MELISSA COMPERE, VALDO SULAJ, ALVARO BETANCOURTE, ALBA CASTILLA, SLAGJANA KOVACHEVSKA, ALDALYNNE ALDANA, DANIEL PACHECO, SANTOS RIVERA, WILLIAM CAMERON, ADAM JAGODA, ALEJANDRA LAVALLE, ANTONIO SCIANCALEPORE, MERVE BUDOK, ARBER LUKOVIC, VIOLETA MARKOVIC, TAMAS CZOMBOS, PABLO CANO, LUIS LUCIANO, GORDON MACK, RONALDO ESCALONA, ODALYS BURGOS, MUNEVVER KOC, MEHMET BAYKARA, Plaintiffs-Appellants, DIEGO VARGAS, Plaintiff, v. NUSRET MIAMI, LLC, d.b.a. Nusr-et Steakhouse, a Florida limited liability company, NUSRET GOKCE, an individual, Defendants-Appellees.
No. 20-12422
United States Court of Appeals for the Eleventh Circuit
March 18, 2022
[PUBLISH]
D.C. Docket No. 1:19-cv-20277-AHS
BRANCH, Circuit Judge:
Restaurants regularly add mandatory service charges or gratuities to customers’ bills. This appeal is about whether such charges are “tips” under federal employment law, an issue of first impression in the Eleventh Circuit. If the mandatory service charges are tips, federal law would generally prohibit restaurants from using the fees to pay minimum and overtime wages to employees. But if the charges are not tips, establishments may apply them toward employee wages.
Nusret Miami, LLC is an upscale steakhouse in Miami, Florida. It is owned by Nusret Gokce, a chef and internet celebrity also known by the nickname “Salt Bae.”1 Since opening in November 2017, the restaurant added a mandatory 18% “service charge” to customers’ bills. It collected these payments and redistributed them to certain employees on a pro rata basis to cover Nusret‘s minimum and overtime wage obligations. To do so, the restaurant used a provision in the Fair Labor Standards Act (“FLSA“) exempting certain retail and service establishment employers from paying overtime wages if, as relevant here, “the
In this collective action under the FLSA, the plaintiffs—a group of tipped employees at Nusret (“Employees“)—challenge Nusret‘s compensation scheme. The Employees allege that from November 1, 2017, through January 18, 2019, the restaurant paid them less than the required federal minimum and overtime wages and forced them to participate in an illegal tip pool with non-tipped employees. The heart of their argument is that, although their portion of the service charges exceeded the statutory wage requirements (e.g., some employees made over $100,000 per year), Nusret still violated the FLSA because the 18% “service charge” was not a service charge, but, in fact, a tip. And because tips are not part of the Employees’ “regular rate of pay,” the restaurant could not use them to offset its wage obligations under the FLSA. See, e.g., Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945) (explaining that “[t]he regular rate by its very nature must reflect all payments which the [Employer and Employees] have agreed shall be received regularly during the work week“);
The primary issue before us is whether Nusret‘s mandatory 18% “service charge” is a tip under the FLSA and associated regulations. The Employees say that the charge is a tip; Nusret says it is a bona fide service charge. The classification of this charge is
After careful review and with the benefit of oral argument, we agree with the district court that the service charge was not a tip and could lawfully be used to offset Nusret‘s wage obligations under the FLSA.2 Accordingly, we affirm.
I. Background
A. Factual Background
Nusret‘s menu informs customers of the service charge: “For your convenience an 18% service charge will be added to your final bill and will be distributed to the entire team.”3 Separate from
The service charge payments never went directly to restaurant employees. Instead, Nusret would process the bill and the service charge (and credit card tips) through a point-of-sale system (“POS System“). Nusret would then distribute the collected service charges—minus 2.65% for credit card processing fees—to employees using a point system to give each employee a pro-rata share of the total.4 Nusret would also distribute the additional gratuities to tip-eligible employees.
Nusret‘s pay structure for the Employees changed slightly over the relevant period: From November 2017 through April
Nusret explained to its employees that the new pay structure was lawful under
In 2017, Florida‘s minimum wage was $8.10 per hour; in 2018, it was $8.25 per hour; and in 2019, it was $8.46 per hour. From November 1, 2017 through January 1, 2019—the period at issue in this lawsuit—Nusret paid the Employees amounts ranging from $23.68 to $51.58 per hour.
