Wage & Hour Litigation Blog

SDNY Adopts Pilot Mandatory Mediation Program for FLSA Cases

Posted in Settlement

Authored by Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: The U.S. District Court for the Southern District of New York recently announced that cases filed under the FLSA and assigned to Judges Abrams, Briccetti, Carter, Daniels, Ramos, Seibel, and Woods will be ordered directly to mediation, before the initial Rule 16 conference, with limited pre-mediation disclosures. If successful, other Districts may implement similar procedures.

As we all know, wage and hour litigation continues to soar to record highs.  We expect 2016 will be another record year and that the revisions to the white collar exemptions effective December 1st will further increase the number of lawsuits around the country.

In an attempt to stem its ever-increasing caseload of FLSA cases, the U.S. District Court for the Southern District of New York recently announced that, beginning October 3, 2016, cases filed under the FLSA and assigned to Judges Abrams, Briccetti, Carter, Daniels, Ramos, Seibel, and Woods will be ordered directly to mediation, before the initial Rule 16 conference, with limited pre-mediation disclosures.

The mediation must take place within 60 days of the referral to mediation.  The limited information exchange includes the following:

  1. Any existing documents that describe the Plaintiff’s duties and responsibilities.
  2. Records of wages paid to and hours worked by the Plaintiff (e.g., payroll records, time sheets, work schedules, wage statements and wage notices).
  3. The Plaintiff must produce a spreadsheet of alleged underpayments and other damages.
  4. The Defendant(s) must produce any existing documents describing compensation policies or practices.
  5. If the Defendants intend to assert an inability to pay, then they must produce proof of financial condition, including tax records, business records, or other documents demonstrating their financial status.

If the parties reach a settlement at the mediation, “they shall prepare a joint statement explaining the basis for the proposed settlement, including any provision for attorney fees, and why it should be approved as fair and reasonable,” in accordance with Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015).

The SDNY’s announcement comes on the heels of the effort by its sister court, the Eastern District of New York, to expand its mediation program for FLSA cases by “seeking mediators with substantial knowledge of the Fair Labor Standards Act (FLSA) to join the EDNY Mediation Panel.”

We fully expect the non-participating Judges within the SDNY, and other courts across the country, will be monitoring the effectiveness of the pilot program as well as the EDNY’s efforts to foster early mediation in FLSA cases.  If the program is successful, and the pace of new case filings remains high, other Districts may implement similar procedures.

Agree to Arbitrate Representative Issues Much?

Posted in Arbitration Agreements, State Laws/Claims

Authored by Simon L. Yang

Seyfarth Synopsis: When the California Supreme Court said no to PAGA waivers in its 2014 Iskanian ruling, we asked whether employers would boldly go where few have gone before and implement arbitration agreements requiring arbitration of PAGA claims. A recent California Court of Appeal decision issued in Perez v. U-Haul Company of California warrants revisiting that question.

Many employers stayed the course in 2014 and continued including PAGA waivers within their arbitration agreements, since numerous federal district courts continued disagreeing with and refusing to apply Iskanian’s logic.

And even when in 2015 the Ninth Circuit instructed federal district courts to apply Iskanian, many employers continued using arbitration agreements with PAGA waivers, since PAGA litigation could be severed and stayed while a plaintiff’s individual claims were arbitrated. If the employer prevailed on the individual claims in arbitration, the plaintiff would not be an aggrieved employee, would not have standing under PAGA, and would thus be unable to pursue mooted PAGA claims.

By 2016 plaintiffs have made the availability of that option scarcer. To avoid having to prove standing by prevailing on their individual claims before pursuing otherwise stayed PAGA claims, plaintiffs now commonly prefer to file PAGA-only lawsuits, without alleging individual claims.

The two putative Perez class representatives, however, had pursued both individual and PAGA claims. Predicting and seeking to avoid a stay of their PAGA claims, the Perez plaintiffs hopped onto the PAGA-only bandwagon by amending their complaints to allege a PAGA cause of action only—abandoning their individual claims, their roles as potential class representatives, and putative class members’ individual rights.

U-Haul fought back and sought to require arbitration of the predicate issue of whether the plaintiffs themselves had been subject to any Labor Code violations. Even though U-Haul was not seeking to preclude the PAGA cause of action but only to arbitrate the individual issues determinative of plaintiffs’ standing for their PAGA claims, the Court of Appeal rejected U-Haul’s argument. It reasoned that no individual issues remained at issue and that U-Haul’s arbitration agreement explicitly precluded arbitration of any representative issues.

