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C.A.9 (Or.),2010.

Cumbie v. Woody Woo, Inc.

596 F.3d 577, 159 Lab.Cas. P 35,711, 15 Wage & Hour Cas.2d (BNA) 1590, 10 Cal. Daily Op. Serv. 2193, 2010

Delta Café; Aaron Woo, an individual, Defendants-Appellees.

No. 08-35718.

arrangement violated minimum wage provisions of the Fair Labor Standards Act (FLSA). The United States District

231HIV Compensation and Benefits

231HIV(A) In General

231Hk227 k. Gratuities as part of payment. Most Cited Cases

In businesses where tipping is customary, the tips, in the absence of an explicit contrary arrangement, belong to the

recipient; where, however, such an arrangement is made, in the absence of statutory interference, no reason is per-

231HXIII(B) Minimum Wages and Overtime Pay

231HXIII(B)4 Operation and Effect of Regulations

231Hk2321 Time and Mode of Payment

231Hk2325 k. Tips. Most Cited Cases

Restaurant’s tip pooling arrangement, which included in its tip pool members of kitchen staff who were not custom-

[3] Labor and Employment 231H 2325

231H Labor and Employment

231HXIII Wages and Hours

of tip pooling arrangement, only the tips redistributed to waitress from the pool ever belonged to her and her contri-

butions to the pool did not, and could not, reduce her wages below the statutory minimum. Fair Labor Standards Act

of 1938, § 6, 29 U.S.C.A. § 206; 29 C.F.R. § 531.35.

Jon M. Egan, Lake Oswego, OR, argued the cause for the appellant and filed briefs.

Richard J. (Rex) Burch, Bruckner Burch PLLC, Houston, TX, filed a brief on behalf of the National Employment

Lawyers Association as amicus curiae in support of the appellant. With him on the brief was Stefano Moscato, Na-

tional Employment Lawyers Association, San Francisco, CA.

Eugene Scalia, Gibson, Dunn & Crutcher LLP, Washington, DC, filed a brief on behalf of the Nevada Restaurant

Appeal from the United States District Court for the District of Oregon, Paul J. Papak, Magistrate Judge, Presiding.

D.C. No. 3:08–cv–00504-PK.

Before: DIARMUID F. O’SCANNLAIN and N. RANDY SMITH, Circuit Judges, and CHARLES R. WOLLE,FN*

We must decide whether a restaurant violates the Fair Labor Standards Act, when, despite paying a cash wage great-

er than the minimum wage, it requires its wait staff to participate in a “tip pool” that redistributes some of their tips

to the kitchen staff.

Misty Cumbie worked as a waitress at the Vita Café in Portland, Oregon, which is owned and operated by Woody

Woo, Inc., Woody Woo II, Inc., and Aaron Woo (collectively, “Woo”). Woo paid its servers FN1 a cash wage at or

exceeding Oregon’s minimum wage, which at the time was $2.10 more than the federal minimum wage.FN2 In addi-

tion to this cash wage, the servers received a portion of their daily tips. Woo required its servers to contribute their

tips to a “tip pool” that was redistributed to all restaurant employees. FN3 The largest portion of the tip pool (between

55% and 70%) went to kitchen staff (e.g., dishwashers and cooks), who are not customarily tipped in the restaurant

industry. The remainder (between 30% and 45%) was returned to the servers in proportion to their hours worked.

FN1. We use the term “server” to include the waiters and waitresses serving tables.

Cumbie filed a putative collective and class action against Woo, alleging that its tip-pooling arrangement violated

the minimum-wage provisions of the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201 et seq.FN4 The

district court dismissed Cumbie’s complaint for failure to state a claim under Federal Rule of Civil Procedure

12(b)(6), and Cumbie timely appealed.

FN4. Cumbie also asserted several wage-and-hour violations under Oregon law but has abandoned them on

her the minimum wage plus all of her tips. Woo argues that Cumbie’s reading of the FLSA is correct only vis-à-vis

employers who take a “tip credit” toward their minimum–wage obligation. See id. Because Woo did not claim a “tip

credit,” FN5 it contends that the tip-pooling arrangement was permissible so long as it paid her the minimum wage,

which it did.

FN5. Oregon law forbids tip credits. See Or.Rev.Stat. § 653.0355(3).

FN6. Accord 29 C.F.R. § 531.52 (“In the absence of an agreement to the contrary between the recipient and

a third party, a tip becomes the property of the person in recognition of whose service it is presented by the

customer.”). Although the parties and amici debate whether this and other that Department of Labor regula–

tions governing tips are still valid, we note that the Secretary of Labor has not bothered to amend them in

over forty years. At any rate, because we conclude that the meaning of the FLSA’s tip credit provision is

clear, we need not decide whether these regulations are still valid and what level of deference they merit.

See Metro Leasing and Development Corp. v. Comm’r of Internal Revenue, 376 F.3d 1015, 1024 n. 10 (9th

Cir.2004).

Williams establishes the default rule that an arrangement to turn over or to redistribute tips is presumptively valid.

