The Wage and Hour Litigation Blog

Co-authored by Arthur J. Rooney and Jeremy W. Stewart

When should a tipped employee no longer be treated as a tipped employee?  Plaintiffs’ lawyers argue that restaurants cannot utilize the tip credit, or pay tipped employees a sub-minimum wage, if tipped employees perform any “non-tipped” duties, such as washing dishes or taking out the trash.  Earlier this week, a District Court in the Northern District of Indiana rejected this argument.  (See here)  Specifically, the court dismissed a former server’s claim that the FLSA was violated by restaurants paying servers, bartenders, and hosts a sub-minimum wage while they performed non-tipped duties.  This decision could be far reaching because restaurants across the country are being hit with similar class or collective action lawsuits.  

The FLSA’s tip credit provision allows employers to pay tipped employees a sub-minimum wage as long as the employer:  (1) pays a cash wage of at least $2.13 per hour; (2) informs its employees of the FLSA’s tip credit provisions; (3) permits its employees to retain all their tips (w/ some exceptions); and (4) ensures that the cash wage plus the tip credit equal at least the minimum wage each week.  The rub is that the FLSA does not permit an employer to utilize the tip credit for all time worked by employees, just for time spent in a tipped occupation.  An example the regulations use is the hotel worker who is both a maintenance man and a waiter.  In this dual job scenario, the tip credit can be taken for the time the worker spends as a waiter, but not as a maintenance person.  There is no clear demarcation between when waiter becomes the maintenance person, but the DOL takes the position that if a tipped employee spends “substantial time” (more than 20%) performing related, but non-tipped duties referred to as “general preparation work or maintenance,” then the entire tip credit is lost.  The problem for employers is no authority explaining what duties constitute “general preparation work or maintenance.” 

Here, the plaintiff alleged that servers, bartenders and hosts were improperly denied minimum wage for time spent performing allegedly non-tipped duties such as dishwashing, food preparation, kitchen and bathroom cleaning, trash removal and other similar duties.  The Court reasoned that plaintiff’s bare claim that employees must be paid a minimum wage for performing these duties is “based on a faulty legal conclusion” that duties like these are those of a separate and distinct non-tipped occupation.  While leaving open the possibility that employees may, at times, be entitled to minimum wage for these duties, the district court stated that “[s]ervers, bartenders, and hosts - who directly related with customers - are not also employed in the second occupation of a dishwasher, cook, or janitor simply because an unspecified amount of time during their shift is spent performing duties that may be performed by individuals in those occupations.”  In other words, some overlap between tipped in non-tipped duties, however they are defined, is ok.

Because it was not before it, the district court refused to decide if the 20% formulation set forth in the DOL Handbook is entitled to controlling deference, but cautioned plaintiff that an order of dismissal would be imminent if she did nothing more than amend her complaint to include an allegation that the defendants required her to spend more than 20% of her time on duties that did not generate tips or that were outside her tipped occupation.  Rather, she must provide factual support for any such claims, such as the non-tip producing duties she performed, how many minutes or hours they took to perform, and place that time in the context of the hours worked during the entire shift.  

This decision potentially raises the bar as to the level of specificity that must be pled to support a tip credit claim.  Moreover, the decision underscores why tip credit cases are not susceptible to collective or class action treatment.  Because there is no clear line between tipped and non-tipped duties, tip credit claims must be determined on an individual-by-individual basis. 

By Noah Finkel and Richard Alfred

We have long argued that the best path for defeating a hybrid state law wage and hour claim is not through a motion to dismiss but by making a strong lack of superiority argument to defeat class certification.

It is therefore not surprising to us that the Ninth Circuit joined several other Circuits last week in finding that the opt-in requirement of an FLSA collective action does not mandate dismissal of a state law opt-out class action.  In Busk v. Integrity Staffing Solutions, Inc., [HERE] a Nevada district court had dismissed a state law overtime class action under Fed. R. Civ. P. 12(b)(6) on the basis of the conflicting mechanisms of the FLSA’s opt-in and Rule 23(b)(3)’s opt-out requirements. But the Ninth Circuit reversed, reasoning that nothing in the FLSA’s text or legislative history suggests that a hybrid state opt-out claim must be dismissed or that permitting such a hybrid state class action would thwart Congressional intent.

Some plaintiffs’ attorneys and even some courts may now believe that hybrid wage-hour lawsuits -- those that are brought under both the FLSA’s collective action mechanism and under state wage-hour laws pursuant to Rule 23 -- may proceed together so long as plaintiffs are able to meet their burden of meeting the Rule 23(a) and 23(b)(3) factors. 

Of course, adding a class claim to an FLSA collective action dramatically increases the exposure for defendants and the settlement value of the case.  This is because FLSA opt-in rates are typically between 10% and 20% of the potential plaintiffs, while the opt-out rates of class members are negligible. The effect of this is that collective members who choose not to opt-in may nevertheless find themselves included in a class in the very same lawsuit unless they take affirmative steps to write and file an opt-out notice.   

