How Broad is the Ninth Circuit's Woody Woo Decision?
The Ninth Circuit Court of Appeals recently ruled that the FLSA does not restrict employer-mandated tip-pooling arrangements when no tip credit is taken by the employer against the minimum wage obligation. Cumbie v. Woody Woo, Inc., et al., No. 08-35718 (9th Cir. Feb. 23, 2010). Further, the Court rejected the DOL’s regulation at 29 C.F.R. § 531.35, and held that the employees in Woody Woo had no legal right under the FLSA to retain all of their tips, except where the tip credit is taken by their employer.
In Woody Woo, all tips received by the restaurant went into a “tip pool”, the proceeds from which were redistributed to all employees, including the kitchen staff, who (it is universally understood) are not “customarily tipped” for the purposes of the FLSA in the restaurant industry. Importantly, all employees received an hourly wage that complied with both federal and Oregon minimum wage laws: again (it can’t be said enough), no tip credit was taken.
Based on this decision, in states where state wage-and-hour laws track the FLSA (or states with no applicable state wage law), especially those within the Ninth Circuit, employers may want to consider tip pooling arrangement similar to the one addressed by Woody Woo. Where the FLSA is the only statute at issue, Woody Woo stands for the proposition that, provided all employees receive the federal minimum wage (currently $7.25/hour), tips can be collected and redistributed to the entire labor pool, or even potentially kept by management, without violating the FLSA.
However, in many states, state wage and hour laws expressly prohibit the construct Woody Woo authorizes. In New York, for example, tip pooling and tip distribution is limited to voluntary pooling among employees who “customarily” receive tips and an employer or its agent cannot retain any tips. N.Y. Labor Law § 196-d.
Finally, even in states with no state law restrictions, common law theories of contract, quantum meruit or unjust enrichment (which are part of most states’ common laws), or statutory theories under consumer protection or business practices statutes can be utilized by employees to attack tip distribution arrangements where any tips are siphoned away from employees engaged in direct service. This concern is underscored if the customer is not explicitly advised that non-service personnel may receive a portion of tips.
Further discussion of this decision can be found on www.JacksonLewis.com by clicking here.
USC 29 Section 203(m) states that the amount an employer is required to pay a tipped employee is equal to the cash wage required to be paid such an employee on August 20, 1996; and (2) an additional amount on account of the tips received by such employee.
My question is how can the Ninth Circuit suggest that employers don't have to pay an employee the amount of tips he has received from customers but instead can utilize such tips to pay other employees who didn't actually receive tips from customers?
What Section 3(m) provides is that, in assessing an employer's compliance with the Act's minimum wage requirements, the law requires an employer to review the sum of those two amounts, subject to the limitations it includes. In plain English, whether or not you have complied with minimum wage under the Act with respect to tipped employees will be determined by whether the cash wage you paid them, plus the allowable credit under 3(m)(2), is at least minimum wage. The credit cannot exceed the cap set forth in 3(m)(2), and the employer must ensure that the employee actually receives tips equal to the tip credit it is taking. Woody Woo stands for the proposition that, where no tip credit is taken, the FLSA does not vest a tipped employee with any property right in tips.