Atlanta Federal Court Dismisses Valet Driver Minimum Wage Lawsuit

tipsAmong the most active and quickly evolving areas in wage-and-hour law is liability associated with the misappropriation of tips. Under federal law, employers are permitted to pay workers in tip occupations an hourly wage, minus the prevailing minimum wage, for it is assumed that the lower hourly wage will be offset by the tips earned by the employee.  Given that tips make up a substantial portion of these employees’ wages, many will take issue with tips being co-opted by employers for other purposes. For instance, in a recent decision, Malivuk v. Ameripark, LLC, an Atlanta federal district court resolved a motion to dismiss in an action brought by a group of valets, arguing that their employers committed minimum wage violations by using money gathered from tips to offset other business expenses.

This action was brought against Ameripark, LLC, a limited liability corporation that provides valet services to businesses throughout the Atlanta metro area. A valet employed by Ameripark alleged that although she and other similarly situated employees were provided an hourly wage, they were unlawfully denied wages under both federal and state laws because Ameripark pooled the tips received by valets from customers and appropriated some of the tip funds for business purposes other than compensating the valets. The plaintiff brought suit against Ameripark. Following the initiation of the action, Ameripark moved to dismiss the complaint on the grounds that the plaintiff did not state a valid wage claim under federal law and that the state law claims also failed because they were dependent on the plaintiff stating a valid federal wage claim.

The principal federal law governing wages is the Fair Labor Standards Act, 29 U.S.C. § 201, et seq., which establishes baseline wage requirements for most of the nation’s employees. Specifically, Section 203(m), which governs compensation for tip wage earners, provides that an employer must pay an employee in a tipped occupation an hourly wage, but this hourly wage may be less than the prevailing minimum wage if the employee’s compensation includes all of the tips earned, and those tips sufficiently make up the disparity between the hourly wage received and the prevailing minimum wage. See 29 U.S.C. § 203(m). In applying Section 203(m), courts have held that an employer commits a minimum wage violation if he or she takes the tip credit—i.e., pays a tipped employee less than the prevailing minimum wage while making up the difference with tips—but does not furnish to the employees all of the tips earned. See, e.g., Brueningsen v. Resort Exp., Inc., 12 Civ. 00843, 2015 WL 339671, at *4 (D. Utah Jan. 26, 2015) (“§ 203(m)  . . . prohibits an employer from retaining a portion or all of the tips if the employer pays a tipped employee less than the federal minimum wage. . . .”). However, “an employer is not prohibited from retaining an employee’s tips if the employer does not take the tip credit.” Id. Furthermore, even if the employer creates a tip pool, there is a minimum wage violation if money from the pool is either shared with non-tipped employees or applied to purposes other than compensating tipped employees.

In this case, the court found that the plaintiff’s minimum wage claim failed because the plaintiff did not allege that she was, in fact, compensated a rate less than the minimum wage. See Trinidad v. Pret A Manger (USA) Ltd., 962 F. Supp. 2d 545 (S.D.N.Y. 2013) (“FLSA [Section 203(m)] conditions apply only when the employer pays the employee below minimum wage and relies on a tip credit to supplement that wage.”). Instead, the plaintiff only argued that there was a violation because the defendant appropriated tips for purposes other than compensating her and other valets. However, since the plaintiff did not allege she was paid an hourly rate less than the minimum wage—likely because she was, in fact, given an hourly salary above the minimum wage—the tip credit rules limiting an employer’s use of tip funds were not implicated. See, e.g., Brueningsen, 2015 WL 339671, at *4 (“Reading the statute to mandate that tips are property of the employee regardless of the tip credit renders . . . reference to the tip credit superfluous.”).

Although one Court of Appeals, relying on Department of Labor regulations, reached a different conclusion, see Lodging Ass’n v. Perez, 816 F.3d 1080 (9th Cir. 2016), the judge noted the majority of courts, as well as the dissenting judge in the Ninth Circuit decision, had determined that those regulations were not entitled to deference, see id. at 1093 (dissenting from ruling and noting that regulations were not entitled to deference). On a final note, the court ruled that the plaintiff’s state law claims for, inter alia, breach of contract, unjust enrichment, and conversion also failed because those claims depended on an initial finding that the tip money used for other purposes was the property of the employees under the FLSA. See, e.g., Brueningsen, 2015 WL 339671, at *9 (concluding that since the plaintiffs’ “[t]ip entitlement derives solely from the FLSA,” and the plaintiffs did not “show that the FLSA entitles them to the tips,” state claims for “common law [conversion, unjust enrichment, and quantum meruit] claims fail[ed] on the merits”). Accordingly, the judge ruled that the complaint should be dismissed.

Even though the plaintiff failed to allege a viable claim in this action, tip misappropriation remains an area rife with litigation. Indeed, many employers take advantage of the federal tip credit provisions but engage in unlawful practices with tip funds, including allocating funds to managers or other non-tipped employees or using tips to cover other business expenses. If you believe your employer is engaged in such practices, you should consider finding counsel experienced in wage and hour law to help ascertain whether you have a viable claim. The Atlanta wage law attorneys at the Simon Law Firm are well-versed in both federal and state wage-and-hour laws and are prepared to help you with a possible claim. If you believe you are a victim of wage theft, feel free to contact us and schedule a complimentary case consultation.

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