Oregon Restaurant and Lodging v. Thomas Perez
816 F.3d 1080
9th Cir.2016Background
- Two consolidated appeals challenge the DOL’s 2011 regulation extending 29 U.S.C. § 203(m)’s tip-pool limits to all employers, including those that do not take a federal tip credit.
- Employer-appellees (restaurants/casino) paid at least federal minimum wage (did not take tip credit) but required tipped employees to contribute to tip pools that included non-customarily tipped staff.
- District courts relied on this circuit’s prior decision in Cumbie v. Woody Woo, Inc., holding § 203(m) does not restrict employers who do not take a tip credit, and invalidated/enjoined the 2011 rule.
- Ninth Circuit majority reviews validity of the DOL rule under Chevron deference and must decide whether Congress clearly addressed the question (Chevron step one) or whether the DOL’s rule is a permissible construction (Chevron step two).
- The panel majority reverses the district courts: it finds § 203(m) silent as to employers who do not take a tip credit, concludes Cumbie rested on statutory silence (not an unambiguous statutory command), and defers to the DOL’s reasonable regulation.
- Judge N.R. Smith dissents, arguing Cumbie held § 203(m) unambiguously applies only to employers taking a tip credit and that Brand X/precedent require adherence to that prior panel ruling; he would affirm the district courts.
Issues and Key Cases Cited
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May the DOL regulate tip-pooling for employers who do not take a tip credit? | DOL/plaintiffs: § 203(m) is ambiguous/silent and the DOL may fill the gap; tips are employee property and § 203(m) limits pooling for all employers. | Restaurants/casinos: Cumbie held § 203(m) does not apply to employers who do not take a tip credit; DOL rule exceeds authority. | The court: § 203(m) is silent as to non-tip-credit employers (Chevron step one); Cumbie addressed statutory silence, so it does not preclude agency rulemaking. DOL regulation survives Chevron step two as reasonable. |
| Is the panel bound by Cumbie, so that Brand X precludes deference to the DOL? | DOL/plaintiffs: Cumbie interpreted statutory silence and left room for agency interpretation under Christensen and Chevron. | Employers: Cumbie unambiguously interpreted § 203(m); Brand X forecloses contrary agency interpretation. | The court: Cumbie rested on statutory silence, not an unambiguous construction; Brand X does not bar DOL rulemaking here. |
| Is the DOL’s 2011 rule a reasonable construction of § 203(m)? | DOL: rule aligns with statutory purpose, legislative history, and protects tipped employees; it addresses an enforcement loophole identified after Cumbie. | Employers: rule is contrary to the statute’s plain text and prior Ninth Circuit reading. | The court: the DOL’s interpretation is reasonable and consistent with legislative history and FLSA purpose; not arbitrary or capricious. |
| Does legislative history show Congress intended § 203(m) limits only for tip-credit employers? | Employers: Senate report links conditions to the tip-credit benefit, implying § 203(m) applies only when credit is taken. | DOL: broader legislative history supports that tips are employee property and restrictions on employer use are consistent with Congress’s intent. | The court: legislative history supports the DOL’s broader reading or at least does not bar it; DOL’s reading is reasonable. |
Key Cases Cited
- Williams v. Jacksonville Terminal Co., 315 U.S. 386 (presumptive rule that, absent statutory interference, tip-redistribution agreements are valid)
- Christensen v. Harris Cty., 529 U.S. 576 (silence in statute can permit agency regulation; distinguishes statutory prohibition from silence)
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (two-step framework for reviewing agency statutory interpretations)
- Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (prior judicial construction trumps agency only if the statute is unambiguous)
- Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir.) (prior panel held § 203(m) does not restrict tip-pooling when employer does not take a tip credit; court here treats that holding as resting on statutory silence)
- Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728 (FLSA’s remedial purpose to protect workers)
- United States v. Mead Corp., 533 U.S. 218 (framework for when Chevron deference applies to agency rules)
- Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208 (silence in statute often indicates Congress did not intend to restrict agency discretion)