Marsh v. J. Alexander's LLC

869 F.3d 1108

Alec MARSH, Plaintiff–Appellant,

v.J. ALEXANDER'S LLC, Defendant–Appellee.

Crystal Sheehan, Plaintiff–Appellant,

v.Romulus Incorporated, dba International House of Pancakes, Defendant–Appellee.

Silvia Alarcon, Plaintiff–Appellant,

v.Arriba Enterprises Incorporated, dba Arriba Mexican Grill, Defendant–Appellee.

Sarosha Hogan; Nicholas Jackson; Skylar Vazquez; Thomas Armstrong; Philip Todd ; Maria Hurkmans, Plaintiffs–Appellants,

v.American Multi-Cinema, Inc., dba AMC Theatres Esplanade 14, Defendant–Appellee.

Nathan Llanos, an individual, Plaintiff–Appellant,

v.P.F. Chang's China Bistro, Inc., Defendant–Appellee.

Kristen Romero, an individual, Plaintiff–Appellant,

v.P.F. Chang's China Bistro, Inc., Defendant–Appellee.

Andrew Fields, an individual, Plaintiff–Appellant,

v.P.F. Chang's China Bistro, Inc., Defendant–Appellee.

Alto Williams, Plaintiff–Appellant,

v.American Blue Ribbons Holdings LLC, Defendant–Appellee.

Stephanie R. Fausnacht, Plaintiff–Appellant,

v.Lion's Den Management, LLC, dba Denny's, Defendant–Appellee.

No. 15–15791

No. 15–15794

No. 15–16561

No. 15–16659

No. 16–15003

No. 16–15004

No. 16–15005

No. 16–15118

No. 16–16033

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 20, 2017 San Francisco, California

Filed September 6, 2017

Jahan C. Sagafi (argued), Outten & Golden LLP, San Francisco,California; Clifford P. Bendau II, The Bendau Law Firm, Phoenix, Arizona; Jamie G. Sypulski, Law Office of Jamie Golden Sypulski, Chicago, Illinois; Douglas M. Werman, Werman Salas P.C., Chicago, Illinois; for Plaintiffs–Appellants.

Paul DeCamp (argued), Jackson Lewis P.C., Reston, Virginia; Stephanie M. Cerasano, Jackson Lewis P.C., Phoenix, Arizona; for Defendant–Appellee P.F. Chang's China Bistro.

David A. Selden (argued), Julie A. Pace, and Heidi Nunn-Gilman, The Cavanagh Law Firm, Phoenix, Arizona, for Defendant–Appellee Romulus, Inc.

Robert W. Horton and Mary Leigh Pirtle, Bass Berry & Sims PLC, Nashville, Tennessee; Eric M. Fraser, Osborn Maledon P.A., Phoenix, Arizona; for Defendant–Appellee J. Alexander's LLC.

Karen L. Karr, Clark Hill PLC, Scottsdale, Arizona, for Defendants-Appellees Arriba Enterprises Inc. and Lion's Den Management LLC.

Tracy A. Miller, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, Arizona, for Defendant-Appellant American Multi-Cinema Inc.

Caroline Larsen and Alexandra J. Gill, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, Arizona, for Defendant–Appellee American Blue Ribbon Holdings LLC.

Sarah K. Marcus (argued), Senior Attorney; Paul L. Frieden, Counsel for Appellate Litigation; Jennifer S. Brand, Associate Solicitor; M. Patricia Smith, Solicitor of Labor; Office of the Solicitor, United States Department of Labor, Washington, D.C., for Amicus Curiae Secretary of Labor.

Before: Richard A. Paez and Sandra S. Ikuta, Circuit Judges, and David A. Faber,^* District Judge.

