Employment Law Daily Restaurant may pursue defense that its servers asked to work ‘off the books’
Thursday, April 21, 2016

Restaurant may pursue defense that its servers asked to work ‘off the books’

By Dave Strausfeld, J.D. A restaurant that allegedly required its servers to work solely for tips could defend itself by arguing that most of its servers asked to remain "off the books" to avoid federal and state tax liability, held a federal district court in Maryland, denying the servers’ motion for partial summary judgment on their FLSA minimum-wage and overtime claim. The restaurant’s in pari delicto defense required it to show that the servers bore at least substantially equal responsibility for the FLSA violations, and this ultimately would require a jury to resolve a credibility dispute between the restaurant’s general manager, who said most servers asked to work only for tips, and the servers themselves, who denied they had made any such request (Jackson v. Egira, LLC, April 18, 2016, Bennett, R.). Allegedly not paid any hourly wage. Employed at a Baltimore, Maryland restaurant, the servers alleged they never received an hourly wage and their compensation stemmed solely from customer tips. The restaurant’s general manager responded that most of the servers requested this arrangement, as they wished to remain "off the books" to avoid federal and state income taxes. In pari delicto defense. Defending against the servers’ minimum-wage and overtime claims, the restaurant asserted the common-law in pari delicto defense, which says that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing. In the context of a claim brought under a federal statute, the common-law doctrine may be applied to bar recovery only where (1) the plaintiff bears at least substantially equal responsibility for the violations he or she seeks to redress; and (2) preclusion of the suit would not substantially interfere with the statute’s policy goals, according to the Supreme Court’s discussion of the doctrine in a 1985 securities law case, Bateman Eichler, Hill Richards, Inc. v. Berner. Were servers culpable too? The first prong of the test for in pari delicto required assessing whether the servers bore at least substantially equal responsibility for the restaurant’s FLSA violations. Here, there was a genuine factual dispute on this question: While the restaurant’s general manager insisted that most of the servers had asked to work "off the books" so they could remain invisible to taxing authorities, the servers denied they ever made such requests. Thus, determining whether the servers were "active, voluntary participants" in the restaurant’s failure to pay them minimum wages and overtime compensation would require a jury to resolve a credibility dispute. As such, the court did not need to consider the second prong of the test, which was whether applying the doctrine would be consistent with the policies underlying the FLSA. In sum, "it is premature to conclude that in pari delicto applies to bar recovery" by those servers who allegedly asked to work only for tips, the court concluded. Affidavits. On a separate issue, the servers argued that the restaurant had failed to rebut their affidavits estimating the number of hours they worked per week because the restaurant did not produce appropriate payroll records. Not so, said the court. An employer may rebut employees’ affidavits by offering evidence of the precise amount of work performed or by negating the reasonableness of the inference to be drawn from the employees’ evidence. Here, the restaurant followed the latter approach by calling into question whether certain servers were being truthful in claiming to have worked a greater number of weekly hours than, under the restaurant’s longstanding scheduling policy, it ever scheduled any server to work. Because a genuine factual dispute existed, the issue would have to be resolved at trial. So too would the question whether the restaurant’s owner, individually, was their "employer" for purposes of the FLSA.

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