US Open Workers Serve Up Overtime Class Action

A putative class action has been filed on behalf of servers who worked in the luxury suites at the Billie Jean King National Tennis Center–home of the US Open–alleging that the catering companies who manage the suites failed to pay overtime wages and illegally confiscated tips.   The illegal practices allegedly occurred during tournaments from 2004 and 2009, and the lawsuit seeks damages for unpaid wages throughout that period.

According to the lawsuit, luxury box caterers paid servers a straight $17 hourly wage regardless of the number of hours they worked–which could be as many as eighteen on some days during the Open.  The suit also alleges that the caterers illegally confiscated a 21 percent gratuity, billed as a “service charge,” for catered food and beverage in luxury suites.  These practices violate the Fair Labor Standards Act and New York  labor law according to the plaintiffs.

The lawsuit, styled Yahraes v. Restaurant Associates Event Corporation, was filed in the United States District Court for the Eastern District of New York (Brooklyn).  In addition to Restaurant Associates, the suit names Chicago-based Levy Restaurants, Inc. and New York-based Amerievents as defendants. 

This action is the latest in a barrage of claims filed against New York restaurant operators challenging their payroll practices.  The lawsuits, which have been mostly filed by a handful of law firms, typically focus on unpaid overtime, unpaid tips and illegal tip pooling schemes.

Ninth Circuit: Tip Pooling Restrictions Apply Only to Employers Who Claim Tip Credit

In a decision with potential significance for restaurant owners nationwide, the Ninth Circuit Court of Appeals recently ruled that restrictions on tip pooling schemes, which require the exclusion of non-tipped employees like restaurant managers and kitchen staff, do not apply to employers who do not claim a “tip credit.”  The case is Cumbie v. Woody Woo, Inc., 2010 WL 610603 (9th Cir. Feb. 23, 2010).

The Fair Labor Standards Act, or FLSA, requires qualifying employers to pay their hourly employees the federal minimum wage, which is currently $7.25.  The FLSA permits restaurant owners to claim a “tip credit” for tips collected by certain eligible employees.  Eligible employees are those who hold positions which “customarily and regularly receive tips.”  Waiters and waitresses, bartenders and counter servers customarily and regularly recieve tips; managers and kitchen staff do not.  A tip credit may be claimed only for employees in the former category. 

The tip credit permits employers to pay tipped employees a reduced hourly wage–$2.13 per hour–and use the employees’ collected tips to make up the difference.  The FLSA mandates that collected tips belong to the tipped employee and may not be withheld by the employer.  But the statute also allows employers to implement voluntary tip pooling schemes, under which tipped employees pool their tips and then distribute them among themselves according to an agreed upon formula. 

The FLSA allows only tipped employees to participate in tip pools.  Managers, kitchen staffers and other non-tipped employees cannot participate in tip pools.   Employers are responsible for paying non-tipped employees their full hourly wage.  Employers cannot force tipped employees to subsidize non-tipped employees.  Allowing non-tipped employees to participate in tip pools would do exactly that. An employer who implements an illegal tip pooling scheme risks losing its ability to claim a tip credit.

In Cumbie, the plaintiff–Misty Cumbie–waited tables at Vita Cafe in Portland, Oregon.  Because Oregon law forbids tip credits, Vita Cafe paid Cumbie the full federal minimum wage.  It also required her to participate in a tip pooling scheme under which kitchen staff received more than 50 percent of server’s collected tips.  Only 30 to 45 percent of collected tips were returned to servers. 

Cumbie sued Vita Cafe in Oregon federal court for violating the FLSA.  She alleged that the tip pooling scheme violated the FLSA because it required her to share her tips with non-tipped employees.  The Oregon court dismissed her case, finding no FLS A violation.  Cumbie appealed the decision to the Ninth Circuit Court of Appeals.   

The issue on appeal was whether an employer who pays the full minimum wage, and claims no tip credit, can implement a tip pooling scheme that includes non-tipped employees.  The Department of Labor filed a brief on behalf of Cumbie.  The Oregon and Nevada Restaurant Associations filed briefs on behalf of Vita Cafe.

