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National Restaurant Association, et al v. Hilda L. Solis

May 29, 2012

NATIONAL RESTAURANT ASSOCIATION, ET AL., PLAINTIFFS,
v.
HILDA L. SOLIS, SECRETARY, U.S. DEPARTMENT OF LABOR, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Amy Berman Jackson United States District Judge

MEMORANDUM OPINION

Plaintiffs National Restaurant Association, Counsel of State Restaurant Associations, Inc., and National Federation of Independent Businesses bring this action against defendants Hilda L. Solis, in her official capacity as Secretary of the U.S. Department of Labor; Nancy Leppink, in her official capacity as Acting Administrator of the U.S. Department of Labor; and the U.S. Department of Labor ("the Department" or "DOL"). Plaintiffs allege that defendants violated the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 611, 702 (2006), when DOL promulgated a new regulation, 29 C.F.R. § 531.59(b) (2011), concerning an employer's obligation to inform tipped employees of the "tip credit" requirements of the Federal Labor Standards Act of 1938 ("FLSA"), 29 U.S.C. §§ 201--219 (2006). Defendants have moved to dismiss, or, in the alternative, for summary judgment, [Dkt. # 15], and plaintiffs have filed a cross-motion for summary judgment. [Dkt. # 24]. Since the agency complied with the APA notice requirements when it conducted this rulemaking exercise, and the public was fully and specifically informed of the subject matter under consideration, the Court will deny plaintiffs' motion for summary judgment and grant defendants' motion.

I. BACKGROUND

The FLSA requires employers covered by the statute to pay hourly employees a minimum wage. 29 U.S.C. § 206. But the statute as it is currently configured also permits employers to pay employees who collect tips less than the minimum wage under certain circumstances. 29 U.S.C. § 203(m) ("section 3(m)"). Referred to as the "tip credit," section 3(m) allows employers to use tips received by tipped employees to partially satisfy the hourly minimum wage requirement if an employee "has been informed by the employer of the provisions of this subsection . . . ." Id. In other words, if an employer fails to inform its tipped employees of the provisions of section 3(m), then no tip credit can be taken, and the employer is liable for the full minimum wage.

A. Statutory and Regulatory Background

In 1966, Congress passed the amendment to FLSA that first enabled employers to take advantage of a tip credit. Pub. L. No. 89-601 §101(a), 80 Stat. 830 (1966). The following year, the Department promulgated its first regulation implementing section 3(m). 29 C.F.R. § 531.59 (1967). As originally enacted, neither section 3(m) nor the implementing regulation required employers to inform employees about the statutory provision before taking the tip credit. That changed in 1974, when Congress again amended FLSA to require employers to inform employees of the provisions of section 3(m) in order to be eligible for the tip credit. Pub. L. No. 93-259, § 13, 88 Stat. 55 (1974).*fn1 As amended, FLSA provides:

In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee's employer shall be an amount equal to --

(1) the cash wage paid such employee which for purposes of such determination shall be not less than 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 which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.

The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding [two] sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips. 29 U.S.C. § 203(m) (2006) (emphasis added). A Senate Report concerning the 1974 amendments explained that "[t]he tip credit provision . . . is designed to insure employer responsibility for proper computation of the tip allowance and to make clear that the employer is responsible for informing the tipped employee of how such employee's wage is calculated. Thus the bill specifically requires that the employer must explain the tip provision of the Act to the Employees . . . . " S. Rep. No. 93-690, at 43 (1974).

B. The Proposed Rule

Although Congress enacted the requirement that employers inform their employees prior to taking the tip credit in 1974, the Department did not initiate further rulemaking until 2008. On July 28, 2008, the Department published a Notice of Proposed Rulemaking ("NPRM"), which stated in its preamble:

In this proposed rule, the Department of Labor . . . proposes to revise regulations issued pursuant to the Fair Labor Standards Act of 1938 (FLSA) . . . that have become out of date because of subsequent legislation or court decisions. These proposed revisions will conform the regulations to FLSA Amendments passed in 1974, 1977, 1996, 1997, 1998, 1999, 2000, and 2007 . . .

