if it desires to modify that interpretation. Second, the Mortgage Bankers Association argued that the 2010 AI does not comport with the 2004 regulations and is therefore “arbitrary, capricious, an abused of discretion, and otherwise not in accordance with law.”

With regard to the first argument, the rejected it, noting that ” seven courts of appeals have held that the notice and comment provisions found in section 553 of the APA do not apply to interpretative rules.” Further, the court held that the case did not fit within the limited recognized exceptions to that general rule. Similarly, the court held that the DOL’s interpretation of its own 2004 white collar regulations was not inconsistent and therefore not arbitrary and capricious. Thus, the court granted the DOL summary judgment, in part, and denied the Mortgage Bankers Association’s similar motion, and upheld the AI.

Click Mortgage Bankers Ass’n v. Solis to read the entire Memorandum Opinion.

 

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E.D.N.Y.: Where 20% Gratuity Constituted Recommended Tip, Not Mandatory Service Charge, It Was Properly Excluded From Calculation of Regular Rate and Overtime

Ellis v. Common Wealth Worldwide Chaueffuered Transp. of NY, LLC

This case was before the court on the parties’ cross-motions for summary judgment and plaintiff’s related motion to strike. As discussed here, one of the issues before the court was whether a recommended 20% gratuity constituted a tip or a mandatory service charge, as defined by the FLSA. Significantly, defendant did not include the gratuity in plaintiffs regular rate for purposes of calculating his overtime each week. If it constituted a tip, it was properly excluded from the calculation of plaintiff’s regular rate and resulting overtime rate of pay. However, if it was a mandatory service charge, defendant was required to include it in calculating plaintiff’s overtime, and its failure to do so constituted a violation of the FLSA. Based on the facts before the court, the court concluded that the gratuity was simply a recommended (not mandatory) tip amount, and thus was properly excluded from plaintiff’s regular rate of pay.

The court explained:

“Where an employer, such as Commonwealth, is not using a “tip credit” to satisfy the FLSA’s minimum wage provision, any tips the employee receives “need not be included in the regular rate” for purposes of calculating proper overtime wages. 29 C.F.R. § 531.60 (2012). Federal regulations define a tip as:

a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity.

29 C.F.R. § 531.52 (2012). However, “[a] compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer’s establishment, is not a tip.” 29 C.F.R. § 531.55 (2012).

Here, there is no genuine factual dispute that the Recommended Tip was discretionary, and not a mandatory 20% charge. There is no dispute that Commonwealth’s invoices noted next to the Recommended Tip charge that “[t]he actual amount of the tip is in the discretion of the customer; any tip received will be remitted in full to the chauffeur.” (Rutter Aff. Ex. C.) Rutter, as well as Diane Pessolano, Commonwealth’s controller, both attested that the Recommended Tip was not mandatory and clients could and would pay either more or less than the recommended 20%. (Id. ¶ 24; Aff. of Diane Pessolano, dated Apr. 8, 2011, Dkt. Entry 26–12 at ¶¶ 7–8.). Plaintiff has failed to point to anything in the record rebutting this evidence. Therefore, the court finds that the Recommended Tip was a tip as a matter of law. See Chan v. Sung Yue Tung Corp., 2007 WL 313483, at *14 (S.D.N.Y. Feb.1, 2007) (Lynch, J.) (as opposed to a tip, “a ‘service charge’ is a mandatory charge imposed by an employer on a customer that is the property of the employer, not the employees, and becomes part of the employer’s gross receipts.”)…

For the forgoing reasons, the court finds that there is no genuine material question of fact as to the whether the Recommended Tip is mandatory, thus requiring that it be included in Plaintiff’s “regular rate.” Summary Judgment is granted to Defendants on this ground.”

Click Ellis v. Common Wealth Worldwide Chaueffuered Transp. of NY, LLC to read the entire Opinion and Order.

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D.Md.: Employer-Owner Could Not Share in Employee Tip Pool Under FLSA, Regardless of Extent of His Bartending Activities

Gionfriddo v. Jason Zink, LLC

In this case tipped employees challenged the validity of the employer’s tip pool, due to the participation of “non-tipped employees” in the tip pool.  The case was before the court on a variety of motions.  Of significance here, the parties moved by cross motions for summary judgment on the issue of whether the defendant’s tip pool arrangement was valid or not.  The court held that the owner-operators participation in the tip pool necessarily rendered it invalid, notwithstanding the fact that he regularly bartended side by side with his tipped employer bartenders.  In doing so, the court rejected the defendant’s argument that an owner-operator, who earns primarily tips, can transform himself into a tipped employee, such that he may permissibly participate in a tip pool with other tipped employees.