The Ninth Circuit sided with Vita Cafe, affirming the Oregon court’s dismissal of Cumbie’s case.  The Ninth Circuit held that the FLSA’s tip pool restrictions apply only to employers who claim a tip credit.  As the Court stated, “The FLSA does not restrict tip pooling when no tip credit is taken.”  It rejected Cumbie’s argument that the tip pooling scheme illegally forced her to subsidize Vita Cafe’s non-tipped employees.  “The purpose of the FLSA is to protect workers from substandard wages and oppressive work hours.  Our conclusion that the FLSA does not prohibit [Vita Cafe's] tip-pooling arrangement does not thwart this purpose.  Cumbie received a wage that was far greater than the federally prescribed minimum, plus a substantial portion of her tips.  Naturally, she would prefer to receive all of her tips, but the FLSA does not create such an entitlement where no tip credit is taken.”

The decision is significant because it is the first to directly address whether the FLSA’s restrictions on tip pools apply to employers who do not claim a tip credit.  However, since most employers do claim a tip credit–Oregon’s prohibition on tip credits being the exception, not the rule–the decision’s direct application will be fairly limited.  Of greater concern for employees is the Ninth Circuit’s refusal to invalidate the tip pooling scheme as an illegal attempt to subsidize non-tipped workers.  The court could have found the practice illegal per se, in derogation of the spirit of the FLSA, but it instead reached the opposite conclusion by focusing narrowly on the wording of the tip credit portion of the statute.

Waldorf-Astoria Waiters Sue Over Illegal Tip Pooling Scheme

Nine former Waldorf-Astoria banquet waiters have sued the hotel’s parent company, Hilton Worldwide, Inc., claiming that they were subjected to an illegal tip pooling scheme.  The lawsuit seeks over $5 million in damages. 

According to the complaint, the Waldorf-Astoria charged banquet guests a 21.5% gratuity, of which servers received only 15 percent.  The hotel retained the other 6.5 percent.  This tip pooling scheme, the lawsuit alleges, violated the Fair Labor Standards Act (FLSA) and New York’s state labor law.  The suit seeks class action status on behalf of all banquet waiters who worked private dining events for the last six years.

The FLSA permits employers to implement voluntary tip pooling schemes, but it prohibits non-tipped workers like managers and kitchen staff from participating in such schemes.  Allowing non-tipped workers to collect a portion of the pooled tips would essentially force tipped workers to subsidize non-tipped workers’ wages, to the employer’s benefit but the tipped employees’ detriment.

The plaintiffs are represented by the law firms Outten & Golden, LLP, and Berke-Weiss & Pechman, LLP.  Those firms have filed dozens of lawsuits in recent years on behalf of hospitality industry workers who have been illegally deprived of tipped income and other compensation.

Employee or Independent Contractor? Topless Dancers Declare Their Non-Independence

A recently filed class action colorfully illustrates the problems that can arise when employers exercise too much control over their independent contractors.  Or in this case, their topless dancers.

Zuri-Kinshasa Maria Terry, an exoctic dancer at Sapphire Gentlemen’s Club in Las Vegas, has slapped the club with a putative class action alleging that it improperly classified its dancers as independent contractors in order to avoid complying with state wage and hour laws.  The class action, filed in Nevada state court, and covering potentially 5,000 current and former dancers, seeks back pay and overtime wages for the class members as well as an order forcing the club to comply with state wage and hour laws.

At issue is the legal distinction distinction between independent contractors and employees.  The distinction is a significant one.  Generally, employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers generally do not  have to withhold or pay any taxes on payments to independent contractors.   (For more information on this topic, click here: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html).  Employers also must pay employees in a manner consistent with state and federal wage and hour laws.  Not so with independent contractors.