Though Iskanian explicitly acknowledged that PAGA claims might be arbitrated, the Perez court then went full dictum. It opined that even if U-Haul’s arbitration agreement did not preclude its argument for arbitrating the plaintiff-specific issues determinative of PAGA standing, the PAGA cause of action could not be split between arbitration and litigation. But Iskanian doesn’t preclude this. What it precluded was the waiver of the right to pursue PAGA claims at all.

While it may be the case that an arbitration agreement cannot specify that an individual claim be created in a PAGA-only lawsuit, an arbitration agreement should be able to specify that representative claims be arbitrated—and specify that streamlined procedures be applied. Once again, will some enterprising employers consider going boldly where few have gone before?

The 16th Edition of Litigating California Wage & Hour and Labor Code Class Actions Is Here!

Posted in State Laws/Claims

Authored by Christopher A. Crosman

We are excited to announce the 16th edition of Seyfarth Shaw’s publication Litigating California Wage & Hour and Labor Code Class ActionsAs in previous editions, this publication reviews the most commonly filed wage and hour and Labor Code class and representative claims and the development of the law over the last several years, and discusses and analyzes the various types of wage & hour class actions that affect many California employers. This new edition has been updated to reflect the latest developments in the law and promises to delight.

Download the publication using this convenient link today!

Employers Should Not Retreat on Compliance Planning Despite Two-Pronged Attack on OT Rule

Posted in DOL Enforcement, Misclassification/Exemptions

Authored by Alex Passantino

Seyfarth Synopsis: Two lawsuits related to the Department of Labor’s revisions to the white-collar exemptions have been filed in East Texas.

The first lawsuit, citing (among other things) the severe impact the impending salary increase will have on state and local government budgets, was filed by the Attorneys General of Nevada, Texas, and 19 other states (the “State AG case”). The State AG case makes a Tenth Amendment-based challenge to Congressional application of the FLSA to states. It also argues that the DOL exceeded Congressional authority with respect to the salary test, the highly-compensated employee exemption level, and indexing. The State AG case also argues that the DOL failed to follow the Administrative Procedure Act and/or that the Department exceeded its Congressional delegation of authority.

The second lawsuit was filed by a broad coalition of Texas and national business groups and trade associations. This case alleges that the DOL exceeded its statutory authority under the FLSA, both by the dramatic increase in the minimum salary level required for exemption and by the provision that would require automatic updating of that level every three years.

Both cases seek a variety of declarations regarding the unlawfulness of the DOL’s actions, as well as temporary and permanent injunctive relief preventing the rule from becoming effective on December 1, 2016.

The filing of these cases, as well as recent efforts in Congress to stop the rule (or at least to revise it), may tempt some employers into taking their foot off the pedal with respect to ensuring compliance with the new salary level by December 1. As many have learned the hard way, however, legislation and litigation are less-than-certain solutions.

Employers should continue their efforts to be compliant by December 1. If we receive legislative or judicial relief at some point, it will be much easier to stop the process than it would be to start it much closer to the effective date. In other words, Congressional or judicial relief should not be your compliance strategy.

We will, of course, continue to keep you updated on the litigation and legislative efforts. In the meantime, keep your eyes on the December 1 deadline.

You Can’t Eat Your Cake And Have Your PAGA Too

Posted in State Laws/Claims

Authored by Daniel C. Whang and Simon L. Yang

Seyfarth Synopsis: When an allegedly aggrieved employee attempts both to seek compensatory relief as an individual and to impose penalties as a proxy for the California Labor Commissioner under the Private Attorneys General Act of 2004 (“PAGA”), the resulting comingling of the plaintiff’s interests as an individual and as a representative in the shoes of the State of California is another unsurprising byproduct of the PAGA statutory scheme. Some plaintiffs try to argue that results in one role don’t affect the other, but another court recently reminded plaintiffs that resolving their individual claims also resolves their ability to pursue representative PAGA claims.

Judge Kenneth Freeman recently confirmed that a representative plaintiff’s role as a proxy for the State of California is not unconditional and requires that the plaintiff be an “aggrieved employee.” In the recent case, the plaintiff had originally filed both class action claims as well as a representative PAGA claim alleging exempt misclassification against his employer. After being compelled to arbitrate individual wage and hour claims while the representative PAGA claim was stayed, the plaintiff accepted a statutory offer to compromise under California Code of Civil Procedure Section 998, which dismissed all but his PAGA claim with prejudice.

