Posted on February 25, 2010 by Jenna Mooney

9th Circuit Finds "Back of the House" Tip Pooling Does Not Violate FLSA

Employers may not claim tip credit against—and must pay—minimum wage

On Feb. 23, 2010, the U.S. Court of Appeals for the 9th Circuit, in a 3-0 panel decision, held that an agreed-to tip pool requiring sharing of tips with the “back of the house” does not violate the Fair Labor Standards Act (FLSA) where no tip credit against the minimum wage is claimed. Cumbie v. Woody Woo, Inc., ___ F.3d ___ .*

The court’s decision may be helpful to employers in the hospitality and restaurant industry that want to broaden their tip pools to back of the house employees, such as dishwashers and cooks.

In Cumbie, an Oregon employer required its wait staff to pool all tips and redistribute a majority of the tips to “back of the house” staff. Under Oregon law, the employer was prohibited from claiming a tip credit against the minimum wage, but was not prohibited from requiring an employee tip pool. The employer paid its servers in excess of Oregon’s minimum wage.

The 9th Circuit concluded that nothing in the text of the FLSA restricts employee tip pooling arrangements when no tip credit is taken, thus the employer’s tip pooling arrangement in this case did not violate the FLSA. The Cumbie decision makes clear that, as long as the employer does not attempt to take a tip credit and pays at least the minimum hourly wage, an employer may, without violating the FLSA, permissibly mandate tip pooling with employees who do not customarily and regularly receive tips.

Tip pooling considerations in light of Cumbie:

  • An employer may require tip pooling only where no tip credit is taken to comply with federal minimum wage law. This means an employer must pay at least the minimum hourly wage in addition to any tip pooling.
  • Employees who are not “customarily and regularly tipped employees,” such as cooks and dishwashers, can be included in a tip pooling arrangement, so long as the employer does not claim a tip credit and pays the minimum wage.
  • Cumbie does not prevent a challenge to tip pooling arrangements under state law. In states that have specific tip pooling laws and regulations, employers must comply with both state and federal law. For example, California has state-specific tip pooling statutes that must be complied with. (Please see our previous advisory, "Starbucks Brews a Winning Cup: Tip Pooling in California Restaurants.")
  • The U.S. Department of Labor (DOL) previously took the position that tip pooling restrictions apply even if no tip credit is claimed by the employer. The DOL will now be bound by Cumbie when administering federal wage and hour laws in states in the 9th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington).
  • The 9th Circuit is the first U.S. Circuit Court of Appeals to address the permissibility of tip pooling absent tip crediting under federal law. Other federal district courts that have considered the issue, including the Western District of Pennsylvania, the Southern District of New York and the District of Oregon, all concluded that the language of the FLSA does not prohibit tip pooling where the employer does not claim a tip credit.
  • The 9th Circuit’s decision did not discuss whether owners, managers or supervisory employees may participate in an employee tip pool, and this remains an open question.
  • Cumbie reiterated that in a business where tipping is customary, the tips belong to the recipient, unless there is an “explicit contrary understanding.” Because the default rule is that tips belong to the recipient in the absence of a contrary agreement, employers engaged in tip pooling arrangements should put the terms of the arrangement in writing.

 

Contacts:

 

Kaley L. Fendall
Michelle D. Fife
Janet Grumer
James H. Juliussen
J. Riley Lagesen
John P. LeCrone
Jenna L. Mooney
Amy H. Pannoni

* Please note: The appellate process is not yet complete; an appellant may seek en banc review, a panel rehearing or even certiorari. While Cumbie is now the state of the law in the 9th Circuit, the mandate will not issue until at lease seven days after the time to petition for rehearing (14 days) expires.

Disclaimer: This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
Tags: , , , , , , ,
Posted on February 23, 2010 by Duke Tufty

Scam Alert: Oregon Restaurants and Bars Are Being Targeted!

A new scam is targeting Oregon restaurants and bars!

Oregon restaurants and bars should be aware of a new scam targeting them. The scam preys on those who may have inadvertently let their business registration status or license lapse.  The scammer sends threatening letters to these businesses and demands money in exchange for not filing complaints with the OLCC.  The scammer claims the business's failure to keep government paperwork up-to-date threatens its licensing status with the OLCC.

The scammer’s threats are largely empty. In most instances, updating your business information and corporate status with the Oregon Secretary of State and the OLCC are relatively straight forward. It is highly advisable to contact your attorney, the Oregon Secretary of State or the OLCC before responding to any such requests for money.

