Court Report

By David W. McBride, Jonathan E. O’Connell and William E. Pilchak Jan 7, 2015

010215_cover.jpgEmployers Must Give Actual Notice of Tip Credit

Perez v. Lorraine Enters. Inc., 1st Cir., No. 13-01685.

Restaurant employees’ constructive knowledge of their employer’s intention to claim a tip credit does not allow the employer to claim the minimum-wage exception under the Fair Labor Standards Act (FLSA), according to the 1st U.S. Circuit Court of Appeals.

Generally, the FLSA requires employers to pay their employees a minimum wage; failure to do so is unlawful and may result in serious civil penalties. This general requirement has several exceptions, one of which is known as the tip credit. Using this exception, employers may pay tipped employees below the minimum wage by counting the tips received to make up the difference between the hourly wage paid and the minimum wage. To benefit from the tip credit exception, an employer must meet three preconditions: 1) the employees are tipped employees receiving $30 or more in tips per month, 2) the employees retain tips received, and 3) the employer informs the employees that it intends to count a portion of the tips toward the required minimum wage.

Professional Pointer

When relying on an exception from the FLSA that requires notice to employees, send an affirmative message to workers rather than assuming that they will “get it” on their own.

In 2008, the Wage and Hour Division (WHD) of the U.S. Department of Labor began investigating the payroll practices of Piccolo e Posto, a restaurant in Guaynabo, Puerto Rico. WHD audited Piccolo e Posto’s payroll and time records and determined that the restaurant was paying its waiters below the required minimum wage, based on the hourly wage paid and “spillage fee” deductions from pay. In response, Piccolo e Posto argued that it was paying its employees in compliance with the FLSA based on the hourly wage actually paid to its employees and the tip credit.

The U.S. Department of Labor (DOL) filed a lawsuit against the restaurant and its owners, alleging that they violated the FLSA’s minimum-wage requirements, among other charges. After discovery, the DOL moved for summary judgment on the minimum-wage issue, arguing that Piccolo e Posto had failed to give its employees notice that it would be counting their tips toward the minimum-wage requirement and therefore could not claim the tip credit exception. The district court judge granted that motion and awarded the waiters unpaid wages amounting to nearly $130,000, plus interest. The restaurant appealed the ruling.

Piccolo e Posto’s appeal turned on whether there was any evidence that its waiters had received proper notice of the restaurant’s intention to use the tip credit. The restaurant’s general manager testified in a deposition that when he was initially hired as a waiter, he was not told about the tip credit and that during his time as general manager, new waiters were not informed of the tip credit either. In opposition, Piccolo e Posto argued that its waiters’ pay stubs clearly showed an hourly wage rate below the minimum wage and enough tips to bring the waiters’ wages above the minimum wage. The restaurant argued that these pay stubs gave the waiters constructive, if not actual, knowledge that the restaurant was claiming the tip credit.

In affirming the district court’s ruling on the motion for summary judgment, the appeals court clearly stated that the employer’s duty to inform its employees of its intention to use the tip credit is an affirmative duty that requires action rather than assumptions.

The court stated, “The FLSA requires that employees be informed by their employer that the employer intends to treat tips as satisfying a portion of the minimum wage. … While information on pay stubs might have tended to corroborate direct evidence of notice, the pay stubs themselves are not in evidence and the meager testimony about them is insufficient to support a finding that the defendants had complied with the FLSA’s notice requirement. Moreover, the duty to inform is an affirmative duty … which cannot be satisfied by the mere hope or assumption that employees will divine their employer’s intentions.”

In addition, the finding of individual liability was upheld. “The defendants admitted a string of material facts strongly suggestive of individual liability,” the court said. “They made no effort either to withdraw those admissions or to pursue a developed argument against individual liability until after both the magistrate judge and the district judge had ruled against them. This was too little and too late.”

By David W. McBride, an attorney with Skoler, Abbott & Presser P.C., the Worklaw® Network member firm in Springfield, Mass.

Court Affirms $5.8M Award in Wage and Hour Case

Bouaphakeo v. Tysons Foods Inc., 8th Cir., No. 12-3753.

The 8th U.S. Circuit Court of Appeals affirmed a $5.8 million wage and hour jury verdict in favor of a class of Tysons Foods employees working at the company’s Storm Lake, Iowa, meat production plant. The employees’ suit under the Fair Labor Standards Act (FLSA) and the Iowa Wage Payment Collection Law (IWPCL) claimed compensation for time spent putting on and taking off certain personal protective equipment before and after the production process. While Tysons paid employees for several set minutes of time per day to account for the donning and doffing of the safety equipment, the employees alleged that they were not adequately compensated for the actual time spent performing these tasks.

The employees’ claims were certified as a collective action under the FLSA and as a class action under the IWPCL. Following a nine-day jury trial in which the employees presented evidence of liability and damages by using individual time sheets, as well as average donning, doffing and walking times, the jury returned a verdict for the employees in the amount of nearly $2.9 million in unpaid compensation. The employees were awarded another $2.9 million in liquidated damages.

Professional Pointer

Employers should remain ever-vigilant in keeping accurate time records in accordance with the Fair Labor Standards Act and appropriately calculating hours worked by employees.

The company appealed the decision, asserting that the factual differences between the individual employees made collective and class certifications inappropriate.

In rejecting Tysons’ argument, the 8th Circuit noted the discretion trial courts have in determining whether to certify a group of employees as a collective and class action, and found that while there were some differences with respect to the employees’ routines, the claims were not “dominated by individual issues.”

By Jonathan E. O’Connell, an attorney with Torcivia, Donlon, Goddeau & Ansay P.A. in West Palm Beach, Fla.

Court Refuses to Impute Pro-Union Activity Knowledge

Gestamp South Carolina LLC v. NLRB, 4th Cir., No. 12-1041.

The 4th U.S. Circuit Court of Appeals ruled for the employer in a retaliation case, refusing to impute a lower-level supervisor’s knowledge of union-organizing activities to higher-level decision-makers.

In October 2009, Gestamp South Carolina LLC purchased from LSP Automotive a plant that manufactures auto parts. Gestamp retained LSP’s employees and personnel policies, which provided that misleading or false statements made during an interview or false entries in company records could result in termination.

Professional Pointer

Employers should welcome this repudiation of one of the traditional shortcuts used by the NLRB’s general counsel. The imputation of knowledge can result in liability where a decision-maker was wholly unaware of the protected activity and acted without animus.

In December 2009, two employees, David Kingsmore and Reggie Alexander, began a union-organizing campaign that was meant to be kept secret from management. Eventually the campaign became known by plant supervisors Michael Fink and Michael Sullivan. Fink warned Kingsmore that he would be “gone” if general manager Carmen Evola found out. Kingsmore then contacted Evola to deny rumors that he was part of the organizing effort.

In February 2010, Kingsmore was terminated by the company’s HR director for falsification of prior work history and not supplying documentation requested, and Alexander was terminated by the same director for falsifying his time sheet.

The National Labor Relations Board’s (NLRB’s) general counsel issued an unfair labor practice charge alleging that Gestamp discharged the men for pro-union efforts. The administrative law judge found that they were fired for anti-union animus. A three-member panel of the board affirmed the decision.

On appeal, the 4th Circuit reversed and held in favor of Gestamp, refusing to impute Fink and Sullivan’s knowledge of the organizing activities to the HR director or whomever else was involved in the termination decisions. The court rejected the argument that supervisory knowledge is automatically imputed to management.

By William E. Pilchak, a principal with Pilchak Cohen P.C., the Worklaw® Network member firm in the Detroit area.

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