The court reasoned:

“As previously mentioned, the Fair Labor Standards Act was enacted to eliminate “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.” Pub.L. No. 75-718, 52 Stat. 1060 (1938) (codified as amended at 29 U.S.C. §§ 201 et seq.). To effectuate this aim, the FLSA requires that employees be paid a minimum wage of $7.25 per hour. 29 U.S.C. § 206(a)(1)(c). An exception exists for “tipped employees.” “Tipped employees” are those employees that are “engaged in an occupation in which [they] customarily and regularly receive[ ] more than $30 a month in tips.” 29 U.S.C. § 203(t). Those employees are required to receive at least the minimum wage, but their employers are permitted to pay a direct wage of $2.13 per hour and then take a “tip credit” to meet the $7.25 per hour minimum wage requirement. 29 U.S.C. § 203(m). In other words, an employer satisfies the FLSA if he pays his tipped employees at least $2.13 per hour, and that wage, in conjunction with the tips they receive, make up at least the $7.25 per hour minimum wage. Employees are permitted to share tips through a tip pooling or tip splitting arrangement so long as each employee customarily receive more than $30 per month in tips. 29 C.F.R. § 531.54. However, “[i]f tipped employees are required to participate in a tip pool with other employees who do not customarily receive tips, then the tip pool is invalid and the employer is not permitted to take a ‘tip credit.’ “ Wajcman v. Inv. Corp. of Palm Beach, 620 F.Supp.2d 1353, 1356 n. 3 (S.D.Fla.2009) (citing 29 U.S.C. § 203(m)). In the present case, the bartenders at the Taverns participated in a collective tip pool that was divided up according to a formula that accounts for the hours worked by each bartender.

Mr. Zink worked as a bartender at the Taverns and concedes that he participated in the tip pool. Mr. Zink also concedes that he satisfies the definition of “employer” under Section 203(d) of the FLSA. See Defs.’ Cross Mot. Summ. J. at 24, ECF No. 51-1. Both parties agree that bartending is typically a tipped occupation. Where the parties disagree, however, is on the question of whether an “employer” may also be a “tipped employee” and receive a share of the tip pool. Defendants argue that despite his status as an employer, Mr. Zink is nevertheless permitted to share in the tip pool because he can simultaneously be an “employer” and a tipped “employee” under the FLSA. In other words, because Mr. Zink works as a bartender, a position that ordinarily receives tips, his status as an employer is immaterial to the FLSA analysis. Plaintiffs respond by arguing that allowing Mr. Zink to simultaneously benefit from the “tip credit” exception to the minimum wage requirements and at the same time personally receive tips would be completely contradictory to the purpose behind the FLSA. Plaintiffs maintain that Mr. Zink, as the sole owner of the Taverns, and the Plaintiffs’ employer, simply may not participate in a tip pool, and that to the extent he did participate in a tip pool, that tip pool is invalid under the FLSA. In short, the question before this Court is to what extent, if any, an owner-employer who also tends bar is permitted to receive tips from an employee tip pool.

This precise question is an issue of first impression in this District and in the Fourth Circuit, but not elsewhere. Every court that has considered the issue has unequivocally held that the FLSA expressly prohibits employers from participating in employee tip pools. “Congress, in crafting the tip credit provision of section 3(m) of the FLSA did not create a middle ground allowing an employer both to take the tip credit and share employees’ tips.” Chung v. New Silver Palace Restaurant, Inc., 246 F.Supp.2d 220, 230 (S.D.N.Y.2002); see also, e.g., Morgan v. SpeakEasy, LLC, 625 F.Supp.2d 632, 652 (N.D.Ill.2007) (quoting Chung, 246 F.Supp.2d at 230); Ayres v. 127 Restaurant Corp., 12 F.Supp.2d 305, 308-09 (S.D.N.Y.1998) (finding tip pool invalid as a result of general manager’s participation); Davis v. B & S, Inc., 38 F.Supp.2d 707, 714 (N.D.Ind.1998) (“an employer is not eligible to take the tip credit, and will be liable for reimbursing an employee the full minimum wage that employee would have earned, if the employer exercises control over a portion of the employee’s tips”).

