Oregon Restaurant and Lodging Ass'n v. Perez: Ninth Circuit Revisits Tip Pooling

Just a quick word on Oregon Restaurant and Lodging Association v. Perez (9th Cir. 2/23/16). The opinion itself does a good job of stating the holding:

Under the Fair Labor Standards Act of 1938 (“FLSA”), as amended in 1974, an employer may fulfill part of its hourly minimum wage obligation to a tipped employee with the employee’s tips. 29 U.S.C. § 203(m). This practice is known as taking a “tip credit.” Section 203(m) of the FLSA obligates employers who take a tip credit to (1) give notice to its employees, and (2) allow its employees to retain all the tips they receive, unless such employees participate in a valid tip pool. Id. Under section 203(m), a tip pool is valid if it is comprised exclusively of employees who are “customarily and regularly” tipped. Id.

In both cases before this court, Employer-Appellees did not take a tip credit against their minimum wage obligation; they paid their tipped employees at least the federal minimum wage. Employer-Appellees required their employees to participate in tip pools. Unlike the tip pools contemplated by section 203(m), however, these tip pools were comprised of both customarily tipped employees and non-customarily tipped employees.  

In 2010, we held in Cumbie v. Woody Woo, Inc. [discussed here] that this type of tip pooling arrangement does not violate section 203(m) of the FLSA, because section 203(m) was silent as to employers who do not take a tip credit. 596 F.3d 577, 583 (9th Cir. 2010). In 2011, shortly after Cumbie was decided, the Department of Labor (“DOL”) promulgated a formal rule (“the 2011 rule”) that extended the tip pool restrictions of section 203(m) to all employers, not just those who take a tip credit. 76 Fed. Reg. 18,832, 18,841–42 (April 5, 2011).

The United States District Court for the District of Oregon held that Cumbie foreclosed the DOL’s ability to promulgate the 2011 rule and that the 2011 rule was invalid because it was contrary to Congress’s clear intent. Or. Rest. & Lodging v. Solis, 948 F. Supp. 2d 1217, 1218, 1226 (D. Or. 2013). The United States District Court for the District of Nevada followed suit. Cesarz v. Wynn Las Vegas, LLC, No. 2:13-cv-00109-RCJ-CWH, 2014 WL 117579, at *3 (D. Nev. Jan. 10, 2014). For the reasons set forth below, we reverse both district court decisions.

In other words, under the 2011 DOL rule, a tip pool is valid only if it is comprised exclusively of employees who are “customarily and regularly” tipped, whether the employer takes a tip credit or not. The opinion is available here.  

Avidor v. Sutter's Place: Court of Appeal OKs Casino Card Dealer Tip Pooling

In Avidor v. Sutter's Place, Inc. (1/23/13) --- Cal.App.4th ---, the Court of Appeal held that a casino's policy of requiring card dealers to contribute a portion of their tips to a tip pool did not violate California law.  The Court held: 

1. Evidence of the tipping customer's intent in leaving or providing the tip is not relevant, and the trial court did not err in excluding evidence of such intent at trial.  Even if the patron intended the tip to go only to the tipped employee, "that does not mean that the employee to whom it is given may keep it notwithstanding a policy he or she has agreed to in accepting employment."  Slip op. at 6-10.
2. Mandatory tip pools in casinos, where patrons typically give tips directly to individual employees -- rather than leaving them on the table to be picked up, as typically happens in restaurants -- does not violate Cal. Labor Code section 351.  Slip op. at 10-12. 
3. Substantial evidence supported the trial court's finding that the casino did not impermissibly include its agents -- those "having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees" -- in the pool.  Slip op. at 12-14.  
4. Tips given to dealers were not their property, and the casino did not commit conversion by requiring the dealers to contribute tips to the pool.  Slip op. at 14-15. 
5. The dealers failed to show that they contributed more to the tip pool than they received in tips, thus reducing their hourly wages below the minimum wage rate, and the trial court did not err in granting summary judgment on the minimum wage claim.  Slip op. at 15-16.  
6. Because tips given to dealers were not their property, and every dealer understood that tips contributed to the pool were contributed for the benefit of the other employees in the pool, the dealers could not state a cause of action for money had and received.  Slip op. at 16-19.  

