As we have discussed previously, in early September the U.S. Department of Labor (“DOL”) withdrew its appeal of last November’s ruling from the Eastern District of Texas preliminarily enjoining the Department’s 2016 Final Rule that, among other things, more than doubled the minimum salary required to satisfy the Fair Labor Standards Act’s executive, administrative, and professional exemptions from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).  The DOL abandoned its appeal in light of the district court’s ruling on August 31, 2017 granting summary judgment and holding that the 2016 increase to the salary level conflicted with the statute and thus was invalid, a ruling that rendered the appeal of the injunction moot.

On October 30, 2017, to the surprise of many observers, the DOL filed a notice of appeal regarding the district court’s summary judgment ruling, taking the case back to the U.S. Court of Appeals for the Fifth Circuit.   Four days later, the DOL filed an unopposed motion asking the Fifth Circuit to stay the appeal in light of the Department’s pending rulemaking to update the salary requirement.  On November 6, 2017, the Fifth Circuit granted the motion, staying the appeal pending the outcome of the new rulemaking.

The DOL’s maneuvers may appear confusing. In short, the district court’s summary judgment ruling causes a certain amount of heartburn for the Department because the court in effect concluded that although the DOL has the authority to require a minimum salary for these exemptions, there is a point beyond which the Department cannot go without having the salary level deemed invalid.  The court did not, however, provide a clear standard for identifying the outer limit of the Department’s authority to impose a salary threshold, and this uncertainty creates confusion and a risk of time-consuming and expensive litigation for the Department — and for employees and employers throughout the country.

By appealing the summary judgment ruling, the DOL preserves the option of challenging the decision rather than simply allowing it to remain on the books as a precedent.  Once the Department completes the rulemaking process and issues an updated salary standard, the likely final move would be for the Department to move to dismiss the litigation and to vacate the district court’s order on the basis that the challenge to the 2016 Final Rule has become moot.  Once the new rule is in place and the district court’s summary judgment ruling is no longer on the books, it will be as though the 2016 Final Rule never happened.

We will keep you posted as this matter develops.

As many will recall, the Department of Labor’s (“DOL”) overtime rule, increasing the salary threshold for overtime exemptions at the behest of the Obama administration, was scheduled to take effect on December 1, 2016. Months later, it remains in limbo before the Fifth Circuit Court of Appeal. And it apparently will remain in limbo for at least several more months.

After publication of the final overtime rule on May 23, 2016, two lawsuits were filed by a coalition of 21 states and a number of business advocacy groups, claiming that the DOL exceeded its rulemaking authority in finalizing the overtime rule. The lawsuits, which were consolidated, sought a variety of relief, including a preliminary injunction blocking the overtime rule from taking effect.

Days before the final rule went into effect, the United States District Court for the Eastern District of Texas granted Plaintiffs’ motion and issued a nationwide preliminary injunction. Prior to President Trump’s inauguration, the Department of Labor appealed the order to the Fifth Circuit. Thereafter, the DOL was granted two extensions of time to consider whether it wished to proceed with the appeal.

The most recent extension was set to expire on May 1, 2017 . Now, the DOL has requested – and the Fifth Circuit has granted – yet another 60-day extension because Secretary of Labor nominee Alexander Acosta has not yet been confirmed. In granting the extension, the Fifth Circuit continued the DOL’s deadline to file its reply brief to June 30, 2017.

This most recent extension will give additional time to the DOL to evaluate its options, which includes abandoning the appeal and any further efforts to implement and enforce the overtime rule. It is important to keep in mind, however, that even though Secretary of Labor Nominee Acosta does not appear to support the Obama administration’s plan to more than double the salary threshold, he has expressed opinions that suggest he would support updating the overtime rule to some degree, possibly increasing the salary threshold to mirror inflation. It is also important to be mindful that certain states, including New York and California, have a higher minimum salary threshold than the current federal requirement of $455 per week. We will continue to monitor and report on this important matter as it develops.

Tips Do Not Count Towards the Minimum Wage Unless a Worker Qualified as a “Tipped Employe"In Romero v. Top-Tier Colorado LLC, the Tenth Circuit Court of Appeals ruled that tips received by a restaurant server for hours in which she did not qualify as a tipped employee were not “wages” under the FLSA, and therefore should not be considered in determining whether she was paid the minimum wage.

