Romero v. Top-Tier Colorado LLC , 849 F.3d 1281 ( 2017 )


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  •                                                                                 FILED
    United States Court of Appeals
    PUBLISH                               Tenth Circuit
    UNITED STATES COURT OF APPEALS                        March 7, 2017
    Elisabeth A. Shumaker
    FOR THE TENTH CIRCUIT                           Clerk of Court
    _________________________________
    AARICA ROMERO,
    Plaintiff - Appellant,
    v.                                                         No. 16-1057
    TOP-TIER COLORADO LLC; RICHARD
    J. WARWICK,
    Defendants - Appellees.
    ___________________________
    SECRETARY OF LABOR,
    Amicus Curiae.
    _________________________________
    Appeal from the United States District Court
    for the District of Colorado
    (D.C. No. 1:15-CV-02101-MEH)
    _________________________________
    Jamie G. Sypulski, Law Office of Jamie Golden Sypulski, Chicago, Illinois (Clifford P.
    Bendau, II, The Bendau Law Firm, Phoenix, Arizona, Douglas M. Werman, and Sarah J.
    Arendt, Werman, Salas P.C., with her on the briefs), for Plaintiff-Appellant.
    Gregory E. Givens, Gregory E. Givens Law Offices, Colorado Springs, Colorado, for
    Defendants-Appellees.
    M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand, Associate Solicitor, Paul L.
    Frieden, Counsel for Appellate Litigation, and Sarah Kay Marcus, Senior Attorney, U.S.
    Department of Labor, Washington, D.C., filed a brief for Amicus Curiae.
    _________________________________
    Before TYMKOVICH, Chief Judge, BACHARACH and MORITZ, Circuit Judges.
    _________________________________
    MORITZ, Circuit Judge.
    _________________________________
    In dismissing Aarica Romero’s minimum-wage claim under Fed. R. Civ.
    P. 12(b)(6), the district court relied on a single, undisputed fact: Romero has never
    alleged that she earned less than the federal minimum wage of $7.25 an hour—at
    least after taking into account both (1) the cash wage that her employer paid her and
    (2) all of the tips that she received each week.
    But an employer doesn’t comply with its federal minimum-wage obligations
    just because its employees receive at least $7.25 an hour in tips. Instead, an employer
    complies with its minimum-wage obligations if it “pay[s]” its employees at least
    $7.25 an hour in “wages.” 
    29 U.S.C. § 206
    (a)(1)(C). And while an employer can treat
    tips as wages under certain circumstances, see 
    id.
     § 203(m), Romero asserts that her
    employer impermissibly did so here.
    The district court declined to address this argument. But without first resolving
    whether Romero’s employer was entitled to treat her tips as wages under § 203(m),
    the district court couldn’t have determined whether that employer “pa[id]” Romero
    “wages” of at least $7.25 an hour under § 206(a)(1)(C). Accordingly, we reverse and
    remand to the district court to make this threshold determination in the first instance.
    2
    BACKGROUND
    Romero worked as a server for defendant Top-Tier Colorado LLC (Top-Tier)
    at one of its restaurants.1 Rather than directly paying Romero the federal minimum
    wage of $7.25 an hour, see § 206(a)(1)(C), the defendants instead took advantage of
    what’s known colloquially as the “tip credit”: they paid Romero a “cash wage” of
    $4.98 an hour2 and then used some of the tips that Romero received to cover the gap
    between that cash wage and the federal minimum wage, see Fast v. Applebee’s Int’l,
    Inc., 
    638 F.3d 872
    , 876 (8th Cir. 2011) (explaining that tip credit “allows the
    employer to avoid a larger cash payment to the employee as long as the employee’s
    tips make up the difference between $2.13 per hour and the current minimum wage”
    (citing § 203(m)).
    But the tip credit only applies to “tipped employee[s].” § 203(m). And during
    some of the hours she worked, Romero performed what she describes as “non-tipped”
    tasks, e.g.,
    brewing tea, brewing coffee, rolling silverware, cleaning soft drink
    dispensers, wiping down tables, setting tables, busing tables, cutting and
    stocking fruit, stocking ice, taking out trash, scrubbing walls, sweeping
    floors, restocking to-go supplies, cleaning booths, cleaning ramekins,
    1
    During the relevant time period, defendant Richard Warwick managed the
    restaurant where Romero worked. We refer to Top-Tier and Warwick collectively as
    “the defendants.”
    2
    We take the bulk of these facts from Romero’s complaint. See Hall v.
    Bellmon, 
    935 F.2d 1106
    , 1109 (10th Cir. 1991) (“A court reviewing the sufficiency
    of a complaint presumes all of plaintiff’s factual allegations are true and construes
    them in the light most favorable to the plaintiff.”). The complaint doesn’t allege the
    precise cash wage the defendants paid Romero; instead, it asserts only that they paid
    her “the reduced tip[-]credit rate.” App. 11. But the defendants admit in their opening
    brief that they paid Romero a cash wage of $4.98 an hour.
    3
    sweeping, mopping, restocking all stations, washing dishes, and
    breaking down and cleaning the expo line.
    App. 9.
    Reasoning that she wasn’t a “tipped employee” under § 203(m) for at least
    some of the hours she spent performing these tasks, Romero asserts that the
    defendants should have paid her a cash wage of at least $7.25 an hour—rather than a
    cash wage of $4.98 an hour—for those hours. And because they failed to do so,
    Romero alleges, they violated § 206(a)(1)(C).