Our task, therefore, is to determine whether the FLSA imposes any “statutory interference” that would invalidate

Woo’s tip-pooling arrangement. The question presented is one of first impression in this court.FN7

FN7. Cumbie suggests that various courts of appeals have already resolved this issue in her favor, but the

cases she cites are inapposite, as they involve employers who satisfied their entire minimum-wage obliga-

Under the FLSA, employers must pay their employees a minimum wage. See 29 U.S.C. § 206(a). The FLSA’s defi-

nition of “wage” recognizes that under certain circumstances, employers of “tipped employees” may include part of

such employees’ tips as wage payments. See id. § 203(m). The FLSA provides in relevant part: FN8

FN8. The first part of section 203(m) allows employers to include in wages the reasonable cost of board,

lodging or “other facilities” furnished to employees under certain circumstances. 29 U.S.C. § 203(m). This

ence between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.

The additional amount on account of tips may not exceed the value of the tips actually received by an employee.

The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been in–

formed by the employer of the provisions of this subsection, and all tips received by such employee have been re-

tained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among

pay a tipped employee an amount equal to (1) a cash wage of at least $2.13,FN9 plus (2) an additional amount in tips

equal to the federal minimum wage minus such cash wage.FN10 That is, an employer must pay a tipped employee a

cash wage of at least $2.13, but if the cash wage is less than the federal minimum wage, the employer can make up

the difference with the employee’s tips (also known as a “tip credit”). The second sentence clarifies that the differ-

ence 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. Collectively, these two sentences provide that an

employer may take a partial tip credit toward its minimum-wage obligation.

FN9. See 29 U.S.C. §§ 203(m), 206(a)(1) (1996).

FN10. See 29 U.S.C. § 206(a)(1).

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 tip-credit provisions in section

203(m). Second, the employer must allow the employee to keep all of her tips, except when the employee partici–

pates in a tip pool with other customarily tipped employees.

ments presumptively invalid. However, we cannot reconcile this interpretation with the plain text of the third sen-

tence, 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 per-

son must do X, period.

Pub.L. No. 93-259, § 13, 88 Stat. 55 (1974), to support their contention that section 203(m)‘s tip-credit

conditions were intended to be freestanding requirements. Of course, “we do not resort to legislative history

to cloud a statutory text that is clear.” Ratzlaf v. United States, 510 U.S. 135, 147-48, 114 S.Ct. 655, 126

L.Ed.2d 615 (1994).

contribute a greater percentage of her tips than is “customary and reasonable.” However, we have no reason

to disagree with the Secretary that the “customary and reasonable” requirement, which appears only in

opinion letters, a handbook, and a fact sheet, contravenes “court decisions and the unequivocal statutory

language.” Updating Regulations Issued Under the Fair Labor Standards Act, 73 Fed.Reg. 43654, 43660

(July 28, 2008). Accordingly, we decline to recognize any such requirement. See Kilgore v. Outback Steak-

[3] Recognizing that section 203(m) is of no assistance to her, Cumbie disavowed reliance on it in her reply brief

and at oral argument, claiming instead that “[t]he rule against forced transfer of tips actually originates in the mini-

mum wage section of the FLSA, 29 U.S.C. § 206.” Section 206 provides that “[e]very employer shall pay to each of

his employees … wages” at the prescribed minimum hourly rate. Id. § 206(a).

chase “cuts into the minimum or overtime wages required to be paid him under the Act.” Id.

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-and-clear regulation. As she sees 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 regula-

belong to the servers to whom they are given.” This question brings us back to section 203(m), which we have al-

ready determined does not alter the default rule in Williams 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. 315 U.S. at 397, 62 S.Ct.

659. Hence, whether a server owns her tips depends on whether there existed an agreement to redistribute her tips

that was not barred by the FLSA.

late section 206 by way of the “free and clear” regulation.

FN13. Their interpretation is also inconsistent with the regulation itself, which prohibits kickbacks that re-

duce the wages paid below the federal minimum. Even assuming Cumbie’s tips belonged to her ab initio,

they were not wages under the FLSA because Woo did not take a tip credit. See 29 U.S.C. § 203(m); see

also Platek v. Duquesne Club, 961 F.Supp. 835, 838 (W.D.Pa.1995), aff’d without opinion by Platek v. Du-

arrangement to subsidize the wages of its non-tipped employees. The money saved in wage payments is more mon-

ey in Woo’s pocket, which is financially equivalent to confiscating Cumbie’s tips via a section 203(m) tip credit

(with the added benefit that this “de facto” tip credit allows Woo to bypass section 203(m)‘s conditions).

Even if Cumbie were correct, “we do not find [this] possibility … so absurd or glaringly unjust as to warrant a depar-

ture from the plain language of the statute.” Ingalls Shipbuilding, Inc. v. Dir., Office of Workers’ Comp. Programs,

519 U.S. 248, 261, 117 S.Ct. 796, 136 L.Ed.2d 736 (1997). The purpose of the FLSA is to protect workers from

“substandard wages and oppressive working hours.” Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 739,

101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) (citing 29 U.S.C. § 202(a)). Our conclusion that the FLSA does not prohibit

Woo’s tip-pooling arrangement does not thwart this purpose. Cumbie received a wage that was far greater than the

federally prescribed minimum, plus a substantial portion of her tips. Naturally, she would prefer to receive all of her

tips, but the FLSA does not create such an entitlement where no tip credit is taken. Absent an ambiguity or an irrec–

oncilable conflict with another statutory provision, “we will not alter the text in order to satisfy the policy prefer–

ences” of Cumbie and amici. Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 462, 122 S.Ct. 941, 151 L.Ed.2d 908

cluded that nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip cred-

it is taken, we perceive no statutory impediment to Woo’s practice. Accordingly, the judgment of the district court is

AFFIRMED.