Steele v. Leasing Enterprises, Ltd.
826 F.3d 237
| 5th Cir. | 2016Background
- Perry’s Restaurants (owned by Leasing Enterprises) paid tipped servers $2.13/hour and retained a 3.25% deduction from tips charged on credit cards to offset collection/distribution costs.
- Perry’s paid charged tips in cash daily (at servers’ request) and arranged armored car cash deliveries three times weekly to support that practice.
- Plaintiffs brought a collective FLSA action alleging the 3.25% deduction violated 29 U.S.C. § 203(m) because it exceeded credit card issuer fees.
- The district court held the 3.25% offset exceeded allowable credit-card fees, excluded business-choice cash-delivery and other indirect costs from the offset, found no willfulness, denied liquidated damages, certified two conditional classes, and declined to award attorney’s fees.
- On appeal, the Fifth Circuit affirmed liability and class certification, affirmed denial of liquidated damages and three-year statute of limitations, reversed the denial of attorney’s fees, and remanded for a fee determination.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether employer may deduct a percentage of credit-card tips to recover costs and still claim tip credit under 29 U.S.C. § 203(m) | Deduction may be limited to actual credit card issuer fees; any excess violates § 203(m) | Employer may deduct credit-card issuer fees and additional aggregate costs (e.g., cash-delivery) so long as aggregate reimbursements reasonably match expenditures | Employer may deduct credit card issuer fees and an averaged composite not exceeding total issuer fees; Perry’s 3.25% exceeded direct issuer fees and thus violated § 203(m) |
| Whether cash-delivery and other discretionary business costs may be included in allowable offset | Such discretionary costs are not compensable; only direct costs of converting charged tips to cash are deductible | Cash-delivery costs are part of the cost of converting charged tips to cash and justify the composite offset | Cash-delivery was a discretionary business decision and not a required fee; it cannot be included in the offset; Perry’s offset exceeded the direct costs and violated § 203(m) |
| Whether Plaintiffs are entitled to liquidated damages (double damages) | Perry’s acted unreasonably; liquidated damages appropriate | Perry’s acted in good faith and reasonably relied on DOL guidance and prior decisions | District court did not abuse discretion in denying liquidated damages because Perry’s showed good faith and reasonable basis for believing its practice complied with the FLSA |
| Whether Perry’s willfully violated the FLSA (affecting statute of limitations) | Continuing deduction after interlocutory order demonstrates willfulness | Interlocutory order was nonfinal; Perry’s did not act willfully and had reasonable basis | No clear error: Perry’s did not willfully violate the FLSA; two-year statute of limitations applies |
| Whether district court abused discretion by certifying a second conditional class | N/A (Plaintiffs supported certification) | Certification allowed claimants who could have joined first class to relitigate | Certification of second class was proper because class-two members were employed after first-class certification and could not have opted in earlier |
| Whether Plaintiffs are entitled to attorney’s fees under 29 U.S.C. § 216(b) | Prevailing plaintiffs must receive reasonable attorneys’ fees and costs | District court found plaintiffs made superfluous assertions and denied fees | FLSA mandates allowance of reasonable attorney’s fees; district court abused discretion by refusing fees without making a reasonableness finding; remanded for fee award |
Key Cases Cited
- Myers v. Copper Cellar Corp., 192 F.3d 546 (6th Cir. 1999) (employer may deduct amounts reasonably reimbursing costs of converting charged gratuities to cash; treated charged gratuity as "tip" only after liquidation)
- Montano v. Montrose Rest. Assocs., 800 F.3d 186 (5th Cir. 2015) (employer bears the burden of proving entitlement to the tip credit)
- Mireles v. Frio Foods, Inc., 899 F.2d 1407 (5th Cir. 1990) (employer bears substantial burden to prove good faith and reasonable belief to avoid liquidated damages)
- McLaughlin v. Richland Shoe Co., 486 U.S. 128 (U.S. 1988) (willfulness standard: knowledge or reckless disregard that conduct was prohibited)
- Weisel v. Singapore Joint Venture, Inc., 602 F.2d 1185 (5th Cir. 1979) (reasonable attorneys’ fees are mandatory to prevailing plaintiffs under § 216(b))
- Bernard v. IBP, Inc. of Nebraska, 154 F.3d 259 (5th Cir. 1998) (liquidated damages double the total damages awarded)