In refusing to dismiss his PAGA claim, the plaintiff argued that his dual role as an individual and representative of the State of California meant that the dismissal of his individual claims had no impact on his ability to continue as a PAGA representative. The defendant disagreed and filed a motion for summary adjudication. Judge Freeman sided with the employer and made clear that once the plaintiff settled his individual claims, he was no longer an “aggrieved employee” under PAGA and, therefore, no longer had standing to bring a representative claim.

Judge Freeman is not alone in his view. The California Court of Appeal has previously concluded that a plaintiff who released any individual wage and hour claims he may have against his employer as part of a class action settlement cannot subsequently bring a PAGA claim based on the same alleged violations.

Since a PAGA claim can only be brought by and on behalf of “aggrieved employees,” Judge Freeman’s decision is helpful beyond just resolving claims with a PAGA representative. It also suggests “Pick Up Stix” campaigns—where an employer settles claims with individual putative class members to reduce the potential liability in the class action itself—should also be viable in PAGA lawsuits. Settling non-parties’ underlying wage and hour claims should mean that current or former employees who have chosen to participate in the campaign would no longer be “aggrieved employees” for purposes of PAGA.

Considering that PAGA claims cannot be waived in arbitration agreements and are not subject to class certification requirements, employers facing PAGA claims may feel that the courts stack the odds against them. But the recent decision from Judge Freeman provides an encouraging reminder that employers may be able to use settlements as an effective litigation strategy in PAGA actions.

In Final Exam, Court Rejects Hearst Interns’ Pay Claims

Posted in Misclassification/Exemptions, State Laws/Claims

Authored by Rob Whitman

Seyfarth Synopsis: Unpaid interns for Hearst magazines have been rebuffed again in their effort to be declared eligible to receive wages under the FLSA and the New York Labor Law.

In an August 24, 2016 ruling, Judge J. Paul Oetken of the Southern District of New York held that six interns, who worked for Marie Claire, Seventeen, Cosmopolitan, Esquire, and Harper’s Bazaar, were not employees as a matter of law and granted summary judgment to Hearst. After reviewing each of their circumstances individually, the court held:

These interns worked at Hearst magazines for academic credit, around academic schedules if they had them, with the understanding that they would be unpaid and were not guaranteed an offer of paid employment at the end of the internships. They learned practical skills and gained the benefit of job references, hands-on training, and exposure to the inner workings of industries in which they had each expressed an interest.

The six named plaintiffs were the only ones remaining after the Second Circuit, in July 2015, denied their bid for class and collective certification. The court in that decision also articulated a new set of factors for determining whether unpaid interns at for-profit companies are “trainees” (who are not entitled to compensation) or “employees” (who must receive minimum wage and overtime premiums).

The Second Circuit’s decision adopted the “primary beneficiary” test to determine internship status—i.e., whether the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” Applying that test to the Hearst interns, Judge Oetken concluded, “[w]hile [the six plaintiffs’] internships involved varying amounts of rote work and could have been more ideally structured to maximize their educational potential, each Plaintiff benefited in tangible and intangible ways from his or her internship, and some continue to do so today as they seek jobs in fashion and publishing.”

Among the factors he relied on: the relatively brief duration of the internships, typically limited to college semesters or summer breaks; the interns’ opportunities for observation and learning, such as “Cosmo U,” a program in which senior editors spoke about their career paths; and the receipt of or opportunity for academic credit.

Aside from its detailed discussion of the facts of the plaintiffs’ internships, the court’s decision, Wang v. The Hearst Corporation, is notable for two reasons:

  1. It shows the practical impact of a denial of class and collective certification. Although the court addressed the six named plaintiffs’ claims in a single opinion, it was effectively a series of rulings on each intern’s individualized circumstances. As the court noted, some of the factors—such as the receipt of college credit for the internships—weighed differently for the different plaintiffs. But in the end, the result for each of them, given the “totality of the circumstances” in their particular cases, was the same.
  2. The court’s decision applied equally to the plaintiffs’ claims under the FLSA and the NY Labor Law. This issue was left somewhat unsettled after the Second Circuit’s 2015 decision, which noted the similarities in the definitions of “employee” under the two statutes but did not explicitly say that the ruling pertained to both. Judge Oetken, following the earlier lead of a Southern District colleague, held that his ruling decided the claims under federal and NY law.