B. Procedural History
On January 18, 2019, Melissa Compere, a former Nusret server, initiated a collective action complaint5 on behalf of herself and similarly situated service employees against Nusret Miami and
The Employees alleged that, “[t]hroughout the majority of [lead plaintiff Compere‘s] employment as a tipped employee at Nusret Steakhouse,” she “and others similarly situated . . . were only paid a share of the tips collected,” and therefore were paid no wages at all, in violation of the FLSA‘s minimum and overtime wage requirements. They also alleged that “non-tipped employees” and “management” improperly participated in the tip pool, which also violates the FLSA. See
Nusret filed an answer stating that the Employees “have been fully compensated for all hours worked in accordance with the applicable provisions of the FLSA.”
During discovery, Employees sought to depose Nish Patel, the corporate representative of Nusret‘s accounting firm, Paperchase, on the restaurant‘s treatment of the service charge for financial and tax purposes. Patel‘s deposition was set for March 20, 2020, in Miami, Florida. But on March 17, 2020, the Employees moved to extend the deadline to file pretrial motions, claiming that, “[t]oday, Defendant‘s counsel advised that Mr. Patel would not be able to come to Miami, Florida, for his scheduled deposition on March 20, 2020, because he has self-quarantined” at home in New York City and that Compere herself was also quarantined due to the COVID-19 pandemic. Although the filing never explicitly demanded an in-person deposition of Patel, the Employees insisted that they could not take Patel‘s deposition—which they described as “critically important“—without him traveling to Miami. The district court granted the motion and extended the pretrial motions deadline to April 20, 2020. And then on April 16, 2020, the parties jointly moved to further extend the deadline another sixty days, in part because the Employees had yet to depose Patel due to COVID-related restrictions.
While the joint motion to extend the relevant deadlines was pending, Nusret moved for summary judgment on April 20, 2020. Shortly before the May 4 deadline for responding, the Employees filed for a 30-day extension. And then on Monday, May 4, the Employees responded to Nusret‘s motion for summary judgment along with a motion to defer consideration of summary judgment
(ii) Summary Judgment
In its motion for summary judgment, Nusret contended that the 18% fee was a bona fide service charge and that the undisputed record evidence showed that the Employees were compensated well above the statutory wage rates. Nusret argued that the critical feature of a tip, unlike a service charge, is that the decision to pay a tip (and how much to pay) is entirely within the customer‘s discretion. Service charges, in contrast, are mandatory. Because Nusret did not allow customers to refuse to pay the service charge, it was not a tip.
The Employees responded that, for the 18% fee to be a bona fide service charge (and not a tip), Nusret was required to report the payments in its gross receipts on its tax returns. According to the Employees, there is a genuine issue of fact as to whether Nusret reported the service charges in this way, and summary judgment was therefore inappropriate. The Employees also suggested that the charge was not mandatory because managers had discretion to remove it from the bills of dissatisfied customers.
Soon after, the district court granted Nusret‘s motion for summary judgment, concluding that the restaurant satisfied the
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On appeal, the Employees challenge the district court‘s grant of summary judgment to Nusret. They also appeal the denial of the joint motion to extend the pretrial and trial deadlines; the Employees’ motion for extension of time to respond to Nusret‘s motion for summary judgment; and the Employees’ motion for deferred consideration of the motion for summary judgment—all of which, they argue, should have been granted to give them time to conduct the deposition of Paperchase representative Nish Patel.
