Labor & Employment Law Daily Requiring servers to pay into tip pool shared in by non-tipped employees unlawful
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Monday, June 29, 2020

Requiring servers to pay into tip pool shared in by non-tipped employees unlawful

By Brandi O. Brown, J.D.

By taking the tip credit and paying the servers only $2.15 per hour, while also requiring them to pay a percentage of their tips into a pool distributed to employees who were not customarily and regularly tipped, as well as a part-owner, the defendants became liable.

In a collective action filed by restaurant servers, who alleged violations of the FLSA by the restaurant and two owners, a federal district court in Texas granted the conditionally certified collective action plaintiffs’ partial motion for summary judgment. The court concluded that the restaurant was liable for unpaid minimum wages. It also concluded that the defendants failed to establish that they had acted in good faith. Aiding the court in reaching its decision was the fact that defendants failed to respond to the plaintiffs’ motion. Moreover, the court granted the plaintiffs’ motion with regard to the employer status of the two individual defendants, finding that both individual defendants acted as an employer for purposes of the FLSA. It denied a motion for summary judgment filed by one of the individual defendants (Williams v. Sake Hibachi Sushi & Bar, Inc., June 18, 2020, Fitzwater, S.).

Required tip pool. According to the plaintiffs, who are current and former employees of Sake Hibachi Sushi & Bar, they were paid $2.15 per hour, plus tips, for the hours they worked for the restaurant. Under their employment agreement, however, they were required to place a portion of the tips they earned during each shift into a “tip pool.” From that pool, the employer retained a portion of those tips for itself and distributed the remainder to one of the individually named defendants, as well as other non-tipped employees. In 2018 the federal district court granted the motion for conditional certification of a collective action filed by the named plaintiff, who alleged on behalf of herself and other similarly situated workers that the employer violated the FLSA by failing to pay them minimum wage.

After conditional certification, the plaintiffs moved for partial summary judgment on their claim for unpaid minimum wages. One of the individual defendants also moved for summary judgment, arguing that she was not an “employer” under the FLSA, but did not respond to the employees’ motion. The restaurant also failed to respond to the employees’ motion for partial summary judgment.

Covered employer. Based on the employees’ undisputed evidence that the Department of Labor had found that the employer was a covered enterprise under the FLSA, that it had gross sales of at least $500,000, and that it had employees who handled goods and materials that were moved in interstate commerce, the court found the employer to be a covered enterprise. The employees also established “beyond peradventure” that they were paid $2.15 per hour, which was less than the minimum wage prescribed by section 206(a) of the Act.

Tip credit inapplicable. Although employers are permitted to pay “tipped employees” at a reduced rate under an exception to the minimum age requirement, that “tip credit” could only be claimed under certain circumstances. Even if the restaurant had pleaded the tip credit as an affirmative defense, which it did not, neither of those requirements were met. First, the employer must have informed the employees of the provisions contained in section 203(m) and there was no evidence that the employer had done that. Second, the tipped employees must retain all of their tips. In this case, the restaurant failed to refute the employees’ evidence that it had retained a portion of their tips and that it had required the employees to share tips with, among others, one of their employers. If the employee must share tips with other, non-tipped employees, the employer cannot take the tip credit. In this case, the employer did not establish that it could claim a tip credit. Thus, it failed to pay the minimum wage.

Good faith not proven. As to the employees’ motion for summary judgment on the defendants’ good faith defense, the court likewise granted the motion. The burden was on the employer to prove that the requirements for establishing the defense, i.e., that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing this act or omission did not violate the Act. However, the restaurant failed to respond to the motion and the employees maintained that it had no evidence to support its burden of proof. The court granted the employees’ motion on this affirmative defense, as well as others pleaded by the employer in its answer.

Individual defendants were “employers.” Finally, the employees moved for partial summary judgment on the employer status of the two individually named defendants, an owner and part-owner of the restaurant. With regard to the part-owner, not only did the defendant not respond to the motion, but the court also found that the employees established under the economic reality test that the part-owner was their employer for purposes of the FLSA claim. They contended, and, among other things, she admitted, that she was a part-owner and manager, that she was an active and hands-on manager, that she scheduled employees, supervised them, hired and fired employees, directed workflow, determined staffing needs, and ran the day-to-day operations of the business. In fact, during previous investigations of this restaurant, the DOL found she was an employer under section 203(d).

With respect to the other owner, who did not respond to the plaintiffs’ motion but filed her own motion for summary judgment, the result was the same. In addition to not responding to the summary judgment motion, the owner also failed to respond to requests for written discovery and was deemed to have admitted them. (She unsuccessfully moved to withdraw or amend those admissions.) Her actions satisfied the economic reality test as well, the court concluded, and she was individually liable as an employer. Her motion was denied.

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