The Hearst decision is not the first to grant summary judgment under the Second Circuit’s factors. In March 2016, a Southern District Judge found that an intern for the now-late Gawker website was properly treated as such and was not entitled to wages. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that interns will be deemed to be employees, nor should they make for-profit employers complacent about not paying interns. But they signal that, where interns have a bona fide learning experience in coordination with their academic pursuits, they need not be paid as a matter of law.

Prompt Payment Required – Doesn’t Matter If Fired, Retired, Or Resigned

Posted in State Laws/Claims

Co-authored by Monica Rodriguez and Justin Curley

Seyfarth Synopsis: The California Supreme Court holds that employers must promptly pay final wages owed to employees who quit, including those who retire, or risk paying steep statutory penalties under California Labor Code section 203.

What Were the Plaintiff’s Claims?

Janis McLean worked as deputy attorney general for the California Department of Justice. In November 2010, McLean retired and filed suit in an individual and representative capacity against the State of California shortly thereafter. She alleged that the State Controller’s Office failed to pay her final wages on her last day of employment or within 72 hours of her last day after she retired.

What Do California Labor Code Sections 201 and 202 Require of Employers?

California Labor Code sections 201 and 202 require employers to pay final wages owed to employees who are fired or quit. Depending on how the employment comes to an end, final wages are due immediately or within 72 hours after the last day of employment. Failure to timely pay final wages subjects employers to penalties of up to 30 days’ wages.

What Did the California Supreme Court Decide?

The California Supreme Court agreed with McLean that the prompt payment provisions of California Labor Code sections 201 and 201 included protections for employees who retire. The State had demurred to the complaint, arguing that because McLean had retired from her job, she had not stated a claim for statutory penalties which applies only when employees “quit” or are “discharged.” While the trial court sustained the demurrer, the California Court of Appeal and California Supreme Court disagreed.

The California Supreme Court looked to the legislative purpose of the statute and noted that the statute is meant to be “liberally construed with an eye to promoting such protection” of employees. The court also considered the ordinary meaning of the word “quit” to determine whether it encompasses the word “retire,” and concluded that the word “quit” is broad enough to cover a voluntary departure through retirement.

Lessons Learned for Employers?

This decision serves as a reminder to California employers to promptly pay wages owed to their employees after termination, regardless of the method in which the employment ends–through discharge, retirement, or resignation. For those who are interested, a more in-depth review of the case is available here.

Northern District of California “Shuts Out” Minor League Ballplayers’ Experts

Posted in Decertification

Authored by Eric Lloyd

Seyfarth Synopsis: Minor league baseball players took a swing at class certification, and they missed—badly.

In Senne v. Kansas City Royals Baseball Corp., et al., minor league baseball players across the country asserted wage and hour claims under the Fair Labor Standards Act (“FLSA”) and various state laws against Major League Baseball (“MLB”), the Commissioner of MLB, and a number of MLB franchises. The players sought allegedly unpaid minimum wages and overtime for “work” performed during the baseball season (such as travel to and from games and pre-game activities) and during the offseason (such as participating in spring training and offseason conditioning). The U.S. District Court for the Northern District of California conditionally certified the Plaintiffs’ proposed collective under the FLSA in October 2015.

Plaintiffs moved to certify their state law wage and hour claims in April 2016. In support of their class certification motion, Plaintiffs submitted declarations and testimony from two experts. Plaintiffs proposed that one of their experts would offer a damages model at trial based on estimates of the number of hours worked by each player during each work week in the class period. They further posited that these estimates would be based upon players’ responses to a survey devised by another expert, which asked players to provide information concerning the amounts of time they spent performing purportedly work-related activities. The Defendants asked the court to exclude the experts’ declarations and testimony on the ground that the proposed survey was flawed and would collect unreliable data.

The court denied Plaintiffs’ motion to certify their state law claims, and, decertified the FLSA collective. While this was obviously a welcome development for class action-weary employers, Chief Magistrate Judge Joseph C. Spero’s opinion stands out from other recent certification decisions given its extensive discussion regarding the use of representative evidence in class actions.