The opinion is available here.  

Court of Appeal Upholds Los Angeles Hotel Service Charge Ordinance

In Garcia v. Four Points Sheraton LAX (September 8, 2010) --- Cal.Rptr.3d ---, 2010 WL 3491954, hotel banquet captains and servers sued their employers under the Los Angeles Hotel Service Charge Reform Ordinance and the Unfair Competition Law (UCL). The trial court (LASC, Highberger) sustained the defendant employers' demurrers without leave to amend. The Court of Appeal reversed. It held:

In this appeal, we address the validity of the Hotel Service Charge Reform Ordinance (Ordinance) enacted by the City of Los Angeles (the City), requiring non-unionized hotels in the Century Corridor near Los Angeles International Airport (LAX) to pass along mandatory service charges to workers who render the services for which the charges have been collected. The Ordinance is based upon the City’s determination that LAX-area hotels reap economic benefits from their location and have the responsibility and ability to pay these workers a decent compensation. Service workers have seen their income decline as a result of the hotels’ practice of imposing mandatory service charges because patrons assume these charges are paid to the workers and therefore do not leave them a gratuity.

Appellants are service workers who challenge the trial court’s dismissal of their lawsuits to enforce the Ordinance on the grounds that it is preempted by Labor Code sections 350 through 356, which govern the disposition of gratuities. Appellants contend the Ordinance does not conflict with the Labor Code because it neither contradicts the Labor Code nor enters the field of regulating gratuities. Although not addressed by the trial court, appellants also contend the Ordinance does not violate the equal protection clauses of the federal and state Constitutions, is not void for vagueness under the due process clause, and is not an unconstitutional taking.

We conclude the Labor Code does not preempt the Ordinance because the Labor Code provisions regulating gratuities are not irreconcilable with the Ordinance, and the Legislature has not demonstrated its intent to regulate in the field of service charges. We further conclude there is no equal protection violation under the deferential, rational basis standard, and the Ordinance is not otherwise Constitutionally infirm. Therefore, we reverse the judgments of dismissal entered following the trial court’s order sustaining the demurrers to the complaints without leave to amend.

Slip op. at 1. The full text of the opinion is available here.

Employer's Accountants Not Liable to Employees for Inaccurate W-2 Forms

In Giacometti v. Aulla, LLC (August 25, 2010) 187 Cal.App.4th 1133, the plaintiffs were waiters at Ago Restaurant in Los Angeles, owned in part by actor Robert DeNiro. They alleged that the restaurant required them to pool 40 percent of their tips and that the restaurant managers improperly allocated a percentage of the tips to themselves. The employees sued the restaurant, its managers, and its accountants, alleging accounting malpractice in preparing tax reporting forms that did not account for the tip sharing and thus over-reported their income, resulting in IRS audits.

The trial court (LASC, Jones) sustained the accountants' demurrer with prejudice and dismissed them from the case. The Court of Appeal affirmed, holding that the accountants owed no duty to the plaintiffs to verify the figures given to them by the restaurant.

To summarize, the scope of the accountants' employment by the restaurant in this case was to prepare year-end financial documents, including W-2 forms. There are no allegations in the charging complaint that the accountants knew that the restaurant's representation of employees' income was wrong at the time they prepared these documents, and there are no allegations that the accountants were hired to calculate, or in fact did calculate, employees' income for purposes of year-end reporting. The accountants did not owe the employees a duty of care under the negligence theory alleged in the second amended complaint. The trial court properly sustained the demurrer to this cause of action without leave to amend.

Slip op. at 5. The full text of the opinion is available here.

Cal. Supreme Court Finds No Private Right of Action for Tips

In Lu v. Hawaiian Gardens (August 9, 2010) --- Cal.4th ---, 2010 WL 3081272, a card dealer brought a class action action against his employer, alleging conversion and violations of Labor Code and Unfair Competition Law (UCL) arising out of the casino's mandatory tip pooling policy, which required the dealers to share 15-20% of their tips with other employees who provided services to casino patrons. The trial court granted judgment on the pleadings or summary adjudication to the casino on all claims. The plaintiff appealed, and the Court of Appeal affirmed in part and reversed in part.

