On July 26, 2016, Judge William S. Duffey of the United States District Court for the Northern District of Georgia issued an important decision for Georgia restaurants. In the decision, Malivuk v. Ameripark, LLC, the Court held that if a company pays any hourly employees at an hourly rate at or above minimum wage ($7.25/hour), then under the federal Fair Labor Standards Act the company is entitled to do what it wishes with any tips paid by customers to these employees. The company is free to collect all tips received by minimum wage employees and distribute some, all or none of these tips to the employees.
This is not the case for “tipped employees” who are paid a direct wage of less than minimum wage of $7.25 per hour. These tipped employees must retain all of their tips other than those that are distributed to other front of the house employees as part of a valid tip pool. In litigation pending in California, the United Stated Department of Labor (“DOL”) has taken the position that this requirement that employees retain all of their tips applies regardless of what hourly rate the restaurant pays to its employees. In other words, the DOL has taken the position (and California courts have agreed) that even if you are not taking the “tip credit” with respect to your tipped employees, you nevertheless can be sued by those employees if they do not retain all of their tips. Judge Duffey’s Opinion is a clear rejection of this interpretation.
Practically, Judge Duffey’s Opinion also can be read to mean that all of the federal legal requirements that apply to “tipped employees” (including provision of written notice of the “tip credit,” the requirement that tipped employees retain all of their tips, and any applicable limitations on the amount of “non-tipped work” tipped employees may perform) do not apply to restaurants that pay their tipped employees an hourly rate of $7.25 or higher. Many Atlanta restaurants have already taken this approach and begun paying their Servers, Bussers, Bartenders, etc. an hourly wage at or above $7.25/hour and recaptured the difference in hourly wages through retention of some of the customer tips. While the DOL disagrees, Judge Duffey’s Opinion validates this approach as lawful under the Fair Labor Standards Act.
If you have further questions regarding Judge Duffey’s opinion, or for advice on creating pay practices that can avoid costly litigation, please contact Eric Magnus or Justin Barnes at Jackson Lewis, P.C. They can be reached at 404-525-8200.