II. Discussion
A. The Service Charge
This Court reviews the grant or denial of summary judgment de novo, “applying the same legal standards used by the district court.” Yarbrough v. Decatur Hous. Auth., 941 F.3d 1022, 1026 (11th Cir. 2019). “At the summary judgment stage, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts.” Scott v. Harris, 550
The parties do not dispute that if the service charge is properly considered part of the Employees’ “regular rate of pay,” Nusret satisfied its overtime and minimum wage obligations under the FLSA because the Employees were paid well above 1.5 times Florida‘s minimum wage per hour.8 But if the service charge counts as a tip, Nusret was not eligible to use those payments to satisfy its wage obligations under
The FLSA defines neither “tip” nor “service charge.” But as noted in Department of Labor (“DOL“) regulations, the critical feature of a “tip” is that “[w]hether a tip is to be given, and its amount, are matters determined solely by the customer.” See
By this measure, Nusret‘s service charge is not a tip. Critically, whether and how much to pay are not “determined solely by the customer.” Indeed, those decisions are not determined by the customer at all. As the lead plaintiff, Compere, conceded in her deposition, “[Employees] were told that the service charge was supposed to be mandatory as if it was an item that a person ordered it, it had to be on the check.”
Moreover, our conclusion that Nusret‘s charge was not a tip is bolstered by another DOL regulation providing “examples of amounts not received as tips” and speaking directly to the type of
A compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer‘s establishment, is not a tip . . . .
Contrary to the Employees’ contention, Nusret‘s tax forms are irrelevant. To be sure,
Moreover, the “service charges and other similar sums” example in subsection (b) cannot be fairly read to require that an employer include a service charge in its gross receipts for tax purposes to avoid treating it as a tip. First, (b) references the example of a service charge in subsection (a) through the “as stated above” language and thereby reiterates that service charges are not
The Employees also argue that Nusret‘s service charge was not, in fact, mandatory because managers had discretion to remove the charges on the bills of dissatisfied customers (much like a manager might “comp” an entrée). But what the Employees miss is that the relevant question is whether the decision to pay the given sum is “determined solely by the customer.” See
Accordingly, we agree with the district court that Nusret‘s mandatory 18% service charge was a bona fide service charge and not a tip because it was a “compulsory charge for service,” and the decision to pay it—and the amount to pay—were not “determined solely by the customer.” See
B. Discovery and Rule 56(d) Motions
As discussed above, the Employees unsuccessfully sought extensions of the pretrial and trial deadlines and the deadline for responding to the motion for summary judgment, as well as deferred consideration of summary judgment to conduct the in-person deposition of Nish Patel of Paperchase, Nusret‘s outside accountant, which was delayed because of the pandemic. The Employees expected Patel “to confirm that the service charges were not included in [Nusret‘s] gross receipts,” which they asserted would have defeated Nusret‘s § 207(i) exemption.
Because we hold that, as a matter of law, Nusret‘s mandatory 18% service charge was not a “tip” no matter how it was treated on Nusret‘s tax returns, Patel‘s purported testimony
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Accordingly, we affirm the district court‘s award of summary judgment to Nusret.
AFFIRMED.
Notes
[A] sum presented by a customer as a gift or gratuity in recognition of some service performed for the customer. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer. . . . Only tips actually received by an employee as money belonging to the employee may be counted in determining whether the person is a “tipped employee” within the meaning of the [FLSA] and in applying the provisions of section 3(m)(2)(A) which govern wage credits for tips.
| Check Date | Work | Days | Hours | Gross Pay | Hourly Rate |
|---|---|---|---|---|---|
| 06/01/2018 | 05/14/2018 | 05/27/2018 | 79.30 | $ 2,890.61 | $ 36.45 |
| 06/15/2018 | 05/28/2018 | 06/10/2018 | 68.63 | $ 2,373.02 | $ 34.58 |
| 06/29/2018 | 06/11/2018 | 06/24/2018 | 76.22 | $ 2,520.69 | $ 33.07 |
| 07/13/2018 | 06/25/2018 | 07/08/2018 | 52.58 | $ 1,798.91 | $ 34.21 |
No employer shall be deemed to have violated subsection (a) by employing any employee of a retail or service establishment for a workweek in excess of the applicable workweek specified therein, if (1) the regular rate of pay of
Section 207(a) (referenced above in § 207(i)) provides for a forty-hour workweek and one and one-half times compensation for time worked over forty hours.such employee is in excess of one and one-half times the minimum hourly rate applicable to him under section 206 of this title, and (2) more than half his compensation for a representative period (not less than one month) represents commissions on goods or services. In determining the proportion of compensation representing commissions, all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods or services without regard to whether the computed commissions exceed the draw or guarantee.