Federal Court Rules Oregon Restaurant Tipping Pools OK

The Oregonian report that a federal appeals court has ruled that restaurants can create a “tip pool” that requires servers to share a percentage of tips with kitchen staff so long as the restaurant pays more than the minimum wage.

The 9th U.S. Court of Appeals this week rejected arguments by a waitress at a Portland restaurant who claimed the pooling arrangement violated the Fair Labor Standards Act.

Misty Cumbie argued that because the tip pool at the Vita Cafe included employees who are not “customarily and regularly tipped employees,” it was invalid under the labor act.

The cafe requires its servers to contribute their tips to a pool shared by kitchen staff such as cooks and dishwashers, who got more than half the pool. The remainder was returned to servers in proportion to their hours worked.

But the owners of the cafe, Woody and Aaron Woo, argued the tip pool that included kitchen staff was allowed because the labor act applied only to employers who take a “tip credit” toward meeting the minimum wage by counting a portion of tips as wages.

The appeals court, in an opinion by Judge Diarmuid O’Scannlain, noted the restaurant did not take a tip credit and paid servers wages before tips that met or exceeded the Oregon minimum wage, which was $2.10 above the federal minimum wage at the time.

“Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her, and her contributions to the pool did not, and could not, reduce her wages below the statutory minimum,” O’Scannlain wrote.

As a result, the opinion said, “Cumbie received a wage that was far greater than the federally prescribed minimum, plus a substantial portion of her tips.”

O’Scannlain added that “naturally, she would prefer to receive all of her tips,” but the court ruled the labor act does not restrict tip pooling when no tip credit is taken.

Although the appeals court noted it was the first time it had dealt with the issue of tip pools, Bill Perry, spokesman for the Oregon Restaurant Association, said he doubted the ruling would have much impact on Oregon restaurants.

“This will supplement the back of the house for some restaurants,” Perry said, “but you still want to reward your sales people.”

Judges: Massachusetts’ ‘Tip Law’ not Retroactive: Defense bar hail

David E. Frank writes at Massachusetts Lawyers Weekly via Dolan Media Newswire rulings by two influential trial judges have found that the treble damages provision of the tip statute does not apply retroactively, an issue that courts in Massachusetts have been split on for nearly two years.

On Feb. 8, Superior Court Judge Margaret R. Hinkle, who heads the Business Litigation Session, determined in Hernandez, et al. v. Hyatt Corp. that a 2008 amendment to the state’s controversial tip law – G.L.c.149, §150 – was intended to be applied prospectively only.

Two months earlier, U.S. District Court Judge William G. Young, who served as chief of the court from 1997 to 2005, came to the same conclusion in DiFiore, et al. v. American Airlines, Inc.

“There was a point in time [when] the plaintiffs’ bar had some authority on their side that made them feel they had leverage over us during settlement discussions,” said Brigitte M. Duffy, the Boston lawyer who represented the defendants in Hernandez. “There’s no question that now having the chief of the [BLS] and a former presiding judge of the federal court saying what they’ve said here carries some extra weight.”

Duffy, who practices at Seyfarth Shaw, added that DiFiore and Hernandez are “evidence of a definite trend which swings the pendulum back in our direction. It’s been a good couple of months for defense attorneys in Massachusetts – and we don’t always get good months in wage and hour litigation.”

‘Confused’ judges

Scott E. Adams of Groveland, who represented the plaintiffs in Hernandez, said the uncertainty on retroactivity started in 2005 when the Supreme Judicial Court held in Weidmann v. The Bradford Group that treble damages could be awarded only on a finding that an employer had willfully committed an infraction.

That test was struck down by Chapter 80 of the Acts of 2008, which made Massachusetts the first state in the country to impose automatic treble damages for wage and hour law violations. What remained unclear was whether the Legislature intended for damages to apply to cases that pre-dated the passage of the bill.

Adams said judges across the state have been split on the question ever since. For example, he said, Superior Court Judges Raymond J. Brassard and Leila R. Kern have ruled opposite of Hinkle and Young.

“These are significant matters of law that have some important philosophical questions underlying them, and there is clearly a problem with the implementation and enforcement of them,” Adams said. “There are a number of judges in Massachusetts who seem to be very confused about why these laws were developed in the first place and what they were intended to do.”

Adams also criticized the Hernandez ruling for dismissing his clients’ breach of contract claims on grounds that the statute, which has a three-year statute of limitations, preempts any common law remedies. The common law claims, which were based on the premise that the tip statute creates an implied contract between employers and employees, carry a six-year statute of limitations, he said.   

Read more at: Dolan Media Newswire

DDIFO Fights to Change Massachusetts Tip Pooling Law

Boston — Massachusetts Dunkin’ Donuts franchise owners went to bat for their employees this week, asking the state legislature to modify a state law that has limited or stopped many shops from accepting tips from their customers.

