Wednesday, August 17, 2016

Another Federal Court Invalidates the DOL's Tip Credit Regulation

At the end of July, the United States District Court for the Northern District of Georgia joined a number of other federal courts, including the Fourth Circuit, the Northern District of Illinois, the Southern District of New York, and the District Courts in Maryland and Utah, in holding that the United States Department of Labor’s regulation, which provides that, [t]ips are the property of the employee whether or not the employer has taken the tip credit under section [20]3(m) of the FLSA,” is invalid.  See Malivuk v. Ameripark, LLC, No. 1:15-cv-2570-WSD (N.D. Ga. July 26, 2016).

In Malivuk, the plaintiff, a valet, alleged her employer violated the FLSA by collecting tips given to the valets, distributing them in accordance with a formula among various valets working on a particular shift, and using a portion of the tip money to offset other business expenses, including valet employee hourly wages.  Notably, the plaintiff did not allege that she was not paid minimum wage or overtime, or that the defendant used tips as a credit against the minimum wage. 

Analyzing the plain text of Section 203(m) of the FLSA, the court explained that this provision provides that an employer: (1) must pay a tipped employee a cash wage, but if the cash wage is less than the federal minimum wage, the employer can make up the difference with the employee’s tips (take the tip credit); and (2) may take a partial tip credit toward its minimum wage obligations.   Put another way, the employer may take a partial tip credit toward its minimum wage obligations.

Agreeing with other courts, the Malivuk court held that, “The Court agrees…that if Congress wanted to articulate a general principle that tips are the property of the employee absent a valid tip pool, it could have done so without reference to the tip credit…the DOL Regulation violates the plain language of Section 203(m).”  (Additional citations and quotations omitted). 

The Malivuk decision provides further support for employers to argue that tips are not the sole property of the employee where the employer does not take the tip credit.