Restaurants Beware: Tipping Pools & FLSA Collective Suits

July 17th, 2014

ELM typping pool FLSA Suit

Interested in the latest issues with “tipping pools”? Here is a synopsis of the recent Original Oyster House (Mobile, AL) FLSA collective action suits. Author: Barry Johnson Parker at Maynard Cooper & Gale PC

Restaurants Beware:

On September 15, 2013, the law firm of Wiggins, Childs, Quinn & Pantazis, a major plaintiff’s employment law firm located in Birmingham, Alabama, filed the first of three almost identical collective action lawsuits against a local restaurant in federal court in Mobile. The complaints allege, among other things, that the restaurant engaged in overtime violations and/or illegal tip pooling under the Fair Labor Standards Act (“FLSA”).

A collective action is similar to a class action, meaning that all three lawsuits were brought by one or two employees at the restaurant on behalf of themselves and all other similarly situated employees. Once a court allows the collective claims to proceed, a defendant is required to provide notice of the case to its employees so they can determine if they want to join the case. Because of a large number of employees may decide to join in the collective action, defendants in such actions are looking at potentially hefty damage awards, along with significant attorneys’ fees.

The first lawsuit, filed on September 5, 2013, was filed by Kim Meyers on behalf of herself and all other “similarly situated” employees at the restaurant. Meyers claimed that while working as a server for the restaurant, she was not compensated for all overtime work and, in addition, was only compensated at the wage of tipped employees, $2.13 per hour, even though she and the other tipped employees spent more than twenty percent of their time performing non-tipping duties in violation of the FLSA. When the restaurant answered the complaint, it made an offer of judgment to Meyers for $9,200.00, along with reasonable attorneys’ fees and costs, an amount that the restaurant believed would satisfy Meyers’ claims against the restaurant if she prevailed at trial.

The restaurant made the offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure, a long-standing rule which permits a defendant to offer the plaintiff an amount the defendant believes would satisfy the plaintiff’s claim if the plaintiff were to prevail at summary judgment or trial. If an offer of judgment is accepted, the case is effectively settled, contingent upon the Court’s approval as required by the FLSA. Although a plaintiff is free to reject an offer of judgment and proceed with the case, if the plaintiff loses or is awarded an amount less than the amount of the offer of judgment, the plaintiff must pay all costs incurred by the defendant after the offer of judgment was made. Because the costs involved in a collective action can be high, a plaintiff takes a significant risk when rejecting an offer of judgment, particularly one made early in the case before any costs have been incurred.

Offers of judgment recently have become the weapon of choice for defendants in FLSA collective actions because even if rejected, such offers arguably “moot” the collective action claims, which means those claims cannot proceed along with the named plaintiff’s individual claims. This theory is based on the argument that since the named plaintiff has been offered complete relief, she or he no longer has a personal stake in the litigation and therefore cannot properly represent the other class members. Because it is the class claims that make a collective action much more dangerous to an employer, and thus much more appealing to plaintiffs’ counsel, being able to moot the collective claims is a major victory for a defendant in a collective action.

In Meyers, the plaintiff apparently did not want to take the risk that she would be awarded less than $9,200.00 and would have to pay all of the restaurant’s costs defending the case, so she accepted the offer of judgment, which was approved by the Court, along with $6,500.00 in attorneys’ fees, and the entire case was dismissed before the defendant was required to post a notice to its other employees informing them about the case. But that is not the end of the story.

On January 14, 2014, Wiggins, Childs filed its second collective action against the same restaurant on behalf of Jeff Beck, Alesia Daniels and all similarly situated servers at the restaurant. This time the Complaint alleged that the restaurant’s tip pool improperly included employees who did not customarily and regularly receive tips (such as oyster shuckers and kitchen staff) which, if true, would have invalidated the restaurant’s tip pool and disqualified the restaurant from taking advantage of the tip credit available under the FLSA that makes it permissible for restaurants to pay tipped employees $2.13 per hour instead of minimum wage. If a restaurant’s tip pool is deemed invalid under the FLSA, the restaurant is required, among other things, to pay the class members minimum wage for each hour previously worked for the past three years. Obviously, such an award could be staggering.

In Beck, as in Meyers, the restaurant once again answered the complaint and simultaneously made an offer of judgment to Beck for $25,586.00 and to Daniels for $18,408.00, amounts the restaurant determined Beck and Daniels would win if they prevailed in the case. Like Meyers, Beck and Daniels obviously did not want to take the risk of being awarded less than those amounts, and so they accepted the offers of judgment, which were approved by the Court, along with $7,056.41 in attorneys’ fees. The case was once again settled before the restaurant was required to notify all of its employees about the case. But, once again, this is not the end of the story.

On April 14, 2014, Wiggins, Child filed a third collection action lawsuit against the same restaurant, this time on behalf of Sharon Combs, Melinda Wood and all similarly situated servers at the restaurant raising similar FLSA violations. Unlike the prior two cases, however, this time Plaintiff’s Counsel filed a motion for conditional class certification at the same time it filed its Complaint, along with the affidavits of several other servers at the restaurant who wanted to “opt in” to the class. The restaurant subsequently made offers of judgment to all named and opt-in plaintiffs as it had in Myers and Beck.

Because the Court has not yet ruled on the motion for class certification and because the restaurant has not yet moved to dismiss the collective claims based on the argument that those claims are not moot (and it most certainly will), it is unclear what will happen next. Because the appellate courts also have struggled with the issue of what effect an offer of judgment has on a collective action in these circumstances, both parties to FLSA actions are left with no definitive rules or guidance. Moreover, as these cases demonstrate, even if the collective action is mooted, there is nothing to prevent a plaintiff’s attorney from subsequently filing additional lawsuits, individual or collective, by other employees who work for the defendant.

As of now, there is no end to this story. For now, employers with tipping pools and/or potential overtime or other FLSA issues should consult an attorney for advice before finding that they too have been named in a collective action. Stay tuned.

For more information, please contact:
Barry Johnson Parker
Maynard Cooper & Gale
11 N. Water Street Suite 2700
Mobile, Alabama 36602

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