Updating Regulations Issued Under the Fair Labor Standards Act ("Proposed Rule"), 73 Fed. Reg. at 43654 (July 28, 2008) (to be codified at 29 C.F.R. pts. 4, 531, 553, 778, 779, 780, 785, 786, & 790). The agency was clear about the broad scope of the undertaking: "The Department requests comments on all issues related to this notice of proposed rulemaking." Id. at 43655.

Section 3(m) was one of several statutory provisions specifically identified in the NPRM as being a particular subject of the announced rulemaking. The NPRM included a section entitled "Tipped Employees," and the notice expressly referred to the 1974 amendments:

Section 13(e) of the Fair Labor Standards Act Amendments of 1974 amended the last sentence of section 3(m) by providing that an employer could not take a tip credit unless: "(1) [its] employee has been informed by the employer of the provisions of this subsection . . . ."

Id. at 43659 (alteration in original) (quoting Pub. L. No. 93-259, § 13(e), 88 Stat. 55 (1974)). The Tipped Employees section of the NPRM went on to discuss the legislative history of the tip credit, and it also summarized the relevant case law on the need to inform employees under section 3(m):

Courts have disallowed the use of the tip credit for lack of notice even "where the employee has actually received and retained base wages and tips that together amply satisfy the minimum wage requirements," remarking that "[i]f the penalty for omitting notice appears harsh, it is also true that notice is not difficult for the employer to provide." Reich v. Chez Robert, Inc., 28 F.3d 401, 404 (3d Cir. 1994) (citing Martin v. Tango's Restaurant, 969 F.2d 1319, 1323 (1st Cir. 1992)). Although written notice is frequently provided, it is not required to satisfy the employer's notice burden. Compare Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 299 (6th Cir. 1998) (written notice provided to all applicants as matter of course), with Pellon v. Business Representation Int'l, Inc., 528 F. Supp. 2d 1306, 1310-11 (S.D. Fla. 2007), appeal docketed, No. 08-10133 (11th Cir. Jan. 8, 2008) (section 3(m)'s requirement was met through verbal notice that plaintiff would be paid $2.13 plus tips, combined with prominent display of FLSA poster explaining tip credit). Additionally, while employees must be "informed" of the employer's use of the tip credit, the employer need not "explain" the tip credit. See Kilgore, 160 F.3d at 298 ("[A]n employer must provide notice to the employees, but need not necessarily 'explain' the tip credit * * * '[I]nform' requires less from an employer than the word 'explain.' "); cf. Bonham v. Copper Cellar Corp., 476 F. Supp. at 101 & n.6 ("vague references to conversations about the minimum wage" are insufficient to establish section 3(m) notice").

Id. at 43659-60 (alterations in original). Against this backdrop, the NPRM proposed a new regulation, which stated:

Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it has informed its employees that it intends to avail itself of the tip wage credit.

Such notice shall be provided in advance of the employer's use of the tip credit; the notice need not be in writing, but must communicate to employees that the employer intends to treat tips as satisfying part of the employer's minimum wage obligation.

Id. at 43668. The Department of Labor received comments on the proposed rules from July 28 to September 26, 2008.*fn2

C. The Final Rule

On April 5, 2011, the Department of Labor issued a final rule regarding the FLSA's tip credit provision. Updating Regulations Issued Under the Fair Labor Standards Act ("Final Rule"), 76 Fed. Reg. 18832 (Apr. 5, 2011) (codified at C.F.R. pts. 516, 531, 553, 778, 779, 780, 785, 786, & 790). The introductory summary explained:

Upon careful reexamination of the terms of the [FLSA], its legislative history, and a review of the public comments, the Department is revising its interpretation from the NPRM of the level of explanation that employers must provide when informing tipped employees about the tip credit pursuant to section 3(m).

Id. at 18844. The final rule, which was codified as 29 C.F.R. § 531.59(b), provided:

Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it has informed its tipped employees in advance of the employer's use of the tip credit of the provisions of section 3(m) of the Act, i.e.: The amount of the cash wage that is to be paid to the tipped employee by the employer; the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee; that all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to ...


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