A business who receives this type of threatening letter is being advised by the Oregon Secretary of State to contact 1) their local police department to file a criminal complaint, 2) the OLCC at 800-452-6522, and 3) the Oregon Secretary of State Corporation Division at 503-986-2200, for assistance updating and renewing business registrations.

For more information, visit the Oregon Secretary of State at www.sos.state.or.us/corporation/scam_alert/inactive_business_OLCC_scam.htm.

Tags: , , , , ,
Posted on December 20, 2009 by Duke Tufty

The OLCC Proposes a Final Staff Draft Regarding Its New Happy Hour Rules

The OLCC has proposed a final draft of its new rules regarding the advertising and promotion of happy hour in Oregon. The rule making hearing regarding the proposed rules is scheduled for Tuesday, February 9, 2010 at 10:00 am in Room 103A at the Commission offices, but the record will remain open for written comments until February 23, 2010. You can contact Jennifer Huntsman at (503) 872-5004 or Jennifer.Huntsman@state.or.us with questions or comments. 

The proposed rules lift the long-standing prohibition regarding the advertisement of “happy hours” or other similar terms outside of the establishment. The rules would allow references to happy hour and a description of when it is offered provided that there is no reference to the price of or discount to happy hour drinks. For example, Catalon could advertise a happy hour seven days a week from 4:00-6:00, but could not advertise a happy hour sever days a week from 4:00-6:00 featuring half price beer and wine. These rules would be applicable to information available on the establishment’s website and answering machines. Of course, a full description of the happy hour specials is still allowed inside the establishment.  The new rules expressly prohibit any advertising of drinks that requires or implies that a guest must purchase more than one drink to obtain the discount, such as “two for the price of one.”

These changes are motivated in part by the Commission’s desire to strike a balance between meeting public safety concerns and providing licensed businesses with the flexibility to operate and compete. The internet is full of drink advertising by non-licensees that are not subject to the OLCC’s jurisdiction.  This levels the playing field and allows licensees to take greater control over the promotion of their own happy hours, but protects the public from advertising that competes solely on the basis of cheap drink prices. 

For more information, see http://www.oregon.gov/OLCC/happy_hour_rulemaking.shtml.

Tags: , , ,
Posted on August 5, 2009 by Duke Tufty

Quick casual restaurants and coffee shops are increasingly adding alcohol to their menu. Should you?

Quick casual restaurants, such as Chipotle Mexican Grill, Burgerville, and Subway, and coffee shops, including Starbucks, are adding alcohol to their menus to attract customers and increase sales. Burgerville recently added wine and beer to one of its restaurants in Vancouver, Washington. Starbucks announced in July that it is re-branding one of its existing locations in Seattle to 15th Avenue Coffee and Tea and will offer wine and beer as part of this effort.

Before you jump on the bandwagon, make sure you understand what is involved in obtaining a liquor license and how it may impact your employees, operations, management and costs.

The Application. Obtaining a liquor license can be a complex, expensive process if problems arise. State liquor control commissions frequently require substantial disclosures from all owners of the business. If an applicant has had financial, legal or personal troubles or fails to disclose material information as required by state law, they may not be approved. Prospective applicants should conduct a self-assessment to identify any potential red flags before submitting an application and consult an experienced attorney to address any such issues proactively. Once the applicant receives their license, they are a “licensee” and subject to the state’s alcohol regulatory framework. For more information about how to obtain a liquor license in Oregon, visit http://www.oregon.gov/OLCC/how_to_get_a_liquor_license.shtml.

Employees. Each state has different requirements regarding the requirements for individuals that are involved in the preparation and sale of alcoholic beverages. Most states require that such individuals take a class, pass an exam and receive approval from the state liquor control commission.

In Oregon, all employees that mix, sell or serve alcohol, or that supervise others that mix, sell or serve alcohol, must have a service permit. This includes employees that ring up checks with alcohol on them, collect money from customers for alcohol, or delivery drinks to a table. To obtain a service permit, the employee must be at least 18 years old, complete an Alcohol Server Education Class and submit all the required paperwork and fees. Special restrictions apply to service permittees under the age of 20.

Operations. Licensees operating quick casual restaurants or coffee shops may need to restructure their operations to ensure compliance. It’s likely that not all of a licensee’s employees will have service permits and that some may be under 21, or even under 18. The licensee is ultimately responsible for any violation and must ensure that operations do not inadvertently result in violations. For example, individuals without server permits and those under 18 are categorically prohibited from mixing, selling or serving alcohol. Licensees are responsible for establishing policies and procedures that satisfy the state’s alcohol regulatory regime.

