Employers’ tip-pooling arrangement didn’t violate FLSA

Servers whose base salary without tips was above the minimum wage could not maintain a wage suit for alleged violations of the tip credit provisions of the FLSA, ruled the Fourth Circuit, affirming the dismissal of their claims. The language of 29 U.S.C. Sec. 203(m) could give rise to a cause of action only if the employer were using tips to satisfy its minimum wage requirements. Finding that Sec. 203(m) does not contemplate a claim for wages other than minimum or overtime wages, the court ruled that there was no free-standing right to bring a claim for lost “tip” wages.

Tip-pool

The plaintiffs were servers for hotels and restaurants at the National Harbor complex in Prince George’s County, Maryland, and also members of the UNITE HERE, Local 25 union. The properties were previously owned by Ryman but are currently owned and operated by Marriott. Although the servers had not voluntarily agreed to a tip-pooling arrangement, they alleged that the employers took a portion of their tips and redistributed those tips to bartenders, server assistants, busboys, and food runners.

After being told by a union official that the tip-pooling arrangement was not legal, the servers filed suit alleging that the tip-pooling arrangement violated the FLSA’s tip-credit provision, a collective bargaining agreement between the employers and union, and the Maryland Wage Payment and collection Law (MWPCL). Importantly, the servers alleged that the employers violated the FLSA by “not paying plaintiffs all their earned tips.” They did not allege that the employers paid them below the minimum wage or that they were forced to work overtime without proper pay. In fact, even absent tips, the servers’ base salary was above the minimum wage.

Following a hearing, the district court granted the employers’ motion to dismiss, finding that because the servers were paid above the minimum wage, Sec. 203(m) had nothing to do with the case. The court dismissed the collective bargaining allegation for failure to exhaust and the Maryland state law allegation because the servers agreed that a “tip” was not a “wage” under the Maryland statute.

Tip-pooling arrangement

On appeal, the servers continued to press their claim that the employers violated the FLSA by requiring them to join the tip-pooling arrangement. Their argument turned on a question of statutory interpretation. Under direct questioning from the district court, the servers conceded that they were paid the minimum wage and that the employers did not claim the tip credit to pay the minimum wage. Because they were not seeking damages for unpaid minimum wages, the servers essentially conceded that they did not have a private right of action under Sec. 216. Instead, the servers argued that the tip-credit provision, Sec. 203(m), created a free-standing right to bring a claim for lost “tip” wages.

Tip-credit provision

Section 203(m) permits an employer, in certain circumstances, to take a credit against the minimum wage by using an employees’ tips as “wages.” In a situation where the employer uses tips to help meet the minimum wage requirement for its employees, the employee must be informed of this fact and the employee also must be permitted to keep tips, unless the employee is part of a tip pool with other employees who regularly receive tips.

Here, the servers argued that because they were never informed of the FLSA’s tip-credit provision, and the tip-pooling arrangement included employees that were not regularly tipped (such as busboys), the employers’ tip-pooling arrangements were invalid. The appeals court observed that it was not clear that the language of Sec. 203(m), standing alone, achieved what the servers claimed. Rather, when read in context, this language could give rise to a cause of action only if the employer was using tips to satisfy the minimum wage requirements. Thus, the statutory requirements that an employer inform an employee of Sec. 203(m) and permit the employee to retain all his tips, unless the employee is in a tip pool with other regularly tipped employees, did not apply to employees like the servers, concluded the court, who were seeking only the recovery of the tips unrelated to a minimum wage or overtime claim.

Concurrence

Judge Harris concurred in the majority’s holding that the FLSA did not provide a private cause of action to remedy the violations alleged by the servers in this case. However, she wrote separately to explain why that result could be reached without commenting on the scope of the substantive protections of Sec. 203(m). After pointing out that Sec. 216(b) provides a private right of action when an employer violates the FLSA, Judge Harris noted that the private remedy is available only when an employee is owed “unpaid minimum wages, or unpaid overtime compensation.” The injury alleged by the servers–that they were required to share their tips with other employees in a way that did not conform to Sec. 203m’s “tip-sharing” standards–simply was not the sort redressable in a private FLSA lawsuit. Section 216(b) specifies that the only remedy it makes available to private plaintiffs is damages “in the amount” of their “unpaid minimum wages” or “unpaid overtime compensation,” plus an equal amount in liquidated damages. (Trejo v. Ryman Hospitality Properties, Inc., 4thCir, 165 LC 036,363.)

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