Class Action Plaintiff Alleging Violations of Fair Labor Standards Act (FLSA) Entitled to Summary Judgment because Employers Improperly took “Tip Credits” Against Employee Wages and Failed to Pay Overtime Required by FLSA Texas Federal Court Holds
Plaintiff filed a class action against his former employers – TDS Entertainment (which owns Dixie’s Country Bar), Chicago Bar and Vankar Enterprises (which owns Babcock Bar) – alleging violations of the federal Fair Labor Standards Act (FLSA); the class action complaint asserted that defendants failed to pay employees minimum wage because they unlawfully credited tips against their employees’ salaries. Bernal v. Vankar Enterprises, Inc., 579 F.Supp.2d 804, 805 (W.D.Tex. 2008). Specifically, the class action alleged that plaintiff worked at defendants’ bars for less than the federal minimum wage, that plaintiff received tips from customers, and that defendants required that plaintiff contribute a portion of his tips to a “tip pool” to be shared with “managers and/or other employees who do not customarily and regularly receive tips.” Id., at 805-06. The class action alleged that defendants were not permitted to take “tip credits” against plaintiff’s minimum, and so violated the FLSA by paying him less than minimum wage. Id., at 806. The class action complaint prayed to recover as wages the difference between the federal minimum wage and the actual wage paid by defendants., id. The district court granted plaintiff’s motion for class action certification, id. Plaintiff’s counsel then moved for summary judgment as to “(1) whether the bars failed to pay the applicable minimum wage under circumstances in which the bars were not permitted to claim a tip credit; and (2) whether the bars failed to pay overtime as required by the FLSA.” Id. The federal court granted the motion.
The district court explained that “[t] he primary issue before the Court is whether a genuine issue of material fact exists regarding Defendants’ entitlement to use the amount of tips its employees received in satisfaction of a portion of Defendants’ minimum wage obligations.” Bernal, at 806. After summarizing the well-known standards governing summary judgment motions, see id., at 806-07, the court discussed the FLSA’s authorization, under “limited circumstances,” to pay a “tipped employee” less than the federal minimum wage, id., at 807. A “tipped employee” – defined as an employee who customarily receives more than $30 per month in tips, see 29 U.S.C. § 203(t), may be paid less than minimum wage (but no less than $2.13 per hour) “if the amount of the tips the employee actually receives, added to the hourly wage the employer pays, is at least equal to the minimum wage in effect,” a practice known as “taking a ‘tip credit.’” Bernal, at 807. The district court explained, however, that “An employer may not…take a tip credit ‘with respect to any tipped employee unless such employee has been informed by the employer of the [tip credit] provisions’” and that “no tip credit may be taken ‘with respect to any tipped employee unless … all tips received by such employee have been retained by the employee,’ except in cases in which tips are pooled ‘among employees who customarily and regularly receive tips.’” Id. (citations omitted).
Based on the undisputed fact, the district court found that defendants failed to inform each of their employees about the tip credit policy. See Bernal, at 807-10. Moreover, the evidence showed that defendants failed to pay the proper wages for overtime, id., at 810-11. Accordingly, the district court granted plaintiff’s motion for summary judgment, and scheduled an evidentiary hearing for a determination of minimum wages improperly withheld. Id., at 811.
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