Parking - April 2010 - 10

Legal Matters Continued

known as a “tip credit”). The second sentence clarifies that the difference may not be greater than the actual tips received. Therefore, if the cash wage plus tips are not enough to meet the minimum wage, the employer must “top up” the cash wage. The third sentence states that the preceding two sentences do not apply (i.e., the employer may not take a tip credit) unless two conditions are met. First, the employer must inform the employee of the tipcredit provisions in the FLSA. Second, the employer must allow the employee to keep all of her tips, except when the employee participates in a tip pool with other customarily tipped employees. Cumbie argued that an employee must be allowed to retain all of her tips—except in the case of a “valid” tip pool involving only customarily tipped employees— regardless of whether her employer claims a tip credit. The Court rejected this argument: “. . . we cannot reconcile this interpretation with the plain text of the third sentence, which imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees. A statute that provides that a person must do X in order to achieve Y does not mandate that a person must do X, period.” There was no question that Woo’s tip pool included non-customarily tipped employees, and that Cumbie did not retain all of her tips because of her participation in the pool. Accordingly, Woo was not entitled to take a tip credit, nor did it. Cumbie then claimed that a Department of Labor (“DOL”) regulation defined the meaning of the term “pay” in such a way as to prohibit Woo’s tip-pooling arrangement. She referred to a regulation which requires that the minimum wage be “paid finally and unconditionally or ‘free and clear,’ “and forbids any “‘kick [ ]-back’ … to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.” The “free and clear” regulation provides as an example of a prohibited kickback: a requirement that an employee purchase tools for the job, where such purchase “cuts into the minimum or overtime wages required to be paid him under the Act.” According to Cumbie, her forced participation in the “invalid” tip pool constituted an indirect kick-back to the kitchen staff for Woo’s benefit, in violation of the free-andclear regulation. As she saw it, the money she turned over to the tip pool brought her cash wage below the federal

minimum in the same way as the tools in the regulation’s example. The Secretary of Labor, who filed an amicus brief, agreed, asserting that “if the tipped employees did not receive the full federal minimum wage plus all tips received, they cannot be deemed under federal law to have received the minimum wage ‘free and clear,’ and the money diverted into the invalid tip pool is an improper deduction from wages that violates section [20]6 of the Act.” Cumbie acknowledged that the applicability of the “free and clear” regulation hinged on “whether or not the tips belong to the servers to whom they are given.” But the default rule discussed above is that tips belong to the servers to whom they are given only “in the absence of an explicit contrary understanding” that is not otherwise prohibited. Hence, the Court reasoned that “whether a server owns her tips depends on whether there existed an agreement to redistribute her tips that was not barred by the FLSA.” Here, such an agreement existed by virtue of the tip pooling arrangement. The FLSA does not restrict tip pooling when no tip credit is taken. Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her, and her contributions to the pool did not, and could not, reduce her wages below the statutory minimum. Finally, Cumbie argued that “[a]s a practical matter, [the Court’s ruling] nullifies legislation passed by Congress.” She claimed that that Woo was functionally taking a tip credit by using a tip pooling arrangement to subsidize the wages of its non-tipped employees. The money saved in wage payments was more money in Woo’s pocket, which is financially equivalent to confiscating Cumbie’s tips via the tip credit. According to the Court, even if Cumbie were correct, “we do not find [this] possibility … so absurd or glaringly unjust as to warrant a departure from the plain language of the statute.” The Cumbie case makes it clear that at least for employers in the Ninth Circuit (those in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada and Oregon), it is not a violation of the FLSA to impose a tip pooling arrangement if the employer does not take advantage of the FLSA tip credit. This may provide some opportunities for employers in the parking industry. Of course, employers should also check state laws to see if they impose any restrictions on tip pooling arrangements.

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National Parking Association PARKING April 2010
Parking - April 2010

Table of Contents for the Digital Edition of Parking - April 2010
