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Restaurant manager’s participation in tip pool violated FLSA but firing objecting employee did not

By Georgia D. Koutouzos, J.D.

The aggrieved server’s complaint to a coworker about the tip pool was not a protected activity.

An employee allegedly fired from her position as a server at a restaurant for having complained about her manager’s participation in a tip pooling arrangement was entitled to partial summary judgment on her wage-based claim under the FLSA, ruled a federal district court in Pennsylvania. However, the court reserved the issue of damages for trial given that issues of fact regarding whether the violation had been willful. On the other hand, the court granted summary judgment favoring the defendants on the server’s retaliation claim because she failed to establish that she had engaged in protected activity under the statute (Whited v. The New Cafe at Greystone Gardens, March 17, 2020, Mannion, M.).

Tip pool. The employee was hired as a server at a Pennsylvania restaurant and was paid an hourly wage of $3.00. She allegedly was required to give the manager, who was a principal of the company that owned the establishment, 20 percent of the tips she received from customers. Apparently, servers were told by the principal during the hiring process that the restaurant employed a tip pool under which a percentage of the tips were shared by servers, bussers, and bartenders pursuant to a point system.

Termination. One of the server’s coworkers allegedly sent the manager a text message asserting that Pennsylvania law provides that a restaurant owner should not receive a portion of the tips. The server continued to work for the restaurant for another year, but eventually complained to the chef about her dissatisfaction with the manager getting a portion of her tips. Shortly thereafter, she was fired from her job.

Lawsuit. The server filed suit against the restaurant and the manager, alleging that they: (1) violated both the FLSA and Pennsylvania wage law by forcing her to hand over a percentage of her tips; and (2) retaliated against her for protesting the manager’s actions in violation of the FLSA and state law. The server moved for partial summary judgment on the wage-based claim and the defendants moved for partial summary judgment on the retaliation claim.

Federal wage standards. While the FLSA requires that employees be paid a minimum wage of $7.25 per hour, it contains an exception for tipped employees. Under the exception, tipped employees are required to receive at least the minimum wage, but their employers are permitted to pay a direct hourly wage substantially below the minimum wage and then take a “tip credit” to meet the required $7.25 per hour wage. An employer must inform employees that they will receive an hourly wage below the minimum wage, but that their wage will be supplemented by their tips to reach the minimum wage of $7.25 per hour. In addition, the statute requires that all tips received by an employee be retained by the employee, but the pooling of tips among employees who customarily and regularly receive tips is not a violation of that requirement. However, an employer is prohibited from participating in a tip pool.

Management structure. In the instant case, the restaurant’s manager also was a principal of the company that owned the restaurant. As such, he had a financial interest in the restaurant, was responsible for the hiring and firing of employees, handled how employees are paid, scheduled employee shifts, and kept the restaurant’s employment records. He also was the restaurant’s sole bartender, however, and in that capacity, he frequently waited tables, delivered drinks, and bussed tables. According to the defendants, the manager “wore two hats” and he was entitled to participate in the tip pool because he was an employee who customarily received tips himself.

FLSA violation. Noting that the issue of whether an individual can qualify as both an employer and a tipped employee under the FLSA was a question of first impression in the Third Circuit, the court said that it would be contrary to the purposes of the statute to allow the restaurant’s manager—an employer—to take any portion of a tip pool while simultaneously allowing him to take a tip credit. The manager got the benefit of taking a tip credit, which allowed him to pay his employees an hourly wage below the minimum wage, and it was the use of a tip pool that made that benefit possible. The manager’s participation in the tip pool was a violation of the FLSA and the state’s minimum wage law.

With respect to damages, however, the court noted that because questions of fact remained as to whether the defendants’ violation had been willful, the server’s motion for partial summary judgment was granted in part and denied in part.

Retaliation. To succeed on a retaliation claim under the FLSA, a plaintiff must prove that he or she engaged in an activity protected by the Act, the defendant responded with retaliation, and the protected activity was the cause of defendant’s retaliation. Here, the aggrieved server had complained to the chef—a coworker and not a supervisor—that she was dissatisfied with the manager taking a portion of her tips. It was unclear from the record whether the coworker told the manager about the server’s complaint, but even taking the facts in a light most favorable to her and inferring that the coworker did tell him, she still did not engage in a protected activity under the statute.

Essentially, all she told her coworker was that she was dissatisfied with a working condition, which did not serve as notice to an employer that an employee was asserting rights under the FLSA. Consequently, because she did not engage in a protected activity, her retaliation claim failed as a matter of law and the defendants’ motion for partial summary judgment on that claim was granted.