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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.
S.D.Tex.: Defendants’ Motion For Protective Order, Seeking To Bar Plaintiffs’ Attorneys From Communicating With Putative Class Denied; No Evidence Of Coercive, Misleading, Or Improper Communications
McKnight v. D. Houston, Inc.
In this collective action under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., Plaintiffs sued six strip clubs in Houston, along with the owners and operators. The court conditionally certified a class previously. Following the conditional certification, the defendants filed an expedited motion for a protective order, asking the court to forbid the plaintiffs and their attorneys from using the class members’ contact information “for any purpose other than the mailing of the court-approved notice,” or, alternatively, to require “specific approval from the court for any mailings, emails, phone calls or communications with potential opt-in plaintiffs other than the court-approved notice.” (Id. at 9). The defendants argued that without such an order, the plaintiffs will be able to recruit more plaintiffs under the guise of contacting fact witnesses, undermining the purpose of court-approved notice to potential class members. Holding that the Defendants failed to satisfy their burden of proof to necessitate such a protective order, the court denied the Defendants’ motion.
The court reasoned:
“The defendants argue that communications ban is necessary to prevent solicitation of clients under the guise of contacting fact witnesses. In support, they cite portions of McKnight’s deposition testimony in which McKnight explains that she spoke to the individuals who are now her coplaintiffs about her plans to file a lawsuit and gave them her attorney’s contact information. They also point to inconsistencies between the practices alleged by the plaintiffs in their declarations and described in their depositions, and conclude that “[t]he dynamic between the unlawful solicitations to join the suit and the subsequent substantial inconsistencies between the declarations that were filed in support of the motion for notice to class members and the deposition testimony of the plaintiffs suggests some level of impropriety or inaccuracy with regard to the pre-suit solicitations and communications that occurred in this case.” (Docket Entry No. 47 at 5-6).
This evidence falls short of the “evidence of coercive, misleading, or improper communications” necessary to impose the type of order the defendants seek. See Jackson, 2009 WL 650181, at *2. There is no evidence that McKnight’s precertification communications with her coplaintiffs were misleading or coercive. There is also no evidence that the plaintiffs plan to engage in improper communications going forward. Gulf Oil cautioned against protective orders that make it “more difficult [for counsel] … to obtain information about the merits of the case from the persons they sought to represent.” 452 U.S. at 101. The record does not support a protective order to prevent misleading or otherwise abusive communications by plaintiffs and their counsel.
The defendants’ expedited motion for a protective order is denied on the present record.”
S.D.Ohio: Inclusion Of Maître D’ In Tip Pool Not Necessarily Illegal; Evidence Demonstrated Maître D’ Lacked Management Duties To Make Him An FLSA Employer, If He Did Not Hire Or Fire
Strange v. Wade
This case was before the court on plaintiff’s motion for summary judgment regarding a variety of issues. Although the court granted the motion in some respects, as discussed here, it denied the motion with respect to plaintiff’s claim that defendant’s inclusion of the maître d’ in its tip pool was illegal and invalidated the tip pool. The court held that on the record before it, it was not possible to conclude that the maître d’ was a management employee rather than a properly tipped service employee.
Discussing this issue the court reasoned:
“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 Place Rest., Inc., 246 F.Supp.2d 220, 230 (S.D.N.Y.2002); Wajcman v. Investment Corp. of Palm Beach, No. 07-80912-CIV, 2008 WL 783741, *3 (S.D.Fla. March 20, 2008) (“The theory here is that employees who exercise substantial managerial authority over the day to day operations of the business are functionally the ‘employers’ themselves”). Where employers participate in a tip pool, the pool is invalid. See Ayres v. 127 Restaurant Corp., 12 F.Supp.2d 305 (S.D.N.Y.1998) (tip pool violated FLSA where general manager, who had authority to suspend, hire and fire employees and analyze payroll costs, was allowed to participate in the pool).
Plaintiff argues that Pigall’s tip pool was invalid because Brown was a manager and shared in the pool. (Doc. 22-1.) In support of its argument, Plaintiff points to Brown’s guaranteed compensation, his participation in the opening of the restaurant, his authority to train, schedule and supervise the wait staff, and his authority to hire and fire employees. (Id.) Plaintiff cites to the depositions of Brown and de Cavel, wherein both men testified that Brown was considered part of the restaurant’s management team. (de Cavel Dep. 50:13-14; Brown Dep. 59:17-22.) These facts, Plaintiff argues, unequivocally establish that Brown was an employer for purposes of the FLSA. See Ayres, 12 F.Supp.2d at 307-08 (general manager of restaurant, who had full authority to suspend or terminate employees, supervised wait staff, made hiring decisions, assumed responsibility for budget and received weekly salary of $2000 was not an employee who “customarily and regularly received tips” under the FLSA).
