Second Circuit To Consider Whether Plaintiffs Can Simultaneously Pursue FLSA And Pendent State Law Claims in Federal Court

Posted on May 18, 2010 by Noel Tripp

As wage and hour litigation continues to be the majority of litigation in the workplace law arena, many employers are faced with defending federal and state law claims in the same federal court lawsuit.  This poses a practical issue as the FLSA provides for an opt-in class while state laws generally provide for opt-out classes.   Many members of the defense bar feel that allowing the actions to coexist in a federal case renders the opt-in process practically irrelevant.  Further, such dual actions often have the result of a minimal opt-in class and a large opt out class.

While district courts within the Second Circuit (which covers New York, Connecticut and Vermont) have held that such claims can coexist in a federal court action, the Second Circuit Court of Appeals has not yet ruled on the issue. Such a ruling is expected in the near future as the Second Circuit recently agreed to consider a restaurant employer’s appeal of the district court’s decision allowing federal and state claims to proceed in a situation where only 22 of approximately 300 of the putative plaintiffs who comprise the state law opt-out class opted in to the FLSA action.  Shahriar et al. v. Smith & Wollensky Restaurant Group Inc. et al., Second Circuit Case No. 10-477-mv (Order dated May 14, 2010). Courts within other Circuits are divided as to the appropriateness of the “hybrid” opt-in/opt-out lawsuit which permits such claims to coexist.  Compare De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 306 (3d Cir. 2003)(upholding refusal to certify 4,000+ member state law opt-out class in wage case with 447 potential opt-in participants) with Lindsay v. Gov't Emples. Ins. Co., 448 F.3d 416 (D.C. Cir. 2006)(reversing denial of certification of state law claim in certified federal action and holding that dual actions are permissible).   

Should the Second Circuit rule that such claims cannot coexist in a federal court action, there may be a significant reduction in wage and hour actions initiated in federal court within the Circuit, as Plaintiffs’ counsel seek solely large opt-out state law classes in New York state courts.  However, such a finding and strategic shift could also have the effect of requiring employers to simultaneously defend parallel cases in federal and state court.  This site will keep you apprised of the Court’s decision.

 

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The 20% Rule For Tipped Employees - Eighth Circuit Invited to Decide Whether To Adopt USDOL Position

Posted on March 17, 2010 by Noel Tripp

In the food service industry, an employer can take a tip credit against the minimum wage for customarily tipped employees, such as servers, bus persons and bartenders.  Under federal law, a restaurant can pay employees holding such positions $2.13 per hour, rather than $7.25 per hour, as long as the employees receive sufficient tips to make up the difference and the tips are only retained by customarily tipped employees.  For years, an issue that has bedeviled industry employers is how to handle prep time and clean-up time as in most establishments there is a period of time pre and post-shift and potentially even during busy hours, in which customarily tipped employees perform prep work and maintenance work.  Can a tip credit be taken for the entire shift?

The United States Department of Labor through its Field Operations Handbook has long taken the position that an employer may take a tip credit for time spent on prep and maintenance only if it consists of less than 20% of the employee’s shift.  The United States District Court for the Western District of Missouri recently addressed this issue, and upheld the USDOL’s position. However, the court stayed the pending FLSA action (involving over 5,000 plaintiffs) and allowed an immediate appeal to the United States Court of Appeals for the Eighth Circuit.   If the appeal is accepted, the Eighth Circuit will determine whether the USDOL’s position is consistent with the language and intent of the Fair Labor Standards Act.   

The Circuit court would have to balance the conflicting positions of industry employers with that of employees and employee advocacy groups.  Industry employers assert this prep and maintenance work is part and parcel of the job duties that result in tips and accordingly the key inquiries should be solely whether the non-tipped duties were part of the continuum of the tipped duties (i.e., the direct customer service duties) and whether the individual received sufficient tips to make up the tip credit.  Employee advocates argue that the 20% rule provides employers with necessary leeway to assign non-tipped duties during a shift, but provides an inappropriate windfall by only having to pay a subminimum wage for non-tipped work that should be compensated at the standard minimum wage or higher.  See Fast v. Applebee's Int'l, Inc., 2010 U.S. Dist. LEXIS 19571 (W.D. Mo. Mar. 4, 2010).

Of course, at all times, state law must be consulted.  Some states do not allow any tip credit; other states allow a lesser tip credit than federal law and many states impose tangents on its application.  For example, in some states the tip credit cannot be taken for any hour in which more than a de minimis amount of prep or maintenance work is performed.

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