Ongoing Compliance. Adding a liquor license to an establishment often requires greater management oversight. Violations are time consuming and expensive, and fees and penalties typically escalate for repeat offenses. A history of violations is not only expensive, but often draws greater attention from enforcement agents and, ultimately, jeopardizes the license.

Licensees often need to have a stronger management presence at the premise to ensure compliance. Common violations are serving alcohol to minors and failure of an employee to have a non-expired service permit. However, there are many more potential pitfalls and each state presents its own unique set of rules and prohibitions. New licensees often learn the hard way when they first receive their license. The best practice is to implement a comprehensive alcohol service policy and to conduct regular, on-going trainings. Although adding alcohol to the menu generally results in increased sales, it also involves increased costs as well.

In sum, adding alcohol to the menu is often an attractive proposition, but it is not a panacea and should not be undertaken lightly. Those considering adding alcohol to their quick casual restaurant and coffee shop should look before they leap and fully understand the legal requirements of their state.

We can help in Oregon, Washington and California, or provide a reference to an attorney in any other state.
 

Tags: , , , , , , , , , , , ,
Posted on July 31, 2009 by Duke Tufty

Oregon bars and restaurants should be careful promoting their establishment using Facebook and Twitter

Restaurants and bars, and every other type of hospitality business, are increasingly using online social media to promote their business. Twitter, Facebook and MySpace are the usual suspects today, but we can expect new entries going forward. Advertising spending in these channels is reported to have eclipsed the $100 million mark this year and is expected to increase. Yet, the dollars spent tell only part of the story. For most restaurants and bars, promoting their business using social media sites is essentially free. It’s this value proposition that promises to making such promotion ubiquitous over the next few years.

Restaurants and bars that serve alcohol must be aware that state liquor laws still apply in this brave new world of social media. A virtual violation is still a violation and can put your license in jeopardy (as well as your pocketbook)!

In Oregon, “advertising” is defined broadly as “publicizing the trade name of a license together with words or symbols referring to alcoholic beverages or publicizing the brand name of an alcoholic beverage.” The OLCC prohibits advertising that, among other things, (1) promotes happy hours involving the temporary reduction in alcoholic beverage prices, (2) encourage drinking because of its intoxicating effect or encourages drinking to excess, (3) involves instantly redeemable coupons for alcoholic beverages, or (4) that is appealing to minors.

The informal, conversational nature of services such as Twitter make violation of these rules easy, too easy. And, don’t think that the OLCC won’t get wise to the use of social media. They launched their own blog in July 2008. Check it out at http://olccblog.blogspot.com/. And, what's posted on these sites, just like the rest of the internet, is expected to have a long shelf life. Before you send off your next tweet, be careful that you’re not inviting your state alcohol regulatory agency to make a visit.

You should also be careful when referring to the competition, members of the public and possibly your state regulatory agency. Keep it friendly. Think before you tweet or post. Getting sued for defamation, causing emotional distress, or just plain bad PR can follow.
 

Tags: , , , , , , , , , , , , , , , , ,
Posted on July 30, 2009 by Duke Tufty

Changes proposed to OLCC rules regarding advertising for Oregon liquor stores

A retail sales agent for a Corvalis, Oregon liquor store recently submitted a petition to amend the rules regarding external advertising for Oregon liquor stores. The proposed rule changes would allow Oregon liquor stores more flexibility in advertising their store (i) outside the store’s location, (ii) in publications and (iii) on the internet. The reasons offered for the amendment include leveling the playing field with other retailers of alcohol (beer and wine), distillers and distributors, and providing the public greater access to information. 

You can view the proposed amendment on the OLCC web site at http://oregon.gov/OLCC/.  Follow the “Laws and Rules” link, then follow the link to “Current Petitions Received”.

 

The OLCC amended the rules regarding advertising in Oregon liquor stores effective September 1, 2008 to allow more modern signing and display practices inside the stores. See OAR 845-015-0175 and -0177. 

 

The proposed rule changes would continue the trend toward allowing Oregon liquor stores to use more modern advertising practices that are commonly used by other retailers. The OLCC is accepting written comments until 5:00 pm on August 28, 2009.


 

Tags: , , , , , , , , , , ,