NYS Trying to Make the Hospitality Industry More Hospitable to Workers

While waiting on tables may seem straight forward (customer orders food, server brings food), the regulations governing compensation for that server, and others in the hospitality industry, are among the most complex. New York employers who’ve mastered the old regulations, with all their exceptions and special rules for tipped employees, will have to go back to school.

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Eleventh Circuit Defines Notice Requirement When Employer Takes Tip Credit

The U.S. Court of Appeals for the Eleventh Circuit recently upheld a decision by the federal District Court for Southern Florida narrowly interpreting the FLSA requirement that employers notify tipped employees when they intend to take advantage of the “tip credit allowance.” The “tip credit” provision of the FLSA and many state wage laws allows employers to pay tipped employees as little as $2.13 per hour when their base pay, combined with tips, will bring their hourly rate of pay to at least minimum wage.

In Pellon, et. al. v. Business Representation International, Inc. et al. [528 F.Supp.2d 1306 (U.S. Dist. S.D. Fla. 2007)], plaintiffs, a group of 53 “skycaps” at Miami International Airport, attempted to argue that defendants (their employers), had failed to notify them that they intended to take the tip credit, in violation of 29 U.S.C. § 203(m)(2), which explains the tip credit allowance and requires employers who intend to use it to so inform employees. Had plaintiffs prevailed on this point, their employers would potentially have been liable for substantial minimum wage violations.

In granting defendants summary judgment on this count [upheld on appeal, 291 Fed.Appx. 310 (C.A. 11 Fla.)], the Court noted that defendants had notified new hires that they would be paid $2.13 per hour, plus tips, and had also conspicuously posted an explanation of employee rights under the FLSA, including an explanation of the tip credit allowance, as required by the U.S. Department of Labor.  Plaintiffs maintained that defendants owed employees a clearer explanation of the tip credit, but the Court cited precedents such as Chan v. Triple 8 Palace, Inc. [2006 WL 851749 (S.D.N.Y. 2006)] : “Employers do not have to ‘explain’ the tip credit to employees, however; it is enough to ‘inform’ them of it.”

Pellon is a welcome development for employers, since it restricts notice requirements for businesses in the hospitality and service industries with tipped employees. However, it is important to note that opinion on this point is not unanimous on the federal bench, and employers who take advantage of the tip credit should be certain that they have adequately notified employees of their procedures. Collecting signed statements from tipped employees confirming that they have received such notice is always a wise practice.

The FLSA rights poster employers are required to display can be downloaded at http://www.dol.gov/esa/whd/regs/compliance/posters/flsa.htm. A state-by-state guide to pay requirements for employers who take advantage of the tip credit allowance is available at http://www.dol.gov/esa/whd/state/tipped.htm.