Defendants agree that Brown participated in the tip pool but argue that he was not a manager and, thus, the tip pool was not invalid by virtue of the fact that Brown participated in it. Defendants point to Dole v. Continental Cuisine, Inc., 751 F.Supp. 799 (E.D.Ark.1990), to support their contention that Brown cannot be considered an employer under the Act. In Continental Cuisine, the individual in question was the maître d’ of the restaurant alleged to have violated the FLSA. 751 F.Supp. at 802-03. The maître d’ was responsible for setting up the dining room, seating and greeting customers, serving the first drink to customers, scheduling shifts for the wait staff, interviewing applicants for positions as waiters and waitresses, and recommending that persons be hired or fired. Id. at 800. Because the maître d’ did not have final authority to hire and fire employees, set wages, control restaurant operations, or control payroll, he was not considered an employer for purposes of the FLSA. Id. at 803. Defendants argue that, similar to the maître d’ in Continental Cuisine, Brown did not have the requisite managerial authority to be considered an employer under the Act.
The Court agrees with Defendants that there is a genuine issue of material fact as to whether Brown is an employer under the FLSA. Although the parties appear to agree on many of the duties that Brown performs, there is conflicting testimony regarding whether Brown had full authority to hire and fire workers and how much control Brown exercised at the restaurant. For example, although Brown testified that he made final hiring decisions, he acknowledged that he was “not at liberty to hire someone” without de Cavel first meeting with that person. (Brown dep. 53:3-54:15.) Meanwhile, de Cavel testified that Brown was part of his management team and “fire[d] a few people without [his] agreement” (de Cavel dep. 50:13-14; 20:9-10). Conversely, Brown testified that he had no responsibility “for any decision that involved spending money.” (Brown dep. 51:19-20.) Based on the current record, and construing all facts in favor of Defendants, the Court believes that genuine issues of material fact preclude summary judgment on this issue. Plaintiff’s motion for summary judgment regarding the validity of the restaurant’s tip pool is DENIED.”
To read the entire decision, click here.
EDITOR’S NOTE: In a recent decision going one step further, a court in the Northern District of Texas held on similar evidence, that as a matter of law, the inclusion of a maître d’ did not render a tip pool illegal. Rudy v. Consolidated Restaurant Companies, Inc., 2010 WL 3565418 (N.D.Tex. Aug. 18, 2010).
It is clear from both of these decisions that while there is room for the argument that inclusion of a maître d’ may render an otherwise valid tip pool invalid, it is a very fact intensive issue and plaintiff attorneys would be wise to fully develop their factual record on issues of hiring/firing powers if they prosecute these claims.
Click here, to read more about the rules, regulations and laws applicable to Tipped Employees.
S.D.N.Y.: NYLL Unpaid Gratuities and FLSA Overtime Claims Not Precluded By LMRA or CBA; No Interpretation of CBA Required To Determine Whether Defendant Violated Law
Alderman v. 21 Club Inc.
Plaintiffs, unionized waitstaff who worked Defendant’s private banquets filed suit seeking the recover of unpaid tips, pursuant to the New York Labor Law, and unpaid overtime, pursuant to the FLSA. Plaintiffs specifically sought the portion of service charges charged by Defendant, but not paid to Plaintiffs as “tips” as required by New York law. The Defendant moved to dismiss, asserting that Plaintiffs’ claims for unpaid tips were precluded by the LMRA (the CBA stated that banquet waitstaff would receive the equivalent of 18% of the gross price of any banquet they worked). The Court denied Defendant’s Motion, because the claims were pendant not on the CBA, but on the NYLL.
The Court explained:
“As described earlier, plaintiffs’ first claim is under NYLL § 196-d for unpaid gratuities to plaintiffs who worked banquet events at the ’21’ Club. Defendants contend that this claim in reality is one under Section 301 of the LMRA, 29 U.S.C. § 185, which preempts the application of state labor law. Section 301 of the LMRA provides:
Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce … may be brought in any district court of the United States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the parties.