Judge Spero granted the Defendants’ motion to exclude Plaintiffs’ experts’ declarations and testimony, finding the proffered survey evidence to be “fundamentally flawed.” The court was troubled that the players’ survey responses would be unreliable insofar as the survey asked players to provide information concerning “mundane events” that may have happened years in the past, such as when they arrived and departed from a baseball stadium on a given day, whether their baseball-related activities were “rained out,” or whether they missed a practice due to injury or illness. The fact that no time records which could verify the players’ responses existed cemented the court’s conclusion that the survey data would be unsound. In addition, the court expressed concern that the survey responses would be tainted by self-interest bias given that “virtually all minor league players have a vested interest in the outcome of this litigation.”

The court also rejected the Plaintiffs’ argument that the U.S. Supreme Court’s recent decision in Tyson Foods, Inc. v. Bouaphakeo permitted the use of survey evidence given the absence of time records for the players. As Judge Spero noted, the players who comprised the putative class were not at all similarly situated—for instance, they played for different organizations, with different work requirements, in different states, with different laws—making it inappropriate to “paper over significant material variations [among the plaintiffs] that make application of the survey results to the class as a whole improper.” In other words, Tyson Foods was inapplicable because the players’ working conditions were simply too different to draw any reliable conclusions about class members’ claims based on purportedly representative survey evidence.

Senne is the latest case showing that courts are reviewing trial plans based on representative evidence with increased scrutiny, as discussed previously here. Judge Spero’s thorough 104 page opinion exposes a number holes in the use of survey evidence to support a trial plan—for instance, that it may be unverifiable and contaminated by the respondents’ self-interest—and it therefore provides employers with strong arguments to present in opposition to class certification.

Should Franchisors Become BFFs with WHD?

Posted in DOL Enforcement

Authored by Alex Passantino

Seyfarth Synopsis:  WHD is seeking to enter into compliance agreements with, among others, franchisors.  Whether an employer should take WHD up on their offer to sign on the line depends on a variety of considerations.

Expanding upon a relationship started in 2012, the U.S. Department of Labor’s Wage & Hour Division and Subway announced a voluntary compliance agreement earlier this week. Billed as an effort at increasing Subway’s social responsibility, the agreement details the steps WHD and Subway have decided will be mutually beneficial, including the following:

  • WHD will develop, with Subway’s assistance, compliance assistance materials for the franchise restaurant industry, which Subway will distribute to, among others, its managers and franchisees.
  • WHD will assist Subway in understanding the enforcement data related to its franchisees.
  • Subway will provide WHD with its annual disclosures to other government agencies, including the FTC.
  • Subway and WHD will explore options for franchisee compliance, including building alerts into the payroll and scheduling platform that Subway offers its franchisees.
  • WHD and Subway will meet quarterly to discuss franchisee compliance.
  • Subway may advise its franchisees of their obligations to comply with WHD’s investigative process.

In press releases and media statements accompanying the announcement, WHD Administrator David Weil revealed that WHD attempted to enter into similar agreements with other franchisors, and will seek to do the same in the future.

Should a franchisor—or any employer for that matter—enter into a voluntary compliance agreement with WHD? Ultimately, the answer to that question depends on a number of factors, and different employers likely will reach different conclusions. A couple of things to consider include:

Wage and hour compliance history. If the employer and its franchisees have had a solid compliance history—considering both WHD investigations and private lawsuits—there may be no need to invite WHD into the fold. If, on the other hand, there have been significant violation—particularly violations that have been publicly reported, it may be worth exploring. Media outlets reported that Subway’s franchisees had been investigated around 800 times in a three-year period, resulting in back wages of approximately $2 million. That type of negative publicity for the brand may have prompted the desire to reach an agreement to make every effort to ensure the brand and demonstrate “social responsibility.”

Joint employment. Entering into an agreement with WHD in which a franchisor takes additional responsibility for wage and hour compliance has the potential to be fraught with peril when it comes to joint employment. Although both Subway and WHD seem to insist that the agreement does nothing to shift the balance in any joint employment inquiry, whether it be under the FLSA, the NLRA, or any other law, it’s hard to see how the compliance agreement will not be used by parties seeking to establish joint employment. Indeed, another government agency (such as the NLRB) or a private plaintiff’s attorney is completely free to ignore WHD’s understanding of an agreement’s impact on joint employment.

Though it may be true in many cases that the agreement itself makes no changes to the analysis, in others it very well may. Presumably, entities at either end of the spectrum of concern—either those employers who are totally confident there will be no joint employment finding or those employers who believe the “cake is baked” on the issue—will be more likely to enter into an agreement. Those who are somewhere in the middle may be rightfully concerned that the agreement may be used against them to prove joint employment; at the very least, it will be one more item that needs to be explained away.