The Supreme Court granted review limited to the sole issue of whether Labor Code section 351, which prohibits employers from taking employees' gratuities, gives employees a private right of action. The Court held that it does not.

Labor Code section 351 reads, in part:

No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.

The Court examined this language and held that it "does not unmistakabl[y] reveal a legislative intent to provide wronged employees a private right to sue." Slip op. at 3. Examining the legislative history, the Court found "no clear indication that the Legislature intended to create a private cause of action under the statute." Slip op. at 5.

In sum, we find that the declaration that “[e]very gratuity” is the “sole property of the employee or employees to whom it was paid, given, or left for” (§ 351), simply affirmed what courts had “long held”: that gratuities ordinarily belonged to the waiter or waitress absent a contrary agreement. (Ops. Cal. Legis. Counsel, No. 20547 (Nov. 4, 1971) Waiters and Waitresses: Tips and Gratuities, p. 1.) It did not reflect a legislative intent to give employees a new statutory remedy to recover any misappropriated gratuities.

Slip op. at 5.

The Court rejected the argument that denying a private right of action would prevent employees from recovering misappropriated tips.

Contrary to plaintiff's suggestion, our holding that section 351 does not provide a private cause of action does not necessarily foreclose the availability of other remedies. To the extent that an employee may be entitled to certain misappropriated gratuities, we see no apparent reason why other remedies, such as a common law action for conversion, may not be available under appropriate circumstances.

Slip op. at 7. Thanks to Scot Bernstein for pointing out that this may overrule the Court of Appeal's holding in Brewer v. Premier Golf Properties (2008) 168 Cal.App.4th 1243 (Labor Code violations sound in contract and do not support an award of punitive damages).

Lu v. Hawaiian Gardens Oral Argument Set for May 25, 2010

The California Supreme Court has announced that it will hear oral arguments in Lu v. Hawaiian Gardens Casino (Case No. S171442), on Tuesday, May 25, 2010, at 9:00 a.m., in San Francisco.

Ninth Circuit Issues FLSA Tip Pooling Case

In Cumbie v. Woody Woo, Inc., --- F.3d ----, 2010 WL 610603 (9th Cir. (Or) February 23, 2010), the Ninth Circuit held that a restaurant that pays its wait staff cash wages in excess of the FLSA minimum wage but requires them to participate in a tip pool that redistributes some of their tips to the kitchen staff does not violate the Fair Labor Standards Act (FLSA). The Court explained that:

1. Tip pooling agreements are presumed to be valid under FLSA; 
2. FLSA requires employers to pay their employees a minimum wage, but this may include a partial tip credit; and 
3. FLSA does not prevent employers from including in a tip pool employees who do not customarily receive tips. 

The Court rejected the plaintiff's argument that allowing employees who do not customarily receive tips to participate in a tip pool allows an employer to subsidize the wages of non-tipped employees with the tips of others. 

Supreme Court to Review Lu v. Hawaiian Gardens Tip Decision

The California Supreme Court today granted the plaintiff's petition for review in Lu v. Hawaiian Gardens Casino, Inc. (2009) 88 Cal.Rptr.3d 345. The Court limited its review to the following issue:

Does Labor Code section 351, which prohibits employers from taking "any gratuity or part thereof that is paid, given to, or left for an employee by a patron," create a private right of action for employees?

Our post on the Court of Appeal decision is here. The Supreme Court's docket is here.

Court of Appeal Issues Decision on Tip Pools

In Lu v. Hawaiian Gardens Casino, the Second District Court of Appeal on January 22, 2009, held: (1) Labor Code section 351 does not prohibit tip pooling in casinos; and (2) Although sections 351 and 450 contain no private right of action, they do serve as predicates for actions under the Unfair Competition Law. Not surprisingly, the Court confirmed that casinos and their "agents" -- that is, “every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees" -- may not take any part of a gratuity given to an employee by a patron.