Despite the clear weight of authority holding that employers may not participate in employee tip pools, Defendants seek to carve out a novel legal question where there is none. Essentially, Defendants argue that the analysis undergirding the cases holding that employers may not participate in employee tip pools is fundamentally flawed because those courts considered the issue under the faulty premise that a particular individual may only be an employer or a tipped employee, and not both. See Defs.’ Cross Mot. Summ. J. at 26-34, ECF No. 51-1; Defs.’ Reply at 16, ECF No. 58. Defendants rely on a textual interpretation of the FLSA, and argue that as a result of the Act’s broad definition of “employer,” it is also possible for an employer to be a tipped employee if that person participates in an activity that customarily receives tips, such as bartending. Id. In this regard, Defendants are mistaken-the cases holding that employers may not participate in employee tip pools do not take the position that under no circumstances will an “employer” be prohibited from participating in a tip pool-indeed, in close cases courts have gone to great lengths to determine whether a person who possesses some managerial control may be considered a “tipped employee” under the FLSA. For example, in Rudy v. Consol. Restaurant Cos., No. 3:08-CV-0904-L, 2010 WL 3565418 (N.D.Tex. Aug. 18, 2010), the district court considered whether maître d’s, who possessed some managerial authority over regular restaurant waiters, were properly considered “tipped employees” as a result of their significant interaction with customers. Id. at *4-9. Similarly, in Davis v. B & S, Incorporated, 38 F.Supp.2d 707, 714 (N.D.Ind.1998), the court found that a material fact existed with regard to whether a general manager could participate in a tip pool and declined to grant summary judgment to the employee. Id. at 717 (“because issues of fact remain as to whether [the general manager] was a ‘tipped employee’ with regard to his work with the disc jockeys, the validity of his participation in the tip pool … cannot be resolved as a matter of law”).”

Click Gionfriddo v. Jason Zink, LLC to read the entire order.

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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.”

Click here for more information on tipped employees and tip pooling.

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Las Vegas Review-Journal: 3 Casino Dealers Accuse Wynn Las Vegas Of Illegal Tip Pooling

The Las Vegas Review-Journal is reporting that, “[t]hree Wynn Las Vegas dealers are taking their claims of unfair tip pooling to federal court with a new lawsuit that claims the resort’s tip sharing policy violates federal labor laws.

Attorneys for three of the plaintiffs named in a state lawsuit against Wynn Las Vegas filed the lawsuit in U.S. District Court in Nevada late Thursday. The federal lawsuit claims the Wynn tip-pooling policy violates the Fair Labor Standards Act.”

Apparently “[t]he decision to file in federal court was made in response to a U.S. Department of Labor brief that was filed siding with a worker in Oregon in a tip-pooling case — Misty Cumbie v. Woody Woo [a case now pending at the Ninth Circuit Court of Appeals]…

The Labor Department’s brief says the worker in Oregon was correct in challenging her company’s tip-pooling policy, which the department said violates the Fair Labor Standards Act.”

The story discussed Wynn’s potential defense to the case as well. “Wynn dealers attorney Robin Potter said the Oregon case marks the first time the Department of Labor has come out against tip pooling in cases in which the employer was not taking part in a “tip credit” system. Tip credits allow employers to pay less than the minimum wage to workers who can expect to earn most of their salary from tips.

Wynn Las Vegas doesn’t use tip credits and pays its workers minimum wage.

But the Labor Department said in the Woody Woo case that the tipped employees were paid minimum wage but were still required to contribute their tips to ‘an invalid tip pool,” and a portion of that pool was shared with nontipped employees.’

To read the full story go to the Las Vegas Review-Journal website.


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$100-Million Barista Tip Verdict Against Starbucks Overturned On Appeal

Today’s L.A. Times is reporting that, “a California appeals court reversed a ruling that had ordered the coffee giant to pay more than $100 million in restitution for allowing shift supervisors to share baristas’ tips.

The class-action lawsuit was brought on behalf of more than 100,000 current and former baristas in 2004 by former barista Jou Chau, who complained that shift supervisors were illegally getting a cut of employee tips.

San Diego County Superior Court Judge Patricia Cowett ruled in favor of the baristas last year after a bench trial and awarded $86 million in restitution plus about $20 million in interest. Starbucks called the decision ‘fundamentally unfair and beyond all common sense and reason.'”

To read the full story go to the Los Angeles Times Website.

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