Tipped Employees & the FLSA

The FLSA provides that employers may take a “tip credit” and pay employees as little as $2.13 per hour if: (i) the tip credit is applied to employees who customarily and regularly receive tips; (ii) the employee’s wages and tips are at least equal to the minimum wage, and (iii) all tips received by a tipped employee are retained by the employee or pooled with the tips of other tipped employees.

In Romero, the Tenth Circuit noted that an employee may hold both tipped and non-tipped jobs for the same employer.  In those cases, the employee is entitled to the full minimum wage while performing the job that does not generate tips.

Moreover, the Circuit Court cited to the directive in the Wage Hour Division’s Field Operations Handbook stating that, if a tipped employee spends more than 20% of his or her time performing related-but-nontipped work, then the employer may not take the tip credit for the amount of time the employee spends performing those duties.

The Plaintiff’s Claims

The plaintiff in Romero worked as a server at the defendants’ restaurant.  The defendants paid her a cash wage of $4.98 an hour, and took a tip credit to cover the gap between the cash wage rate and the federal minimum wage.

The plaintiff contended that she also worked in nontipped jobs for the defendants, and that she spent more than 20% of her workweek performing related-but-nontipped work. Therefore, she concluded she was entitled to a cash wage of at least $7.25 per hour during certain hours, and filed a lawsuit in the U.S. District Court for the District of Colorado claiming violations of the federal minimum wage.

The defendants’ moved to dismiss the complaint because plaintiff did not allege that her total weekly earnings, when divided by the number of hours worked, ever fell below the federal minimum wage rate. The District Court reasoned that a minimum wage violation is determined by dividing an employee’s total pay in a workweek by the total number of hours worked that week.  Because the plaintiff did not allege facts that would establish such a violation, the District Court granted the defendants’ motion and dismissed the complaint.

In light of that reasoning, the District Court never considered whether the plaintiff was properly considered a tipped employee.

When are Tips Considered “Wages” Paid by the Employer?

The Tenth Circuit Court of Appeals reversed the judgment of the District Court. The Tenth Circuit “assumed” that the district court correctly stated that an employer satisfies the FLSA’s minimum wage requirements so long as, after the total wage paid to each employee during any given week is divided by the total time that employee worked that week, the resulting average hourly wage is $7.25 per hour or more.

But the Tenth Circuit held that the existence of a minimum wage violation depends on the “wages” paid by an employer to an employee. The Court stated that tips are “wages” paid by an employer only when the tips are received by a worker who qualifies as a tipped employee under the FLSA.

Accordingly, the Tenth Circuit reversed the District Court’s dismissal of the plaintiff’s complaint. The Tenth Circuit directed the District Court to reconsider its ruling by examining the threshold question of whether the tips received by the plaintiff were “wages” for purposes of the minimum wage requirements of the FLSA.

What is the Impact of an Improper Tip Credit?

Assume, for example, that the plaintiff worked 40 hours in a given week, was paid cash wages of $199.20 (or $4.98 per hour) and received tips of $90.80.

If the evidence demonstrates that the plaintiff was a tipped employee at all times, she was paid wages of $290.00 (or $7.25 per hour) and the defendants did not violate the federal minimum wage.

However, the evidence could demonstrate that the plaintiff performed so much related-but-nontipped work that she did not qualify as a tipped employee at any time. As explained by the Tenth Circuit, the plaintiff’s tips would not count as wages and therefore she was paid $90.80 below the minimum wage.  The defendants could then be liable to her for that amount (as well as potential liquidated damages and attorneys’ fees).

The Tenth Circuit’s decision is consistent with the rulings of other circuit courts. Therefore, employers who are taking tip credits therefore must pay close attention to the specific requirements of the FLSA, and should not consider themselves insulated from liability merely by the fact that their tipped employees are earning more than the minimum wage.

A Maine dairy company has received a potentially expensive grammar lesson from the U.S. Court of Appeals for the First Circuit, which held on March 13, 2017, that the company’s delivery drivers may be eligible for up to $10 million in overtime pay, because the lack of a comma in the statute regarding exemptions from the state’s wage and hour law rendered the scope of the exemption ambiguous.

Grammarians have long disputed whether writers should include a comma before the final item in a list—the so-called “serial” or “Oxford” comma.  Opponents of the serial comma consider it superfluous.  Supporters argue that the serial comma is necessary to eliminate potential ambiguity, as in the example, “I’d like to thank my parents, Ayn Rand and God.”  Are Ayn Rand and God the writer’s parents, or are they being thanked in addition to his or her parents?  Without the serial comma, it is impossible to know.