The Supreme Court has interpreted Section 301 “as a congressional mandate to the federal courts to fashion a body of federal common law to be used to address disputes arising out of labor contracts.” Allis-Chalmers Group v. Lueck, 471 U.S. 202, 209 (1985). When a state law claim alleges a violation of a labor contract or when the resolution of a state law claim depends on an interpretation of a collective bargaining agreement, Section 301 preempts that claim. See Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 261 (1994). But if a state “prescribes rules or establishes rights and obligations that are independent of a labor contract, actions to enforce such independent rights or rules would not be preempted by section 301.” Vera v. Saks & Co., 335 F.3d 109, 115 (2d Cir.2003). Indeed, the “bare fact that a collective-bargaining agreement will be consulted in the course of state-law litigation plainly does not require the claim to be extinguished.” Livadas v.. Bradshaw, 512 U.S. 107, 124 (1994). In order to determine whether a state law claim is preempted because it requires interpretation of a collective bargaining agreement, the court must analyze whether the “legal character” of the state law claim is truly independent of the rights conferred under the collective bargaining agreement. Salamea v. Macy’s East, Inc., 426 F.Supp.2d 149, 153-54 (S.D.N .Y.2006).
In the present case, plaintiffs bring their gratuities claim under NYLL § 196-d and not under the CBA. Both § 196-d and the CBA give employees rights in respect to gratuities, although they are worded differently in ways that have significance in this case. Specifically, the CBA guarantees gratuities in the amount of 18% of the total bill for the function. Section 196-d guarantees to the employees whatever has been charged to provide gratuities, without reference to a specific percentage. It is necessary, therefore, for the court to define exactly what plaintiffs’ claim is and then to determine whether it fits under § 196-d or under the CBA or both.
The relevant portions of the complaint are paragraphs 21 and 22 in the factual allegations and paragraphs 33 and 34 stating the claim:
21. For private events, Defendants charged gratuities to the hosts of the events equal to a percentage of the cost of the events.
22. While Defendants distributed a potion of these gratuities to the service staff that worked these parties, Defendants did not distribute all of the gratuities. Thus, Defendants illegally retained substantial portions of the gratuities paid by private event hosts, instead of distributing them in their entirety to service staff.
33. Defendants received gratuities from customers for all private banquets.
34. Defendants retained portions of Plaintiffs’ tips and Class members’ tips.
On their face, the allegations of the complaint do not refer to 18%. However, they are not precise in excluding the possibility that in fact plaintiffs are seeking the 18% referred to in the CBA. But the court believes that the December 29, 2008 letter of union president Bill Granfield is relevant in construing the nature of the gratuities claim. This letter makes a demand that the ’21’ Club pay to employees “the difference between your service charge rate and the 18% gratuity rate contained in the contract.” The reference to “the contract” presumably means the CBA. Thus, in late 2008, the Union was claiming that the service charges were greater than the 18% referred to in the CBA and was demanding that the entire amount be paid to the employees.
The court concludes that the complaint should be taken on its own terms and cannot properly be construed as actually referring only to the 18%.
The complaint asserts that it is made under NYLL § 196-d. That statute provides:
No employer or his agent or an officer or agent of any corporation, or any other person shall demand or accept, directly or indirectly, any part of the gratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee. This provision shall not apply to the checking of hats, coats or other apparel. Nothing in this subdivision shall be construed as affecting the allowances from the minimum wage for gratuities in the amount determined in accordance with the provisions of article nineteen of this chapter nor as affecting practices in connection with banquets and other special functions where a fixed percentage of the patron’s bill is added for gratuities which are distributed to employees, nor to the sharing of tips by a waiter with a busboy or similar employee.
The first sentence of the statute prevents an employer from taking the gratuities received by an employee. The relevant part of the last sentence states that nothing in the statute affects the practice in connection with functions where a fixed percentage is added to the patron’s bill for gratuities which are distributed to employees. The statute is somewhat confusing because the assurance of the employee’s rights in the first sentence is followed by the latter portion of the last sentence which states that the statute is not applicable to functions where an amount is added to the patron’s bill for gratuities.
Plaintiffs cite authorities that they contend give them rights under the statute. It is not the province of the court on the present motion to resolve questions which may arise as to the exact construction of the statute. It is sufficient to say that, as far as state law is concerned, plaintiffs would surely be entitled to attempt to recover under the statute. What defenses there may be under state law, and how the issues are resolved, remains to be seen. One thing is clear under § 196-d, and that is that there is no reference to 18% or any limit of 18%.
On the question of whether plaintiffs’ gratuities claim should be construed as in reality coming under the CBA so that federal law applies, the language of the CBA was quoted earlier in this opinion. The CBA only guarantees 18%. Consequently, a claim for more than 18% is not properly one under the CBA. It is properly made under § 196-d.
The result is, and the court so holds, that the gratuities claim is not preempted by federal law.
The court notes the contention that the history of the Union submissions by way of grievances constitutes an admission that the gratuities claim in the present case properly falls within the ambit of the CBA. The court rejects this argument. The employees did not give up their right to assert a gratuities claim under § 196-d in the present action.”