Rep. Linda Forry ((D-Dorchester), sponsor of the proposed change to what was described as “ambiguous language” in the law, testified before the Joint Committee on Labor and Workforce Development. She was flanked by Dunkin’ Donuts Independent Franchise Owners (DDIFO) President Jim Coen and franchise owners Robert Branca and Clayton Turnbull.

Coen told the committee, chaired by Sen. Thomas McGee (D-Middlesex/Essex) and Rep. Cheryl Coakley-Rivera (D-Hampden), that the current law was intended to prevent managers and executives from siphoning tips away from their lower-wage employees. But he said the law has resulted in unintended consequences because it “denies tips to nearly everyone in the team service environment that many quick service restaurants such as Dunkin’ Donuts utilizes, because at some point during most shifts, even when a shop manager is present, some crewmembers perform at least one managerial function.”  
The issue is the law’s definition of “managerial authority.”
 
Passed in 2004, the law says, “Tip sharing is permitted, provided that the distribution of the tips is limited to wait staff employees, service employees and service bartenders.”
The Massachusetts Attorney General, interpreting the legislation, ruled that “Anyone who has any superiority in rank over another employee cannot share or receive any tips or service charge, whether or not part of their work includes working alongside or with the employees serving the patrons directly. This includes shift leaders, supervisors, managers, assistant managers and anyone who can direct another employee on his or her job responsibilities.”

Forry’s proposal would define managerial authority to limit it to managers, who:
1) have hiring and firing authority,
2) regularly oversee at least two employees, and
3) work in an establishment where some employees are paid below minimum wage and derive much of their income from tips.

The committee took no action on the proposed revisions to the law. The committee staff told the Dunkin’ Donuts team that it may set up a working group of restaurant owners to hammer out the language of the revised legislation. DDIFO government affairs consultant Joe Giannino said he was told the legislators do not want to cause restaurants other unintentional problems.

Branca, who owns Dunkin’ franchises in Worcester and serves as the DDIFO’s Legislative Affairs Coordinator, told the committee that “the law is ambiguous. Franchise owners want to comply with the law, but we need to know what the law is.”
In his and other many Dunkin’ Donuts franchises, he said a shift supervisor “is often a teenager with three months more experience than the other teenagers.”

Branca and Turnbull told the legislators that at Dunkin’ Donuts, shift leaders work the counter to maintain good customer service during peak periods “They are there to make sure a customer who orders black coffee gets black coffee,” said Turnbull, who owns several Boston franchises including several at Logan Airport.

In addition, many shift leaders at Dunkin’ shops do not have the authority to hire or fire employees, the said. Branca and Turnbull asked the legislators “to make it simple.”
Turnbull said the tips add about $2 an hour for his employees. “This is not small beans.”

Branca said the confusion in the definition of managerial authority has resulted in class action law suits against franchise owners. Other suits have been filed on behalf of employees across the country in New York and California. In Massachusetts, “the statute mandates triple damages plus 12% interest and attorney fees, even where there was no intent to violate the statute and where no actual manager shared in any tip pool,” Coen said in prepared remarks given to the legislators.

As a result of the 2004 law, many quick service restaurants—Dunkin’ Donuts included—have removed tip jars and will not allow employees to accept tips.

Coen told the committee that Dunkin’ Donuts franchisees operate 1,350 shops in the state and employ more than 25,000 workers statewide. The sales tax revenues to the state collected from Dunkin’ operations is more than $67 million. And the total investment by Dunkin’ franchise owners in the state exceeds $3 billion.

Ironically, Dunkin’ helped create “the culture of tipping at coffee and donut shops” when the chain was founded in the 1950s and waitresses served coffee in ceramic cups at the counter, Coen said.

Starbucks’ Tip Policy Held to Violate Minnesota Law

Smartbrief reports that on September 30, 2009, Judge Patrick Schiltz of the Federal Court for the District of Minnesota declared that Starbucks Coffee Company’s tip distribution policy violates Minnesota law. Faced with a request for clarification from Starbucks, Judge Schiltz affirmed the breadth of his holding, writing, “Starbucks’ policy violates Minnesota law by requiring employees who work on a particular shift to share tips received on that shift with employees who do not work on that shift.”

In spite of Judge Schiltz’s unequivocal declaration of the policy’s illegality, Starbucks has yet to change its policy. E. Michelle Drake, attorney for the Plaintiffs, noted the high-risk nature of the strategy Starbucks has decided to pursue. “Minnesota law provides for a $1,000 civil penalty per violation. By not changing its policy, Starbucks may have already subjected itself up to civil penalties in excess of a million dollars — just in the past few weeks alone.”

While Judge Schiltz denied the present Plaintiffs’ bid for class certification, individuals may still bring their own cases, either by filing individually or by filing in groups. Such individuals would be eligible to recover damages, liquidated damages, and attorneys’ fees and costs.

Read more at: Smartbrief