Similarly, this case, O’Connor v. Oakhurst Dairy, arose “[f]or want of a comma” in the Maine law exempting from overtime compensation employees involved in the “canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of” various perishable goods.  Without the controversial serial comma after “shipment,” the court found it unclear whether the exemption was meant to apply to one category of employees (i.e., those who pack goods, whether for shipment or for distribution) or two (i.e., those who pack goods for shipment, and those who distribute the goods).  Because the plaintiff drivers admittedly distributed goods, but claimed they did not pack goods or engage in any of the other activities specified in the exemption, their case could only proceed if the First Circuit reversed the district court’s ruling that the exemption encompassed both packers and distributors.

In an opinion that should appeal to grammar aficionados everywhere, the First Circuit extensively analyzed the language of the statute in light of “certain linguistic conventions,” or “canons,” including: (i) the rule against surplusage, which states that no word in a statute should be treated as unnecessary; (ii) the convention of using a conjunction before the last item on a list; (iii) the parallel usage convention, which requires words performing the same grammatical function to be presented in the same form; and (iv) the use of the serial comma itself, which the Maine Legislative Drafting Manual generally disfavors, except when its omission may cause the sort of ambiguity presented here.  After engaging in this analysis, and proving unable to determine the law’s clear meaning from the statutory text or its legislative history, the court reversed the district court and held it must “adopt the delivery drivers’ reading of the ambiguous phrase . . . , as that reading furthers the broad remedial purpose of the overtime law, which is to provide overtime pay protection to employees.”

While many commentators have viewed this opinion as an ode to, in the court’s words, “the clarifying virtues of serial commas,” ultimately that is a mere subset of the three broader lessons presented by this case, principles that should prove helpful to anyone who communicates via the written word—that is, all of us.

Lesson One — Say What You Mean

Given the context of this case, the first lesson presented by the court’s analysis was likely aimed primarily at the Maine Legislature, which drafted the ambiguous statute at issue. However, it is advice that all writers would be wise to follow—avoid ambiguity.  Whether drafting a statute, a brief, an employment policy, an email, or a Tweet, use language and punctuation (including the serial comma, where necessary) deliberately, to ensure that you actually write what you intend to say.  Review the grammar rules you may have ignored since middle school, and revise your writing as frequently as necessary, to guard against any accidental ambiguities like the one in the Maine wage and hour law.  Especially for attorneys, words are our primary weapons, and it is crucial that we wield them wisely.

Lesson Two — Remember Your Goal

The second piece of advice that arises from this case is somewhat related to the first—always keep the underlying purpose of a piece of writing in mind. Much as courts seek to effectuate the legislative intent of a statute, parties to a dispute should focus on what, specifically, they are trying to accomplish.  The delivery drivers in this case did not win because of a missing comma; they won because the extra compensation they sought was consistent with the broad remedial purpose of Maine’s wage and hour law.  As an advocate, you will be more likely to succeed if you can find a way to align the outcome you or your clients seek with the societal or legislative purpose the court is seeking to advance.

Lesson Three — Be Consistent (a.k.a., Don’t Be Your Own Worst Enemy)

The third lesson drawn from this case, despite being relegated to a seemingly insignificant footnote, may be the most important—make sure all of your messaging is consistent. In this case, the dairy company argued that the statutory exemption should be read as applying to both employees involved in “packing [goods] for shipment” and employees involved in “distribution” of the goods, because “shipment” and “distribution” are synonyms, and unless “packing for shipment” and “distribution” constituted two separate exempt activities, the statute would be redundant.  The court may have been more receptive to this argument, if it hadn’t noticed that the company’s “own internal organization chart seems to treat [shipment and distribution] as if they are separate activities,” significantly undercutting the company’s argument that the two terms were synonymous and redundant.  The company probably never considered the fact that its own organizational chart could be used against it, but any such inconsistency in a party’s messaging, even in a seemingly unrelated context like an org chart, may ultimately prove fatal to a contradictory legal claim the party seeks to assert sometime in the future.  Accordingly, especially for corporate entities, it is crucial to keep a single consistent and coherent viewpoint in mind when drafting any sort of company messaging, to prevent any inconsistencies from being used against the company at a later date.

Conclusion — It’s Not About the Comma

Contrary to the extensive media coverage of the “comma case,” this case offers a far broader lesson than “always use a serial comma.” Instead, the First Circuit’s opinion presents three fundamental principles that should apply in every context where the written word may prove determinative.  In essence, the opinion is a dissertation on the virtues of clarity in writing—a lesson that may cost Oakhurst Dairy up to $10 million, but which has been made available to the rest of us, free of charge.

