Court Report

FLSA did not restrict tip-pooling arrangement; Nashville was not strictly liable under FMLA; more.

May 1, 2010

0510cover.gifFLSA Did Not Restrict Tip-Pooling Arrangement

Cumbie v. Woody Woo Inc., 9th Cir., No. 08-35718 (Feb. 23, 2010).

A restaurant employer that does not take a tip credit pursuant to 29 U.S.C. §203(m) may require servers to contribute to a tip-pooling arrangement that distributes a portion of the tips to employees not customarily tipped in the restaurant industry. This arrangement does not violate the Fair Labor Standards Act (FLSA), the 9th U.S. Circuit Court of Appeals held.

Vita Café in Portland, Ore., employed Misty Cumbie as a waitress. Vita Café is owned and operated by Woody Woo Inc., Woody Woo II Inc. and Aaron Woo (collectively, "Woo").

Professional Pointer: This case is a reminder that courts do not always accept the U.S. Secretary of Labor’s interpretation of the Fair Labor Standards Act.

At the time of Cumbie’s complaint, Woo paid other servers and her a cash wage that was $2.10 per hour more than the federal minimum wage. Woo required servers to contribute their tips to a "tip pool." Woo then redistributed the money in the tip pool to all restaurant employees, including kitchen staff. Servers received approximately 30 percent to 45 percent of the tips from the tip pool, in proportion to their hours worked.

Cumbie filed a class action claiming that Woo violated the FLSA in the following three respects:

Woo’s tip-pooling arrangement, regardless of whether Woo claimed a tip credit, violated 29 U.S.C. §203(m) because it included employees not customarily tipped in the restaurant industry.

Woo indirectly violated 29 U.S.C. §206(a) because its tip-pooling arrangement constituted an indirect kickback to the kitchen staff for Woo’s benefit in violation of the "free and clear" provision of 29 C.F.R. §531.35.

Woo was functionally taking a tip credit by using a tip-pooling arrangement to subsidize the wages of non-tipped employees.

The U.S. Secretary of Labor’s position supported Cumbie’s second claim.

However, the district court disagreed and dismissed Cumbie’s entire complaint for failure to state a claim. The 9th Circuit affirmed.

Section 203(m) of the FLSA allows an employer to pay an employee a cash wage less than the minimum wage by taking a "tip credit" on the tips earned by the employee and applying that tip credit toward the employer’s minimum wage obligation. To satisfy Section 203(m), the employer must:

Inform the employee of the tip credit provision in Section 203(m).

Allow the employee to keep all tips, except when the employee participates in a tip pool with other customarily tipped employees.

However, the 9th Circuit ruled that the conditions imposed on an employer when a tip credit is taken under Section 203(m) are not free-standing requirements for all tipped employees and that the statute does not impose any requirement on an employer that does not take a tip credit to satisfy its minimum wage obligation. Woo did not take a tip credit, and therefore Woo’s tip-pooling arrangement did not violate Section 203(m), the 9th Circuit held.

Further, the 9th Circuit ruled that the applicability of the free and clear regulation depends on whether the tips belong to the servers they were given to. As the U.S. Supreme Court indicated in Williams v. Jacksonville Terminal Co., 315 U.S. 386, 397 (1942), a server’s ownership of her tips depends on whether an agreement to redistribute her tips existed and was not barred by the FLSA, the 9th Circuit noted. Woo did not violate the free and clear regulation—and therefore did not violate Section 206 of the FLSA—because the tip pool was an existing agreement and the FLSA does not restrict tip pooling when the employer does not take a tip credit, the 9th Circuit held.

As to Cumbie’s third claim, Woo’s tip-pooling arrangement did not violate the purpose of the FLSA to protect workers from substandard wages and oppressive working hours, the 9th Circuit held. Cumbie actually received a wage that was "far greater than the federally prescribed minimum, plus a substantial portion of her tips."

The 9th Circuit’s decision was limited to tip-pooling situations where the employer pays employees above the federal minimum wage, does not take a tip credit and has an arrangement in place regarding the sharing of tips among employees receiving a portion of the tips.