Employers defending hybrid FLSA collective and state law class actions have in the past tried to eliminate the state opt-out class claim at the early stages of litigation through a motion to dismiss or to strike, usually arguing that collective and class actions are “inherently incompatible.” Those efforts have met some success, but the Ninth Circuit’s decision in Busk, the fifth Circuit Court to rule similarly, increases the headwinds for the success of such an approach.  This by no means portends clear sailing for plaintiffs asserting hybrid state law class claims.

Enter Rule 23(b)(3)’s superiority requirement.  Under this requirement, a plaintiff must prove that a state class action is “superior to other available methods of the fair and efficient adjudication of the controversy.” The FLSA’s opt-in procedure is just such an “other available method.”  How can a plaintiff argue that including class members by default is superior to allowing those same individuals the free choice to join or not to join the same lawsuit by opting-in?

We view this rhetorically.  In the vast majority of cases it will be very difficult for a plaintiff to demonstrate that an opt-out class action asserting overtime or minimum wage violations is superior to the FLSA’s straight-forward collective action mechanism, especially with the low burden of proof that most courts currently apply in ruling on a plaintiff’s motion for conditional certification/to facilitate notice.  Even in cases where state overtime or minimum wage laws provide additional remedies or a longer limitations period, superiority usually cannot be established because there is nothing that prevents an FLSA opt-in plaintiff, once in the case, from asserting a state law claim in addition to an FLSA claim.  

The only circumstance that may allow for a plaintiff to prove superiority of a class claim is where there is sufficient evidence of actual or threatened retaliation that chills potential plaintiffs from joining the lawsuit.  But, this must be shown with actual evidence not a plaintiff’s frequent unsupported claim of retaliation “in the air.”

As the Supreme Court has repeatedly emphasized, most recently in Comcast Corp. v. Behrend as we have discussed in recent posts [HERE and HERE], a class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only” and that Rule 23 “does not set forth a mere pleading standard.”  Rather, Rule 23 must be satisfied through “evidentiary proof” rigorously analyzed by the courts.  This is especially the case for Rule 23(b)(3) class actions, which the Supreme Court has called an “adventuresome innovation” designed for situations in which “class-action treatment is not as clearly called for.” 

Rulings such as Busk that reject an employer’s attempts to dismiss class claims at the pleading stage should not be read as a green light for hybrid wage-hour collective/class actions.  Rather, defendants should focus on the demanding  hurdles for class certification including, in this context, superiority.

Authored by Jeffrey Glaser

The Eleventh Circuit Court of Appeals issued a decision last week that could substantially reduce the amount of damages available for FLSA retaliation claims.  In Moore, et al. v. Pak, an Eleventh Circuit panel held that district courts in that circuit (Alabama, Florida and Georgia) have the discretion to deny liquidated damage awards to plaintiffs who prevail on FLSA retaliation claims, even if the defendant does not offer evidence that it acted in good faith.  In so holding, the panel followed decisions in the Sixth Circuit (Kentucky, Michigan, Ohio and Tennessee) and Eighth Circuit (Arkansas, Dakotas, Iowa, Minnesota, Missouri and Nebraska) Courts of Appeals, and rejected contrary authority issued by the Fifth (Louisiana, Mississippi and Texas) and Seventh (Illinois, Indiana and Wisconsin) Circuits.

In general, liquidated damage awards are mandatory if a plaintiff prevails on FLSA minimum wage or overtime claims, unless the employer establishes that it acted in good faith and with reasonable grounds for believing it was not violating the FLSA.  By statute, the liquidated damages are an amount equal to the unpaid compensation or wages awarded to prevailing plaintiffs.  Whether employers found liable under the FLSA’s retaliation provision are subject to the same mandatory liquidated damage awards as available for overtime and minimum wage claims has been less clear.  If a jury awards plaintiffs $90,000 in economic damages for a retaliation claim under the FLSA, are they automatically entitled to another $90,000 in liquidated damages unless the defendant establishes good faith?  Or, do courts have more flexibility in the liquidated damage determination for FLSA retaliation claims than they do for minimum wage and overtime claims?

This question about the mandatory nature of liquidated damages in FLSA retaliation claims arose in Pak after a jury found Mr. Pak, the former CEO of the company where the plaintiffs worked, to be individually liable for retaliation under the FLSA and awarded each of the three plaintiffs in the case $30,000 in damages.  In a post-trial motion, the plaintiffs sought an additional $30,000 in liquidated damages for each plaintiff because, plaintiffs argued, Mr. Pak failed to present any evidence of good faith and, therefore, liquidated damages should be mandatory.  The district court disagreed and denied the plaintiffs’ motion for liquidated damages.

In what the appellate court’s opinion characterized as “a matter of first impression” in the Eleventh Circuit, the panel upheld the district court’s decision, thus adding to the growing authority against mandatory awards of liquidated damages in FLSA retaliation claims.  The panel based its decision largely on the statutory language of section 216(b) of the FLSA. 