Michael D. ThompsonThe Missouri Supreme Court has overturned a lower court’s ruling that St. Louis’ minimum wage ordinance is invalid, finding that the ordinance is not preempted by the state law.

St. Louis City’s Ordinance 70078 (“the Ordinance”) provides for a series of increases to the minimum wage for employees working within the boundaries of St. Louis. The plaintiffs argued that Ordinance 70078 was preempted by the state minimum wage law.  The plaintiffs contended that state law affirmatively authorized employers to pay as little as $7.65 per hour, the state minimum wage rate.

A trial court accepted the plaintiffs’ argument and, in October 2015, held that the Ordinance was invalid.

The Missouri Supreme Court reversed the trial court’s ruling and rejected the plaintiffs’ argument.  Because the state minimum wage law merely prohibits employers from paying employees a wage lower than the state minimum, local ordinances imposing higher minimum wages did not conflict with the state statute.

Furthermore, Missouri’s minimum wage law did not “occupy the field” of minimum wage laws. In fact, the Missouri Supreme Court noted that the state legislature had recognized and authorized local ordinances addressing minimum wages.

Notably, both the trial court and the Missouri Supreme Court rejected the plaintiffs’ argument based on Section 67.1571 of the Missouri Statutes, which prohibits “political subdivisions of this state from establishing or requiring a minimum wage that exceeds the state minimum wage.” The courts agreed that the Missouri Constitution prohibits bills containing more than one subject, and Section 67.1571 violated this requirement because its primary purpose was to establish community improvement districts.

Under the phase-in schedule in the Ordinance, the minimum wage in St. Louis was set to rise to $10.00 per hour on January 1, 2017 and $11.00 per hour on January 1, 2018, after which the minimum wage will be increased annually to reflect the rate of inflation.

St. Louis city officials issued a statement explaining that businesses will be provided “a reasonable grace period to adjust to the new minimum wage rate,” but will be subject to revocation of their business licenses if they do not comply with the Ordinance.

Our colleagues, Susan Gross Sholinsky, Dean L. Silverberg, Jeffrey M. Landes, Jeffrey H. Ruzal, Nancy L. Gunzenhauser, and Marc-Joseph Gansah have written an Act Now Advisory that will be of interest to many of our readers: “New York State Department of Labor Implements New Salary Basis Thresholds for Exempt Employees.

Following is an excerpt:

The New York State Department of Labor (“NYSDOL”) has adopted its previously proposed amendments to the state’s minimum wage orders to increase the salary basis threshold for executive and administrative employees (“Amendments”). The final version of the Amendments contains no changes from the proposals set forth by the NYSDOL on October 19, 2016. The Amendments become effective in only three days—on December 31, 2016.

While the status of the new salary basis threshold for exempt employees pursuant to the Fair Labor Standards Act (“FLSA”) is still unclear following the nationwide preliminary injunction enjoining the U.S. Department of Labor (“USDOL”) from implementing its new regulations,this state-wide change requires immediate action for employers that did not increase exempt employees’ salaries or convert employees to non-exempt positions in light of the proposed federal overtime rule.

Read the full post here.

Even employers who were opposed to the new overtime regulations are in a quandary after the District Court for the Eastern District of Texas enjoined the Department of Labor from implementing new salary thresholds for the FLSA’s “white collar” exemptions.

Will the injunction become permanent?  Will it be upheld by the Fifth Circuit? 

Will the Department of Labor continue to defend the case when the Trump Administration is in place? 

What does the rationale behind the District Court’s injunction (that the language of the FLSA suggests exempt status should be determined based only on an employee’s duties) mean for the $455-per-week salary threshold in the “old” regulations?

As noted in our post regarding the injunction, whether employers can reverse salary increases that already have been implemented or announced is an issue that should be approached carefully.

For example, employers should be aware that state law may specify the amount of notice that an employer must provide to an employee before changing his or her pay.

In most states, employers merely need to give employees notice of a change in pay before the beginning of the pay period in which the new wage rate comes into effect.

But some states require impose additional requirements.  The New York Department of Labor, for example, explains that if the information in an employee’s wage statement changes, “the employer must tell employees at least a week before it happens unless they issue a new paystub that carries the notice. The employer must notify an employee in writing before they reduce the employee’s wage rate. Employers in the hospitality industry must give notice every time a wage rate changes.”