Other Benefits. It’s also possible that an employer’s participation in a voluntary compliance agreement with WHD can be used to help establish a good faith defense to liquidated damages, or to help oppose a plaintiff’s attempt to establish willfulness and a third year of damages. These efforts will necessarily be dependent on the nature of any alleged violation and its relationship to the agreement, but it would be difficult to paint an employer who meets with WHD regularly to discuss compliance, and who engages in the types of training activities contemplated by the agreement, as being reckless or indifferent to its obligations under the FLSA.

The decision to enter into a voluntary compliance agreement with WHD if presented with the opportunity—or to reach out directly to WHD to get the process started—is one that should be carefully and thoughtfully considered. It remains to be seen whether the Subway agreement will be the beginning of a trend or an isolated example of an employer willing to go where others are not. As additional agreements are announced and publicized, we will, of course, keep you posted.

Another Federal Court Thinks the DOL Is Out to Lunch On Tip Credit Rule

Posted in DOL Enforcement, Service Charges/Gratuities

Authored by Noah Finkel and Cheryl A. Luce

Seyfarth Synopsis: New decision from Northern District of Georgia rejects the DOL’s interpretation of the FLSA tip credit law. Holds that the FLSA does not regulate tips received by employees who are paid at least minimum wage.

Imagine that you are a restaurateur. You employ servers and bartenders who receive tips, but you pay them at least the minimum wage instead of the lower, minimum cash wage of $2.13 per hour. You are not taking a “tip credit” based on the tips your servers receive to bring them up to minimum wage. Instead, you’re directly paying the servers minimum wage (or more). If you reallocate the tips your servers receive, are you violating the FLSA?

Section 3(m) of the FLSA states that employees must retain all tips they receive if the employer takes a tip credit towards their minimum wage obligation. Prior to April 2011, courts held that Section 3(m) does not require employers to return tip money to employees if the employer does not take a tip credit. You, as the restaurateur, do not have to return tips your servers receive under the FLSA because you pay your them at least  minimum wage and the FLSA does not regulate your tip pool.

That was the case before the Department of Labor tried to regulate what the FLSA does not: tips received by employees who are paid at or above minimum wage. In April 2011, the DOL issued a rule that states, “Tips are the property of the employee whether or not the employer has taken the tip credit under Section 3(m) of the FLSA.” 29 C.F.R § 531.52. This DOL rule has been rejected by many district courts and the Court of Appeals for the Fourth Circuit, who agreed that the rule is not entitled to deference under Chevron or otherwise because the FLSA does not regulate tips of employees who are paid at least minimum wage. As we reported in February, however, the Court of Appeals for the Ninth Circuit went against the grain and upheld the rule in Oregon Restaurant and Lodging Association v. Perez. The Ninth Circuit concluded that because Section 3(m) is silent on whether employees who do not take a tip credit can reallocate tips received by employees, the DOL retained authority to regulate all tips, and the rule is reasonable and entitled to deference.

Recently, in Malivuk v. Ameripark, LLC, the plaintiff asked the Northern District of Georgia to adopt the Ninth Circuit’s approval of the DOL rule for valet attendants who received tips that were then reallocated by Ameripark to pay for overhead expenses. Ameripark argued that the DOL regulation is invalid under Chevron. The Northern District of Georgia agreed with Ameripark—and did not mince words in doing so. The court labeled the Ninth Circuit’s reasoning in Oregon Restaurant as “flawed” and stated, “The DOL Regulation violates the plain language of Section 203(m).”

Malivuk reaffirms that the DOL cannot exceed what the FLSA regulates. The FLSA regulates minimum wage and overtime pay, not wage payment like the laws of many states. If the DOL rule regulating tips received for employees who are paid at least minimum wage were to stay, it would fundamentally transform the FLSA into a wage payment law. The FLSA is not “silent” on how tips received by employees who are properly paid the minimum wage and overtime should be paid out; rather, the FLSA does not regulate these employees because it has no other remedies to offer them. The FLSA’s remedies are for payments below minimum wage and failure to pay overtime; it is not a wage payment law.

As the hospitality and other industries search for ways to share the tips collected by front-of-the-house employees like servers and bartenders with back-of-the-house employees like cooks, dishwashers, and janitors, the DOL’s far-reaching tip pool rule is an encroachment. Rulings like Malivuk allow employers to allocate tips in ways that suit their business needs.