388 F. Supp. 3d 646
D.S.C.2019Background
- Defendant Keller Unlimited, LLC (sole member Mark Keller) runs Two Keys Tavern and Two Keys Public House where plaintiffs worked as bartenders.
- Defendants paid bartenders $4.13–$4.75/hour and claimed the FLSA tip credit instead of full minimum wage.
- Defendants deducted from employees’ wages an amount equal to weekly bar "shortages" reported by an outside auditor (Bevinco); Keller described this as a policy to make bartenders "pay the loss."
- Plaintiffs sued under the FLSA alleging illegal deductions that undermine the tip credit and thus violate minimum wage requirements; the class was conditionally certified and not decertified.
- Facts are undisputed that Keller authorized and implemented the shortage-deduction policy and reviewed Bevinco reports and met regularly with managers.
- After suit, Keller continued the deduction practice and did not seek legal advice or verify payroll compliance prior to litigation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether deducting bar shortages while taking a §203(m) tip credit violates the FLSA minimum-wage rules | Deductions reduce tipped employees’ wages below the statutory minimum, disqualifying the employer from taking the tip credit | Plaintiffs underreport tips to IRS, making it impossible to calculate actual wages | Court: Deduction practice disqualifies employer from taking tip credit; summary judgment for plaintiffs |
| Whether Mark Keller is individually liable as an "employer" under the FLSA | Keller exercised economic and operational control (sole LLC member, procured licenses, reviewed audits, set and enforced policy) | Implicitly: corporate/LLC should shield individual; Keller did not work day-to-day | Court: Keller is individually liable based on economic-reality factors |
| Whether Defendants' violation was willful | Defendants acted with reckless disregard (no legal advice, no research, continued deductions after complaint) | Argument not persuasive; reliance on payroll or good-faith mistake could negate willfulness | Court: Violation was willful; summary judgment for plaintiffs |
| Whether liquidated damages are appropriate | Liquidated damages appropriate because Defendants did not show good faith and reasonable grounds | Defendants denied merit but offered no proof of good-faith/legal basis | Court: Award of liquidated damages appropriate; defendants failed burden to avoid them |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden-shifting)
- McLaughlin v. Richland Shoe Co., 486 U.S. 128 (willfulness standard under FLSA)
- Desmond v. PNGI Charles Town Gaming, L.L.C., 630 F.3d 351 (4th Cir. willfulness discussion)
- McFeeley v. Jackson St. Entm't, LLC, 825 F.3d 235 (4th Cir. affirming liquidated damages on tip-credit violation)
- Mayhue's Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196 (5th Cir. holding shortage deductions inconsistent with tip-credit regime)
- Schultz v. Capital Intern. Sec., Inc., 466 F.3d 298 (economic-reality test for employer status)
- Gionfriddo v. Jason Zink, LLC, 769 F. Supp. 2d 880 (applying factors to identify employer under FLSA)
- Burnley v. Short, 730 F.2d 136 (burden to avoid liquidated damages requires good faith and reasonable grounds)
- Wright v. Carrigg, 275 F.2d 448 (formulation of burden to avoid liquidated damages)
- Williams v. Md. Office Relocators, 485 F. Supp. 2d 616 (evidence bearing on willfulness)
- Dorsey v. TGT Consulting, LLC, 888 F. Supp. 2d 670 (disallowing tip credit where employer deducts shortages)
- Bernal v. Vankar Enterprises, Inc., 579 F. Supp. 2d 804 (same)