Maryland (and Iowa) requires notice at least one pay period in advance.  Alaska, Maine, Missouri, North Carolina, Nevada and South Carolina have their own notice requirements.

Employers who are making changes to wage rates based on the status of the DOL’s regulations should be nimble – while also making sure that they are providing the notice required under state law.

On October 21, 2016, a Pennsylvania appeals court found that a group of franchisees were in violation of the state’s Wage Payment and Collection Law (“WPCL”) when they required employees to be paid with payroll debit cards. While the WPCL only permitted wage payment in cash or check, the Pennsylvania court noted that voluntary use of payroll debit cards may be an appropriate method payment. In this case, the court held that mandatory use of payroll debit cards was not lawful, as it may subject the employee to fees without his or her consent.

Two weeks later, on November 4, 2016, the Pennsylvania legislature adopted new legislation amending the WPCL and officially including payroll debit cards as a permissible form of payment by employers, provided that several conditions are met. The new law takes effect on May 5, 2017.

Under the new law, the use of payroll debit cards is permitted if, among other things:

  • The payroll card account is established at a financial institution whose funds are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration;
  • The employer does not make the payment of wages, salary, commissions or other compensation by means of a payroll card account a condition of employment or a condition for the receipt of any benefit for any employee;
  • Prior to obtaining an employee’s authorization, the employer provides the employee with clear and conspicuous notice, in writing or electronically, of all of the following: all of the employee’s wage payment options, the terms and conditions of the payroll card account option, including the fees that may be deducted, a notice that third parties may assess fees in addition to the fees assessed by the card issuer, and the methods available to the employee for accessing wages without fees;
  • The payroll card account provides the employee with the ability without charge to make at least one withdrawal each pay period and one in-network ATM withdrawal each pay period;
  • The payroll card account provides the employee with a means of ascertaining the balance in the employee’s payroll card account through an automated telephone system or other electronic means without cost to the employee; and
  • An employer does not use a payroll card account that charges fees to the employee for any of the following: the application, initiation or privilege of participating in the payroll card program, the issuance of the initial payroll card, the issuance of one replacement card per calendar year upon request of the employee, the transfer of wages, salary, commissions or other compensation from the employer to the payroll card account, purchase transactions at the point of sale, and nonuse or inactivity in a payroll card account consisting of the failure to withdraw funds from an account, deposit funds into an account, transfer funds to another person or use an account for purchase transactions, if the nonuse or inactivity is less than 12 months in duration.

Pennsylvania employers now have another option in paying employees. Payroll debit card regulations have been introduced in many states, so employers should ensure they review any applicable laws before setting up these cards.

Over the past year, there has been an increased discussion of Fair Labor Standards Act (“FLSA”) requirements for tipped employees. The courts have focused on a number of issues related to tipped employees, including addressing who can participate in tip pools and whether certain deductions may be made from tips. While the FLSA requires employers to pay a minimum wage of $7.25 per hour in most cases, Section 203(m) of the FLSA provides that employers may take a “tip credit” and pay as little as $2.13 per hour to employees who customarily and regularly receive tips, so long as two criteria are satisfied:

  • the employee’s wages and tips are at least equal to the minimum wage, and
  • all tips “received” by a tipped employee are actually retained by the employee or added into a tip pool that aggregates the tips of a group of tipped employees.

Notably, 29 CFR § 531.55 states that a “compulsory charge for service . . . imposed on a customer by an employer’s establishment, is not a tip . . . .” However, some states (such as New York) have their own requirements for determining whether a service charge will be considered a “tip.”

Who Can Be Treated as a Tipped Employee?

When a tip pool is covered by Section 203(m) of the FLSA, an employer may not divert tips from tipped employees by including “non-customarily tipped employees” in the tip pools. But whether an employee customarily (and regularly) receives tips may be unclear.

In Montano v. Montrose Restaurant, the U.S. Court of Appeals for the Fifth Circuit considered a tip pool in which the employer included a “coffeeman,” and the parties submitted conflicting evidence regarding the coffeeman’s duties. The Fifth Circuit concluded that an employee can be part of a tip pool if it can be expected that the customer intended the employee to receive a portion of the tip. Satisfying that requirement depends on such factors as whether the employee had more than a de minimis interaction with the customers who leave the undesignated tips and whether the employee is engaging in customer service functions.