Partial Concurrence and Partial Dissent by Judge Paez

OPINION

IKUTA, Circuit Judge:

The Fair Labor Standards Act of 1938 (FLSA) generally requires employers to pay a cash wage of $7.25 per hour to their employees. 29 U.S.C. § 206(a)(1)(c). But where an "employee engage[s] in an occupation in which he customarily and regularly receives more than $30 a month in tips," id. § 203(t), his employer may pay a reduced cash wage and claim the employee's tips as a credit towards the $7.25 per hour minimum, id. § 203(m). The plaintiffs in these consolidated appeals are former servers and bartenders who allege that their employers improperly claimed this credit, thereby failing to pay the required minimum wage. In support of their theory of the case, the employees rely on a regulation, 29 C.F.R. § 531.56(e), as most recently interpreted by the Department of Labor (DOL).¹ See Department of Labor Wage and Hour Division, Field Operations Handbook § 30d00(f) (2016). The district court held that the DOL's interpretation of the regulation is not entitled to deference and concluded that the employees failed to state claims for minimum wage violations. We largely agree with the district court's analysis of the deference question, but we vacate and remand to allow the plaintiffs an opportunity to propose amended pleadings in light of our holding.

I

From November 2012 through April 2013, Alec Marsh worked as a server for J. Alexander's, a restaurant in Phoenix, Arizona.² In May 2014, he filed a one-count complaint alleging that J. Alexander's violated the FLSA's minimum wage provision by failing to pay him an appropriate wage. See 29 U.S.C. § 206(a)(1)(c).

To understand Marsh's legal theory, one must first understand the FLSA's scheme for guaranteeing a minimum wage to employees, like Marsh, who routinely earn tips. Although all employers must pay their employees a minimum wage of at least $7.25 per hour, id ., the FLSA creates a special rule for how an employer can compensate a "[t]ipped employee," which is defined as "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips," id. § 203(t). The applicable statute provides:

In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee's employer shall be an amount equal to–

(1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and

(2) an additional amount on account of the tips received by such employee which amount is equal to the difference 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.

Id . § 203(m).³ The practical effect of this provision is that an employer must pay a tipped employee a cash wage of $2.13, and can make up the difference between $2.13 and the federal minimum wage by taking a credit for the employee's tips (known as a "tip credit").⁴ Cumbie v. Woody Woo, Inc. , 596 F.3d 577, 580 (9th Cir. 2010). If the $2.13 cash wage plus the tips the employee actually received are insufficient to meet the $7.25 per hour minimum wage, then the employer must increase the cash wage to meet the minimum wage requirement. Id. As a result, tipped employees always earn at least the federal minimum wage.

The FLSA's tip credit provision, 29 U.S.C. § 203(m), is not the only pertinent part of this regulatory regime. Through regulations interpreting § 203(t), the DOL has addressed the application of the tip credit provision to the situation in which an employee works for an employer in two different jobs. This "dual jobs" regulation provides:

Dual jobs. In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man. Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.

29 C.F.R. § 531.56(e).

The dual jobs regulation is also not the regime's end; the DOL has promulgated internal agency guidance that places a specific interpretive gloss on the regulation. The DOL's most recent interpretation, which the DOL made public in 2016, is set out in its Wage and Hour Division's Field Operations Handbook (FOH). The FOH states:

(1) When an individual is employed in a tipped occupation and a non-tipped occupation, for example, as a server and janitor (dual jobs), the tip credit is available only for the hours spent in the tipped occupation, provided such employee customarily and regularly receives more than $30.00 a month in tips. See 29 CFR 531.56(e).

(2) 29 CFR 531.56(e) permits the employer to take a tip credit for time spent in duties related to the tipped occupation of an employee, even though such duties are not by themselves directed toward producing tips, provided such related duties are incidental to the regular duties of the tipped employee and are generally assigned to the tipped employee. For example, duties related to the tipped occupation may include a server who does preparatory or closing activities, rolls silverware and fills salt and pepper shakers while the restaurant is open, cleans and sets tables, makes coffee, and occasionally washes dishes or glasses.

(3) However, where the facts indicate that tipped employees spend a substantial amount of time (i.e. , in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties. All related duties count toward the 20 percent tolerance.

(4) Likewise, an employer may not take a tip credit for the time that a tipped employee spends on work that is not related to the tipped occupation. For example, maintenance work (e.g. , cleaning bathrooms and washing windows) are not related to the tipped occupation of a server; such jobs are non-tipped occupations. In this case, the employee is effectively employed in dual jobs.

FOH § 30d00(f) (2016).⁵

Marsh alleges that as a J. Alexander's employee, he "customarily and regularly" received more than $30 a month in tips.⁶ As part of his job as a server, Marsh had a range of duties in addition to serving customers. For instance, Marsh brewed tea during every opening shift...