North Carolina Lawyers Weekly
Where restaurant employees claimed that tips and automatic gratuities could not be considered in determining whether their employer met its obligations under the Fair Labor Standards Act, or FLSA, it was error to apply a statutory exemption—29 U.S.C. § 207(i)—to the minimum-wage requirements of the law. The exemption applies only to overtime obligations; it says nothing about non-overtime minimum-wage requirements.
Background
Ãn Asian Cuisine paid its servers an hourly rate plus tips and automatic gratuities, which generally consisted of 20% of the bill for parties of six or more. When combined, the hourly wage, tips and automatic gratuities almost always exceeded the FLSA’s minimum-wage and overtime requirements.
The employees claim, however, that the tips and automatic gratuities cannot be considered in determining whether Ãn met its FLSA obligations because they were paid through an unlawful tip pool. Tip pools must only include employees who customarily and regularly receive tips. Ãn, according to the employees, included in its tip pool employees who did not meet that criteria. Therefore, the employees claim Ãn violated the FLSA.
The district court entered summary judgment in favor of Ãn. It determined that the automatic gratuities were commissions, which entitled Ãn to invoke a statutory exemption to the FLSA’s requirements—29 U.S.C. § 207(i). It further held that the automatic gratuities satisfied the requirements of the 7(i) exemption for most weeks at issue here and, for those that it did not, the tip pool was valid as a matter of law.
7(i) exemption
The employees insist the automatic gratuities cannot be considered anything but tips because Ãn told employees that tips would be used as a credit against Ãn’s FLSA obligations. It is true the FLSA requires such a notification if an employer uses the tip credit to satisfy its FLSA obligations, and that Ãn provided such notice. Nonetheless, that does not negate Ãn’s ability to rely on other avenues to satisfy its FLSA obligations.
Alternatively, the employees argue that there are genuine issues of material fact as to whether the automatic gratuities are tips or commissions. While the employees do raise a factual dispute about whether Ãn charged every qualifying group of six or more customers an automatic gratuity, because the regulatory requirements for a tip require that the sum of money is “determined solely by the customer,” and it is undisputed that the customers did not have unfettered discretion to leave (or not leave) the 20% gratuity, the employees have not raised a material question of fact.
Finally the employees argue the district court erred in its application of the 7(i) exemption. They first argue that the district court incorrectly held that the 7(i) exemption satisfied both Ãn’s minimum-wage and overtime obligations. The court agrees. The 7(i) exemption applies only to overtime obligations. It says nothing about the FLSA’s non-overtime minimum-wage requirements, which apply regardless of whether overtime is also due.
Second, the employees argue that the automatic gratuities fail to satisfy the requirements of the 7(i) exemption. The employees argue that it was necessary to include both tips and automatic gratuities in determining whether the automatic gratuities exceeded 50% of the employees’ total compensation. The employees’ arguments on this point are persuasive. The district court erred in declining to include tips when determining whether the automatic gratuities constituted more than half of the employees’ compensation for a representative period.
Tip pool
The record contained conflicting evidence about the interactions with customers of Nicholas Papas, the kitchen closing supervisor who also sometimes served as an expediter. This was a quintessential factual dispute that is both genuine and material to the employees’ claims about the validity of the tip pool. The district court erred in discounting the conflicting evidence about Papas’s duties. As such, assuming the automatic gratuities—either as service charges or by another method—do not satisfy Ãn’s FLSA obligations, this court’s decision about Papas is enough to create a genuine issue of material fact about the validity of the tip pool.
Retaliation
The district court held that Wai Man Tom’s retaliation claims fail as a matter of law because he has not shown that he suffered an adverse employment action after complaining to management about wage and hour policies. Even viewing the evidence in the light most favorable to Tom, this court agrees that Tom has not articulated a genuine issue of material fact as to whether he suffered an adverse employment action.
Affirmed in part, vacated in part and remanded.
Tom v. Hospitality Ventures LLC (Lawyers Weekly No. 001-131-20, 27 pp.) (A. Marvin Quattlebaum Jr., J.) Case No. 18-2509. Nov. 24, 2020. From E.D.N.C. (Louise W. Flanagan, J.) Gilda Adriana Hernandez for Appellant. John R. Hunt for Appellees.
