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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.
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-
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© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
[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.
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© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
I
Misty Cumbie worked as a waitress at the Vita Cain 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
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© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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-
page-pf5
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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-
page-pf6
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
[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).
page-pf7
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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.
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
[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.
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
I
Misty Cumbie worked as a waitress at the Vita Cain 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
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
[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).
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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.

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