The Court also ruled that Plaintiffs were not required to submit their claims to arbitration, based on the language in the CBA.
To read the entire opinion, click here.
D.D.C.: High-Profile D.C. Chef Is An “Employer” And Personally Liable For Wage And Hour Violations At His Restaurant
Ventura v. Bebo Foods, Inc.
This case, concerning alleged Wage and Hour violations under the FLSA and the DCWPCL was before the Court on two issues: (1) whether defendant Roberto Donna (“Donna”) was personally liable for minimum wage and overtime violations of the Fair Labor Standards Act (“FLSA”) and the D.C. Wage Payment and Collection Law (“DCWPCL”); and (2) damages, if any, as to the corporate defendants. The Court held that Donna was personally liable for such violations, but deferred on the remaining issues.
Discussing the personal liability of Donna, the Court reasoned:
“The Court concludes that Donna is personally liable under the FLSA and DCWPCL for minimum wage, overtime, and equal pay violations because he is an employer under both the FLSA and DCWPCL. To be liable for violations of the FLSA, the defendant must be an “employer.” 29 U.S.C. §§ 206–207 (2010). The FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S .C. § 203(d). This definition is broadly construed to serve the remedial purposes of the act. Morrison v. Int’l Programs Consortium, Inc., 253 F.3d 5, 10 (D.C.Cir.2001). Thus, courts look to the “economic reality” rather than technical common law concepts of agency to determine whether a defendant is an employer. Id. at 11; see also Donovan v. Agnew, 712 F.2d 1509, 1510 (1st Cir.1983).
In applying the economic reality test, the Court considers “the totality of the circumstances of the relationship between the plaintiff/employee and defendant/employer to determine whether the putative employer has the power to hire and fire, supervise and control work schedules or conditions of employment, determine rate and method of pay, and maintain employment records.” Del Villar v. Flynn Architectural Finishes, 664 F.Supp.2d 94, 96 (D.D.C.2009) (citing Morrison, 253 F.3d at 11). This test may show that more than one “employer” is liable for violations of the FLSA. Dep’t of Labor v. Cole Enterprises, Inc., 62 F.3d 775, 778 (6th Cir.1995). As a result, a corporate officer may qualify as an employer along with the corporation under the FLSA if the officer has operational control of a corporation’s covered enterprise. Agnew, 712 F.2d at 1511. To determine whether a corporate officer has operational control, the Court looks at the factors above plus the ownership interest of the corporate officer. See Cole Enterprises, 62 F.3d at 778 (explaining that an individual has operation control if he or she is a high level executive, has a significant ownership interest, controls significant functions of the business, and determines salaries and makes hiring decisions).
Here, plaintiffs have demonstrated that Donna is an “employer” under the FLSA because he has operational control over the corporate defendants. First, Donna is an executive with significant ownership interest in the corporate defendants. He is the president and sole owner of Bebo Foods and was the president and sole owner of RD Trattoria. (Donna Dep. at 18:3-20:11, 29:16-17.) He also owned eighty percent of Galileo. (Id. at 33:7-8.) Second, Donna had the power to hire and fire, control work schedules and supervise employees, determine pay rates, and maintain employment records. For example, Donna transferred employees from Galileo to Bebo Trattoria when Galileo closed in 2006, and he took part in the hiring of other employees. (Pls.’ Opp’n  to Defs.’ Mot. to Dismiss Ex. 2; Donna Dep. 54:5-7.) Moreover, at the evidentiary hearing, several plaintiffs testified that Donna supervised plaintiffs on the floor of his restaurants. He also approved wage payments to plaintiffs, including the issuance of post-dated or unsigned checks, the payment of partial wages, and the withholding of any payment. (See, e.g., Ventura Aff. ¶¶ 7-9; Vuckovic Aff ¶ 4.) Furthermore, when plaintiffs complained about defendants’ payment practices, he informed them that he withheld wage payments-either in full or in part-from plaintiffs in order to pay Bebo Trattoria’s past debts for which he was behind in payment. (See, e.g., Ventura Aff. ¶ 7; Romic Aff. ¶ 10.) Indeed, plaintiffs’ evidence demonstrates that Donna exerted operational control over the corporate defendants.
Accordingly, Donna is an “employer” under the FLSA and is personally liable for the corporate defendants’ wage, overtime, and equal pay violations. Similarly, because the DCWPCL is construed consistently with the FLSA, Donna is an “employer” under the DCWPCL and is liable for the corporate defendants’ violations of its wage and overtime provisions.”
Due to the high volume of claims against restaurants and their chef-owners recently, this case will no-doubt will have wide-reaching reverberations.
To read the entire opinion, click here.
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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 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.”
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.
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.