In Schaefer v. Walker Bros. Enterprises, the Seventh Circuit evaluated a plaintiff’s contention that he and other employees at his restaurant (who primarily worked in a tipped capacity) had to be paid the full minimum wage during any time spent performing non-tipped work. The Seventh Circuit noted that the DOL’s Field Operations Handbook states that an employer may pay the tip-credit rate for time that tipped employees spend on non-tipped duties “related to” their tipped work. According to the Seventh Circuit, making coffee, cleaning tables, and “ensuring that hot cocoa is ready to serve” and that “strawberries are spread on the waffles” are activities related to a tipped server’s work. The Seventh Circuit characterized other duties, however, such as wiping down burners and woodwork and dusting picture frames, as “problematic” because they did not seem to be “closely related to tipped duties.” But the time spent on those duties was “negligible” and therefore did not require the restaurants to pay the normal minimum wage rather than the tip-credit rate for those minutes.

Can Credit Card Fees Be Deducted from “All Tips”?

In Steele v. Leasing Enterprises, Ltd., the Fifth Circuit considered whether an employee is receiving “all tips” when an employer deducts the costs and fees associated with collecting tips that are paid through a customer’s credit card.

To offset costs associated with credit card tips, the defendant retained 3.25 percent of any tips paid by credit card. According to the defendant, the costs included not only fees charged by the card issuer, but also the cost of cash deliveries made by an armored vehicle three times per week to ensure that the employees could be paid their tips on a daily basis (as the employees had requested).

Based on prior authority from the Sixth Circuit and a DOL opinion letter, the Fifth Circuit agreed that the defendant could offset credit card tips by the amount of the credit card issuer fees and still satisfy the requirements of Section 203(m). One week later, the Southern District of Ohio reached a similar conclusion in Craig v. Landry’s, Inc., ruling that “controlling precedent specifically permits” the deduction of credit card processing fees as long as the amount of the deduction “reasonably approximates the charge incurred by the employer.”

What Other Fees or Costs Can Be Deducted from “All Tips”?

After approving the deduction of credit card issuer fees from the gross tips in Steele, the Fifth Circuit turned to the question of whether an employer violates Section 203(m)’s requirements if the employer deducts costs other than direct fees charged by the credit card issuers. The defendant argued that employers could deduct the additional expenditures associated with paying credit card tips and still maintain the tip credit. Specifically, the defendant argued that the additional costs that it was incurring in arranging for the payment of tips paid via credit card, such as the cost of the armored car deliveries to its restaurants, could be deducted from the gross tips.

The Fifth Circuit concluded that “an employer only has a legal right to deduct those costs that are required to make such a collection.” While the defendant had no choice but to pay to credit card issuer fees, the costs relating to its thrice-weekly armored car deliveries were discretionary costs resulting from internal business decisions by the defendant. Therefore, deducting those amounts from employees’ tips was a violation of Section 203(m).

It is worth noting the Eastern District of New York added an interesting twist to this principle in Widjaja v. Kang Yue USA Corp. The court had previously ruled that the defendant violated the minimum wage as a result of, among other things, improperly withholding 11.5 percent of credit card tips. In a late-2015 ruling on damages, the court found that the defendant was liable for the difference between the minimum wage and the hourly wage that it actually paid its tipped employees. Moreover, the court in Widjaja held that the wage deficiency could not be offset by the tips actually received by the tipped employees because those tips were not an hourly wage. Consequently, because it improperly applied the tip-credit rule, the employer received no credit against the minimum wage for the tips actually received by its tipped employees.

Is There a Cause of Action for Withheld Tips If the Employer Does Not Take a Tip Credit?

Several years ago, the DOL revised 29 C.F.R. § 531.52 to provide that all tips are the property of the employee and, thus, must be passed along to the tipped employee or a pool of tipped employees regardless of whether the employer has taken a tip credit under Section 203(m). Because the FLSA, on its face, does not specifically prohibit or address wage deductions that do not result in minimum-wage violations, there has been substantial controversy regarding the DOL’s authority to issue this regulation.

Earlier this year, in Oregon Rest. & Lodging Ass’n v. Perez, the Ninth Circuit noted that Section 203(m) of the FLSA is silent as to employers that do not take a tip credit. Therefore, the Ninth Circuit concluded that the DOL has the authority to regulate “tip pooling” practices even if employers do not take tip credits. Conversely, this past summer, federal courts in Florida and Georgia arguably joined with the position taken by the Fourth Circuit and courts in Maryland, New York, and Utah that Section 203(m) of the FLSA does not create a cause of action for improperly withheld tips unless the employer is taking a tip credit.

A version of this article originally appeared in the Take 5 newsletter Five Critical Wage and Hour Issues Impacting Employers.”