The determining factor is control.  An independent contractor must be truly independent.  If an employer closely supervises and controls the manner in which a job is performed, the employer generally cannot claim that the job was performed by an independent contractor.  Some of the factors courts examine in making the employee-versus-independent contractor determination are as follows:

• Does the business provide instructions to the worker about when, where and how he or she is to perform the work?
• Does the business provide training to the worker?
• Is there a continuing relationship between the business and the worker?
• Does the business set the work hours and schedule?
• Does the worker devote substantially full time to the work of the business?
• Is the work performed on the business’ premises?
• Is the worker required to perform the services in an order or sequence set by the business?
• Is the worker required to submit oral or written reports to the business?
• Is the worker paid by the hour, week or month?
• Does the worker provide services for more than one firm at a time?
• Does the worker make his or her services available to the general public?

The plaintiffs in the Sapphire case contend that the club exercised too much control for them to be considered truly “independent” contractiors. For example,  club rules required the dancers to work six hour minimum shifts; remain on the premises throughout their shifts; refrain from  leaving with, or socializing with, club patrons; charge minimum fixed fees for dances; promote sales of drinks and take drink orders;  wear approved costumes; and pay a portion of their tips to club DJ’s, managers, bartenders and security personnel. According to the lawsuit, “[s]uch rules and regulations and control over the means and methods of dance and conditions of employment are not the type imposed upon independent contractors”

The suit claims that the dancers should have been classified as employees and, as such, paid in a manner consistent with Nevada’s wage and hour laws.  The dancers claim that the club broke the law by stiffing them on overtime and regular wages; denying them mandatory breaks; forcing them to wear uniforms purchased at their own expense; and forcing them to participate in illegal tip sharing scheme that required them to tip out DJ’s, managers, bartenders and security personnel.

The plaintiffs are represented by Robert Starr, who maintains the website  http://www.ExoticDancerRights.com.

Long Island Hooters Latest Target of FLSA Collective Action

Fried & Bonder, which represents a number of hospitality industry clients, has been chronicling the surge in FLSA lawsuits against restaurant industry employers.  The New York Times first reported on this trend all the way back in May 2007 (http://www.nytimes.com/2007/05/12/nyregion/12workers.html).  That article discussed the forces behind a cluster of FLSA lawsuits against high profile Manhattan restaurants, including Old Homestead, the Brooklyn Diner, Smith & Wollensky, Sparks Steak House, Heartland Brewery and Mr. Chow.  Since that time, more FLSA lawsuits have followed, including suits against Uncle Jack’s Steakhouse, Planet Hollyowood and Mama Mexico, to name a few.

The latest target is Hooters of Long Island.  The law firm behind the lawsuit–Berke-Weiss & Bechman LLP–is the same firm that sued Mr. Chow, Sparks and Old Homestead.  The named plaintiffs are two Hooters waitresses, Gina Rosati and Amy Frederick, both of whom still work for the restaurant according to their complaint.  The alleged class consists of Ms. Rosati, Ms. Frederick and “all persons who have worked as waitresses at Hooters of Long Island” for the past three years, a class believed to encompass at least 100 people. 
 
The allegations are similar to those made in the other cases referenced above.  The plaintiffs contend that Hooters imposed an illegal tip pooling scheme under which Hooters diverted a portion of waitresses’ tips to the kitchen staff.  If true, this practice would violate the FLSA.  Under the FLSA, an employer may pay “tipped employees” (i.e., those who typically earn more than $30.00 per month in tips) less than half the federal minimum wage, which is currently $7.25.  The FLSA refers to this as a “tip credit.”  If, however, an employer forces a tipped employee to share her tips with a non-tipped worker, like a kitchen staffer, the employer loses the ability to claim the tip credit and must pay full minimum wage.  Plaintiffs in the Hooters case claim that the restaurant’s practice of forcing waitresses to share their tips with kitchen staffers meant that it forfeited its right to claim the tip credit and became legally obligated to pay plaintiffs the full minimum wage. 
 
The complaint also alleges violations of New York’s Labor Law based on Hooters’ alleged practice of docking waitresses for uniform purchase and cleaning costs and for customer walkouts. 
 
Plaintiffs filed the lawsuit on October 29, 2009 in the Eastern District Court of New York.  Check the Fried & Bonder blog for updates on this case and other FLSA lawsuits against restaurant industry employers.