ROBERT REICH, Secretary of Labor, United States Department of Labor, Appellant v. CHEZ ROBERT, INC., ROBERT SLIWOWSKI, individually and as Owner and President Appellee
No. 93-5619
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
July 7, 1994
On Appeal From the United States District Court for the District of New Jersеy (D.C. Civil No. 87-2219). Submitted Under Third Circuit LAR 34.1(a) May 12, 1994.
WILLIAM J. STONE
United States Department of Labor
200 Constitution Avenue, N.W.
Washington, DC 20210
Attorneys for Appellant
ROBERT SLIWOWSKI
45 Covington Lane
Voorhees, NJ 08043
Appellee
OPINION OF THE COURT
Pollak, District Judge1.
Secretary of Labor Robert Reich (“Secretary“) here appeals from a judgment of the United States District Court for the District of New Jersey in an action brought under the Fair Labor Standards Act,
Background:
The facts, insofar as relevant for this appeal, are as follows.3 This suit to enforce the Fair Labor Standards Act (“the Act“) was commenced in 1987. The defendants аre Chez Robert, Inc., an “upscale” restaurant in New Jersey, and its owner Robert Sliwowski. The complaint alleged violations of the minimum wage, overtime, and record-keeping provisions of the Act.
After a bench trial that began in March, 1992, the district court held that the defendants had willfully violated the wage, overtime and record-keeping provisions of the Act. The court аwarded both damages and injunctive relief, and found defendants liable for two kinds of damages: (1) “actual damages” -- i.e. unpaid hours, underpaid overtime, and uniform maintenance expenses -- in the amount of $177,809.66, and (2) tip credit remunerations -- i.e. the cumulative amount by which
Discussion:
The Secretary bases his appeal upon Section 3(m) of the Fair Labor Standards Act, which provides that
. . . In determining the wage of a tipped employee, the amount paid such employee by his employer shall be deemed to be increased on account of tips by an amount determined by the employer . . . except that the amount of thе increase on account of tips determined by the employer may not exceed the value of tips actually received by the employee. The previous sentence shall not apply with respect to any tipped employee unless (1) such employee has been informed by the employer of the provisions of this subsection, and (2) all tips rеceived by such employee have been retained by the employee . . .
Section 3(m) therefore allows an employer to reduce a tipped employee‘s wаge below the statutory minimum by an amount to be made up in tips, but only if the employer informs the tipped employee that her wage is being decreased under section 3(m)‘s tip-credit provision. If the employer cannot show that it has informed employees that tips are being credited against their wages, then no tip credit can be taken and the employer is liablе for the full minimum-wage ($3.35/hr in this case). Martin v. Tango‘s Restaurant, Inc., 969 F.2d 1319, 1322-23 (1st Cir. 1992).
At trial, defendants argued, pursuant to section 3(m), that their liability for back wages should be calculated at $2.01/hour, the rate at which Chez Robert‘s employees wеre apparently paid. Defendants argued that they were entitled to a tip credit of $1.34/hour for the balance of the $3.35 per hour statutory minimum wage.4 The district court rejected defendants’ argument. The court found that defendants had not notified employees of the tip credit as required under the Act, and therefore were not entitled to the offset. Chez Robert, 821 F.Supp. at 977. Using the statutory minimum wаge of $3.35/hour, the court calculated defendants’ liability for back wages to be $177,809.66 in unpaid wages, underpaid overtime and uniform maintenance, plus $229,794.19 in disallowed tip credit deductions, fоr a total of $407,603.85. Id. at 985. The Secretary does not challenge this initial determination.
The Secretary takes issue with what the district court did next. Notwithstanding that the court found defendants not to be entitlеd to the tip deduction under section 3(m), the court made the following ruling:
the Secretary has made no provisions . . . for tips actually received by employees. Certainly no precise amount can be determined. . . . Chez Robert is an expensive “upscale” restaurant and certainly capable of generating income that would have supplemented еmployees’ incomes to a great degree. Since the Secretary did not account for tips actually received, the Court must apply a discount rate to the damagеs owed to each employee. . . . The Court has adjusted Defendants’ liability to account for this inflating factor. The $177,809.66 in actual damages and the $229,794.19 in tip credit remunerations will be reduced by 25%. Therefore, after discounting, Defendants’ [sic] are obligated to pay total damages, actual and tip credit, in the amount of $305,702.88.
Appellant argues that the above ruling was erroneous because it essentially
It may at first seem odd to award back pаy against an employer, doubled by liquidated damages, where the employee has actually received and retained base wages and tips that together amply satisfy the minimum wage requirements. Yet Congress has in section 3(m) expressly required notice as a condition of the tip credit and the courts have enforced the requirement. . . . If the penalty for omitting notice appears harsh, it is also true that notice is not difficult for the employer to provide.
Id. at 1323 (internal citations omitted).
In this case, the district court did exactly what Tango‘s Restaurant instructs against doing: that is, alleviate the harsh results of the notice requirement by reducing damages out of an equitable sense that some offset for tips should be allowed. 821 F.Supp. at 985. If such a ruling were permissible, the district courts would effectively have discretion to waive the notice requirement in the interests of perceived fairness to the employer. While that is perhaps not in itself an undesirable power for the district courts to have, it is not, as the First Circuit tells us, what the stаtute permits.
The First Circuit‘s view is shared by other courts that have addressed the section 3(m) notice requirement. In Richard v. Marriott Corp., 549 F.2d 303 (4th Cir. 1977), the Fourth Circuit held that the district court erred when it allowed a partial tip credit for Marriott “out of a vague sense of fairness and a feeling that $5.43 and up per hour is enough for a wait[e]r[ess]“, when it was established that “Marriott never informed its employees of the рrovisions of Section 3(m) of the [Act].” Id. at 305.
The Fifth Circuit has likewise held that where it was agreed that a restaurant did not inform waiters that a tip-credit was being deducted from their wages, “the district court properly found that the employees were entitled to the full minimum wage for every hour” at issue. Barcellona v. Tiffany English Pub, 597 F.2d 464, 467-68 (5th Cir. 1979); see also Marshall v. Gerwill, inc., 495 F.Supp. 744, 753 (D.Md. 1980) (without section 3(m) notice, “retaining of tips by the [employees] cannot offset the failure to pay the applicable minimum wage.“); Bonham v. Copper Cellar Corp., 476 F.Supp. 98, 101-02 (E.D.Tenn. 1979) (barring tip credit for employer who failed to explain provisions of section 3(m) to employees, even though employer aсted in good faith).
We have not previously had occasion to address whether the notice requirement of section 3(m) may be waived by the district court when there is evidence of аctual tips received. Now faced with that question, we agree with the interpretation of the statute reached by the First Circuit in Tango‘s Restaurant. When the employer has not notified employees that their wages are being reduced pursuant to the Act‘s tip-credit provision, the district court may not equitably reduce liability for back wages to account for tips actually recеived.
Accordingly, we find that the district court erred in reducing defendants’ liability from $407,603.85 to $305,702.88. The judgment of the district court is vacated and the case is remanded to the district court for proceedings consistent with this opinion.