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Employer may violate minimum wage if tip credit applied to hours not tip-credit eligible

March 14th, 2017  |  Ron Miller

As a server for a popular chain of family dining restaurants, the employee’s pay, including tips invariably exceeded the minimum wage. Even so, she argued that she did not receive the minimum wage for every hour that she worked. The employee pointed out that there were some activities for which she did not generate any tips from customers, such as brewing coffee or tea, rolling silverware, wiping down tables, setting tables, cutting and stocking fruit, stocking ice, taking out trash and sweeping floors. Because the employer took the tip credit for all hours that she worked, she contended that her “cash wage” for those hours was only $4.98 per hour (the wage paid by the employer to its tipped employees). Did the employee have a viable claim for an FLSA minimum wage violation?

In Romero v. Top Tier of Colorado LLC, the Tenth Circuit ruled that the fact that an employee did not allege that she failed to receive the minimum wage when including all the tips she received as a server, did not preclude her from stating a claim for a minimum wage violation The appeals court rejected a district court’s conclusion that “if [a] tipped employee makes enough [in tips] to meet the minimum wage,” then the employer has necessarily complied with Section 206(a) of the FLSA. To the extent an employee’s tips are relevant in determining whether an employer has satisfied its minimum-wage obligations under Section 206(a), the threshold question is whether the employer can treat those tips as wages under Section 203(m).

In dismissing the employee’s minimum wage claim, the district court relied on the undisputed fact that she never alleged that she earned less than the federal minimum wage of $7.25 an hour. However, the district court declined to address the employee’s argument that the employer impermissibly treated her tips as “wages.” The Tenth Circuit concluded that the district court should have first resolved whether the employer was entitled to treat her tips as wages under Section 203(m).

“Non-tipped” tasks. The employer took advantage of the “tip credit” and paid the employee a “cash wage” of $4.98 per hour and then used some of her tips to cover the gap between that cash wage and the federal minimum wage. But the tip credit only applies to “tipped employees,” and during some of the hours she worked, the employee performed “non-tipped” tasks. Reasoning that she wasn’t a “tipped employee” under Section 203(m) for at least some of the hours she spent performing non-tipped tasks, the employee asserted that the employer should have paid her a cash wage of at least $7.25 an hour for those hours. She alleged that the employer was not entitled to take the tip credit for any of the hours she spent performing non-tipped tasks. Additionally, she asserted that the employer wasn’t entitled to take the tip credit for those hours “in excess of [20 percent] of her regular workweek” that she spent performing non-tipped tasks.

Here, the employee alleged that she was employed in two occupations: one that generated tips and one that didn’t. She also alleged that she spent more than 20 percent of her workweek performing “related but nontipped work.” Consequently, she argued that the employer impermissibly treated a portion of her tips as “wages” for minimum wage purposes by taking the tip credit for hours that were not tip-credit eligible.

The district court correctly stated the general rule that an employer satisfies the minimum wage so long as, after “the total wage paid to each [employee] during any given week is divided by the total time [that employee] worked that week, the resulting average hourly wage” meets or exceeds $7.25 an hour. But, it could not apply the general rule to the employee’s claim without first determining what “total wage” the employer actually paid her. The district court could not make that determination without evaluating whether the employer took the tip credit for hours that weren’t tip-credit eligible.

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