By Katherine A. Phillips, an attorney with Malone, Thompson, Summers & Ott LLC in Columbia, S.C.

Nurse’s Internal Communications About Transplant Was Not Protected Speech

Rohrbough v. Univ. of Colorado Hosp. Auth., 10th Cir., No. 07-1498 (Feb. 19, 2010).

The 10th U.S. Circuit Court of Appeals affirmed summary judgment against a public hospital nurse and transplant coordinator’s claim that the hospital discharged her in retaliation for exercising her First Amendment rights.

Professional Pointer: Managers at public hospitals who delineate clearly what communications are part of each job, and who provide internal means for dealing with concerns affecting care, can protect themselves more readily from First Amendment complaints.

Lisa Rohrbough, a transplant coordinator in the University of Colorado Hospital Authority’s Heart Transplant Unit, communicated concerns about patient safety and staffing internally and through internal occurrence reports. She communicated her concerns about a possible heart transplant misallocation internally and to the United Network for Organ Sharing, which was established by Congress to administer organ transplants. The court held that the plaintiff’s communications were not protected by the First Amendment because they were part of her official duties.

The court explained that Rohrbough made her staffing concerns known only to hospital employees, and that the incident reports documented incidents of substandard care that she was expected to include regarding transplant procedures.

She did not claim in her complaint that she had contacted media or other outsiders besides the organ sharing network.

Moreover, talking to the network was part of her job. Finally, the court held that even if her speech were protected, it would not matter because the decision-making supervisor who knew of her poor performance did not know about any of her complaints.

By John J. Coleman III, an attorney with the Birmingham, Ala., office of Burr & Forman.

Nashville Was Not Strictly Liable Under FMLA

Harris v. Metropolitan Government of Nashville and Davidson County, Tenn., 6th Cir., Nos. 08-6329/6330 (Feb. 5, 2010).

The reduction of an employee’s coaching stipend upon his return from leave did not violate restoration provisions under the Family and Medical Leave Act (FMLA), according to the 6th U.S. Circuit Court of Appeals, where the employer demonstrated a legitimate business reason and the employee was not prejudiced by the adjustment.

Professional Pointer: A key employee should be informed of his or her status, provided the reasons for denying reinstatement and given a reasonable opportunity to return to work after receiving notification.

Milton Harris was a teacher in the Metropolitan Nashville School System as well as the boys’ varsity basketball head coach. For his position, he received a "coach supplement" equal to 12 percent of his teaching salary; the supplement was paid during the whole school year.

In October 2003, Harris suffered a heart attack that kept him out of work for roughly half the basketball season. The assistant coach assumed head coaching responsibilities. When the athletic director was notified by the HR department that two people could not receive the head coaching supplement and that an employee was not entitled to receive a coaching supplement while on leave, he dropped Harris and installed the assistant coach as head coach.

Nevertheless, Harris continued to receive the 12 percent supplement for several more pay periods. Upon Harris’ return from leave in January 2004, the athletic director reinstated him as head coach, sending a note to payroll that read "½ of 12 percent." This was interpreted to mean 6 percent for the full year with deductions to offset the overpayment during Harris’ leave.

Harris argued that because he was paid the supplement during his leave, the reduction in the supplement and deductions for overpayments received constituted a failure to restore him to the same or equivalent pay he had when he went on leave.

The district court agreed.

However, the 6th Circuit reversed, recognizing that "the FMLA is not a strict-liability statute." The district court’s ruling failed to consider the legitimate reason for adjusting Harris’ coaching supplement.

The 6th Circuit observed that under Nashville’s policies, Harris was not entitled to the coaching supplement for the period he did not coach. The 6th Circuit determined that Nashville’s failure to suspend the payment of the coaching supplement during Harris’ leave should not make the correction of the error after his return from leave a violation of the FMLA. An FMLA violation from this alone, the 6th Circuit remarked, "elevates form over substance." 

By Roger S. Achille, an attorney and associate professor at Johnson & Wales University, Graduate School of Business, in Providence, R.I.

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