New 1st Circuit Tip Credit Decision

In a recent decision, on October 1, 2014, the United States Court of Appeals for the First Circuit affirmed the District Court of Puerto Rico’s decision granting summary judgment for the Secretary of the Department of Labor (“DOL”), against Lorraine Enterprises, Inc. d/b/a Piccolo E Posto, Lorraine Lago, and Pedro Gonzalez (collectively, “Defendants”), and denied Defendants motion to amend or alter that judgment. Perez v. Lorraine Enterprises, Inc., d/b/a Piccolo E Posto, et al., Nos. 13-1685 (1st Cir., Oct. 1, 2014).

The DOL brought this claim on behalf of all employees who worked at Defendants restaurant in Guaynabo, Puerto Rico.  An investigation in 2008 by the DOL found that Defendants were violating that Fair Labor Standards Act (“FLSA”).  These violations included taking certain unlawful deductions from the waiters’ pay (specifically, a “spillage fee”), misclassifying certain employees as exempt from overtime pay requirements, and not complying with the FLSA’s recordkeeping requirements.  The District Court found in the DOL’s favor, requiring Defendants to pay $129,000 in wages owed.

On review, the Court of Appeals agreed that the tipped employee exemption from the FLSA (which allows restaurants to pay their employees a tipped minimum wage) does not apply in this situation because the Defendants did not inform their employees in advance of their intention to pay them the tipped credit minimum wage.  The Court of Appeals again enforced the FLSA requirement that the employer has the burden to show that they have satisfied all requirements necessary for tip-credit eligibility.

Additionally, the Court of Appeals affirmed the District Court’s ruling which granted summary judgment on the minimum wage claim since waiters did not receive proper notice of the restaurant’s intent to credit their tips against the minimum wage, and even so, deductions were taken from waiters’ pay for invalid purposes.  The Court of Appeals denied Defendants arguments that sufficient notice was given to waiters based on (1) Defendant Lago’s testimony (stating that some employees were informed by written notices – though there was no record of this), and (2) the actual or constructive notice that employees had based on the actions of the restaurant.  The Court of Appeals again pointed out that “the FLSA requires employees be informed by their employer that the employer intends to treat tips as satisfying a portion of the minimum wage.”

The Court of Appeals also denied Defendants argument that the District Court erred in entering summary judgment against the individual Defendants, finding that the individual Defendants admitted to active control and management of the company in their answer to the complaint, and to bring up these objections now, after never objecting to such facts before the magistrate judge or the district judge, was “too little and too late.”

The Employment Lawyers at Fitapelli & Schaffer frequently represent employees who have been misclassified as exempt under the Fair Labor Standards Act and the New York Labor Law.  Additionally, Fitapelli & Schaffer has handled multiple restaurant cases involving tipped employees, recovering these wages for them because of violations of the tipped credit minimum wage.  Please contact us at (212) 300-0375 to schedule a free consultation to further discuss your rights. For more information, please visit our website, www.fslawfirm.com.