Under that section of the law, employers that violate the minimum wage and overtime provisions of the FLSA “shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid compensation, as the case may be, and in an additional equal amount as liquidated damages.”  By contrast, employers that violate the FLSA’s retaliation provision “shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of [the retaliation provision], including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages.”

According to the Eleventh Circuit’s decision, this difference in language indicates that Congress did not intend to make liquidated damages mandatory in FLSA retaliation claims.  Instead, the court ruled that an award of liquidated damages is only appropriate in such cases if it effectuates the purposes of the FLSA.  As the panel explained, “[w]hatever is awarded must be appropriate to effectuate the purposes of the retaliation provision, and determining that requires the exercise of wide discretion.”

Further, the panel in Pak rejected Fifth and Seventh Circuit decisions suggesting that liquidated damages are mandatory in FLSA retaliation claims.  According to the Eleventh Circuit, these prior opinions assumed that liquidated damages in retaliation claims should be treated the same as in minimum wage and overtime claims, but those decisions did not analyze the relevant statutory language of the FLSA.  The Eleventh Circuit was more persuaded by authority in the Sixth and Eighth Circuits, which specifically analyzed the language of 216(b) in determining the non-mandatory nature of liquidated damages in FLSA retaliation claims. It remains to be seen whether the plaintiffs will seek Supreme Court review given the circuit split on this issue and, if they do, whether the high court will agree to hear the case.

At least for now, litigants in the Eleventh Circuit, like those in the Sixth and Eighth Circuits, will have to argue over the circumstances necessary to justify liquidated damages in retaliation claims.  The panel in Pak provided no specific guidance in this area beyond noting the district court’s wide discretion to determine an award appropriate to effectuate the purposes of the FLSA’s retaliation provisions.  Further, the decision in Pak raises interesting burden of proof issues.  Although it is the defendant’s burden to establish good faith to avoid an imposition of liquidated damages in overtime and minimum wage claims, do plaintiffs in retaliation claims now have the burden to prove bad faith in order to justify liquidated damages?  Guidance in these areas will surely develop over time in the Eleventh Circuit as well as other courts grappling with liquidated damage awards in FLSA retaliation claims.

In the meantime, employers can now cite to Pak, as well as previous precedent, as further argument against the imposition of liquidated damages in FLSA retaliation claims.  Pak will therefore be a useful tool for employers not only in active litigation, but also in settlement negotiations, when plaintiffs often double the value their claims based on the assumption of liquidated damages.

Co-authored by Ariel Cudkowicz and Jessica Schauer

On March 23, 2011, a federal court in Massachusetts held that an employer was not entitled to information about the named plaintiffs’ immigration status in a putative collective action alleging minimum wage violations.  In Lin v. Chinatown Restaurant Corp., No. 09-11510, Judge George A. O’Toole, Jr. rejected the defendants’ argument that the information was relevant to their defenses because the Supreme Court’s 2002 decision in Hoffman Plastic Compounds Inc. v. NLRB precludes illegal immigrants from obtaining awards of back pay.

In Hoffman, the Supreme Court held that the National Labor Relations Board (“NLRB”) could not award back pay to undocumented immigrants who had been terminated in violation of the National Labor Relations Act.  The Supreme Court explained that such an award would conflict with federal immigration policy as expressed in the Immigration Reform and Control Act of 1986 (“IRCA”).  The IRCA contains a number of provisions aimed at combating employment of undocumented workers.

While Judge O’Toole rejected many of the policy arguments advanced by other courts in declining to extend Hoffman to the FLSA context, he nonetheless found Hoffman distinguishable because the back pay award at issue in that case was discretionary.  Administrative law principals preclude the NLRB and other agencies from using their discretion in a manner contrary to Congressional policy.  In contrast, “awards for unpaid wages under the FLSA are not discretionary.”  Thus, the Court noted, once a plaintiff “makes out an FLSA case, he is entitled to an FLSA remedy, any obstruction or interference with immigration policy notwithstanding.”   Finding that the plaintiffs immigration status was therefore “irrelevant” to their claims, the Court blocked the defendants’ efforts to obtain discovery of that information.

Because of its subject matter, the Lin decision is likely to spark controversy.  Regardless of where one stands with respect to the national debate over immigration policy, however, the breadth of the decision is troubling for employers.  Generally, litigants in federal court are entitled to discovery of any information “reasonably calculated to lead to the discovery of admissible evidence.”  Even if a worker’s immigration status does not serve as a bar to an FLSA claim, in the context of a collective action, it may help a defendant learn whether the named plaintiff is similarly situated to the putative class in other material ways.  For example, undocumented workers may be more likely to accept pay “under the table,” making them more susceptible to minimum wage violations than documented workers or U.S. citizens in the same job.  Lin’s unqualified prohibition of discovery of the plaintiffs’ immigration status could have the unintended consequence of making legitimate efforts to defend against class certification more difficult.

* Apologies to Emma Lazarus and the Statue of Liberty National Monument.