Wai Tom v. Hospitality Ventures LLC
980 F.3d 1027
4th Cir.2020Background
- Ãn Asian Cuisine was an upscale sushi restaurant in Cary, NC that charged an automatic 20% gratuity on parties of six or more and paid servers a low hourly wage plus cash/credit tips and these automatic gratuities.
- In July 2014 Ãn implemented an evening tip pool allocating percentages to Captains/Servers, Server Assistants, Bartenders, Sushi Chefs, and others; some back-of-house staff (Kitchen Closing Supervisor / Sushi Chef Helpers) were included.
- Plaintiffs (servers) sued under the FLSA and NCWHA alleging the tip pool was unlawful because it included employees who did not "customarily and regularly" receive tips, and that automatic gratuities were tips, not commissions/service charges.
- The district court granted summary judgment to Ãn, concluding automatic gratuities were commissions and the 7(i) overtime exemption applied for most weeks; for remaining weeks the tip pool was valid; it also granted summary judgment on retaliation claims.
- The Fourth Circuit affirmed that the automatic gratuities were not tips, vacated the district court’s 7(i) analysis (remanding to include tips in the compensation calculation under the 7(i) test), found a genuine factual dispute as to the Kitchen Closing Supervisor’s tip eligibility, and affirmed dismissal of the retaliation claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Classification of automatic gratuities: tip vs commission/service charge | Automatic gratuities are tips (employees were told tips would be used; sometimes gratuity was waived) | Gratuities were nondiscretionary charges set/controlled by employer, so not "tips" | Not tips: customers did not solely determine whether/amount; classification as non-tip upheld (court leaves open commission/service-charge pathways) |
| Applicability of 29 U.S.C. § 7(i) (commissions exemption) and how to compute "more than half" compensation | Must include all compensation (including tips) when determining whether commissions exceed 50% | Employer relied on regulation excluding certain tips from the regular-rate calculation | Vacated in part and remanded: 7(i) applies only to overtime; when computing "compensation" for 7(i), include all compensation (tips) per 29 C.F.R. § 779.415; district court must recalculate and reassess 7(i) on remand |
| Validity of tip pool (who "customarily and regularly" receives tips) | Kitchen Closing Supervisor and Sushi Chef Helpers did not customarily/regularly receive tips; inclusion invalidates pool | Those employees interacted with customers and therefore properly participated in pool | Mixed: genuine dispute as to Kitchen Closing Supervisor (Papas) — remanded for factfinder; sushi chef helpers: court affirmed summary judgment for employer because plaintiffs offered only conclusory testimony |
| Retaliation claim (did employee suffer materially adverse action after complaint?) | Plaintiff alleges adverse actions after complaining about wage practices | Employer points to stable or increased pay/hours; no adverse action shown | Affirmed for employer: no genuine dispute of materially adverse action; summary judgment proper |
Key Cases Cited
- Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728 (U.S. 1981) (FLSA purpose to protect workers from substandard wages and overwork)
- Trejo v. Ryman Hosp. Props., Inc., 795 F.3d 442 (4th Cir. 2015) (discussion of the tip credit under the FLSA)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (standards for summary judgment and genuine dispute of material fact)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (allocation of burdens on summary judgment)
- Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186 (5th Cir. 2015) (analyzing tip-pool eligibility by job duties, not job title)
- Kilgore v. Outback Steakhouse of Fla., Inc., 160 F.3d 294 (6th Cir. 1998) ("more than de minimis" customer interaction test for tip eligibility)
- Darveau v. Detecon, Inc., 515 F.3d 334 (4th Cir. 2008) (elements of an FLSA retaliation claim)
- Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53 (U.S. 2006) (adverse-action standard for retaliation claims)
- Oregon Rest. & Lodging Ass'n v. Perez, 816 F.3d 1080 (9th Cir. 2016) (tip-pool composition must be exclusively employees who are "customarily and regularly" tipped)