    More specifically, Romero divides the non-tipped tasks she performed into two
    categories: “related” tasks and “unrelated” ones. App. 9. She alleges that the
    defendants weren’t entitled to take the tip credit for any of the hours she spent
    performing unrelated non-tipped tasks—a rule that she derives primarily from 
    29 C.F.R. § 531.56
    (e). And she alleges that the defendants weren’t entitled to take the
    tip credit for those hours “in excess of [20 percent] of her regular workweek” that she
    spent performing related non-tipped tasks—a rule that she derives primarily from
    § 30d00(e) of applicable version of the Department of Labor’s Field Operations
    Handbook. App. 10.
    The defendants moved to dismiss Romero’s complaint under Rule 12(b)(6). In
    relevant part, they argued that Romero’s complaint doesn’t state a claim under
    § 206(a) because it doesn’t “allege that she failed to receive the minimum wage when
    including [all] the tips she received as a server.” App. 18. Relying on United States v.
    4
    Klinghoffer Bros. Realty Corp., 
    285 F.2d 487
     (2d Cir. 1960), the district court
    agreed.
    In Klinghoffer, the Second Circuit held that an employer complies with
    § 206(a) “so long as the total weekly wage paid by an employer meets the minimum
    weekly requirements of the statute, such minimum weekly requirement being equal to
    the number of hours actually worked that week multiplied by the minimum hourly
    statutory requirement.” 285 F. 2d at 490. Thus, the district court reasoned, “whether
    [an employee] is able to state [a] minimum wage violation depends on [the
    employee’s] total pay earned for the workweek divided by the total number of hours
    worked in that same week.” App. 77. And as the district court noted, Romero’s
    complaint doesn’t allege that, after (1) adding up her cash wages and all the tips she
    received in any given week and (2) dividing that amount by the number of hours she
    worked, she didn’t “earn[]” at least “the minimum wage every week she worked at
    the restaurant.” Id. at 79. Accordingly, the district court dismissed Romero’s
    complaint for failure to state a claim. Romero appeals.
    DISCUSSION
    The Fair Labor Standards Act (FLSA) of 1938 requires employers to “pay
    [their] employees . . . wages [of] . . . not less than . . . $7.25 an hour.” § 206(a)(1)(C).
    But when it comes to “tipped employee[s],” an employer can take advantage of the
    FLSA’s tip-credit provision: it can pay those employees a cash wage of as little as
    $2.13 an hour, and then use a portion of the employees’ tips to make up the
    5
    difference between that hourly cash wage and the federal minimum wage. Id.
    § 203(m); Fast, 
    638 F.3d at 876
    .
    Yet § 203(m)’s tip-credit provision is not without its limits. As Romero points
    out, the Department of Labor (DOL) has “recognize[d] that an employee may hold
    more than one job for the same employer, one which generates tips and one which
    does not, and that the employee is entitled to the full minimum wage rate while
    performing the job that does not generate tips.” Fast, 
    638 F.3d at
    875 (citing 
    29 C.F.R. § 531.56
    (e)). Moreover, § 30d00(e) of the applicable version of the DOL’s
    Field Operations Handbook (FOH) “provides that if a tipped employee spends a
    substantial amount of time (defined as more than 20 percent) performing related but
    nontipped work, . . . then the employer may not take the tip credit for the amount of
    time the employee spends performing those duties.”3 Id.
    Romero alleges that the defendants employed her in two occupations: one that
    generated tips and one that didn’t. She also alleges that she spent more than 20
    percent of her workweek performing “related but nontipped work.” Id. Thus, citing
    
    29 C.F.R. § 531.56
    (e) and § 30d00(e) of the applicable version of the FOH, she
    concludes that the defendants weren’t entitled to take the tip credit for (1) those hours
    she spent “performing the job that [didn’t] generate tips” and (2) those hours she
    spent “performing related but nontipped work.” Id. Instead, she insists, she was
    “entitled . . . to the overall minimum wage” for those hours. App. 11.
    3
    Both Romero and the defendants treat the 1988 version of the FOH as the
    applicable version. See also Fast, 
    638 F.3d at 877-78
     (relying on 1988 version of
    FOH).
    6
    But the district court explicitly declined to address either of these arguments.
    Instead, the court adopted the defendants’ alternate theory: that Romero’s claim fails
    as a matter of law because she doesn’t allege “she was . . . paid less than the federal
    minimum wage of $7.25 an hour when including [all] her tips and counting all her
    hours worked in any one workweek.” Id. at 76.
    Citing Klinghoffer, the district court concluded that “whether [a plaintiff] is
    able to state an FLSA minimum wage violation depends on her total pay earned for
    the workweek divided by the total number of hours worked in that same week.” Id. at
    77. See Klinghoffer, 285 F.2d at 490 (explaining that employer satisfies § 206(a) as
    long as “total wage paid to [employee] during any given week,” when “divided by
    the total time [employee] worked that week,” yields a “resulting average hourly
    wage” that meets or exceeds federal minimum). And because Romero doesn’t dispute
    that she “earn[ed] more than the minimum wage every week she worked at the
    restaurant,” the district court dismissed her claim. App. 79.
    On appeal, Romero argues that the court’s reliance on Klinghoffer is
    misplaced. Reviewing the district court’s decision to dismiss de novo, see Moore v.
    Guthrie, 
    438 F.3d 1036
    , 1039 (10th Cir. 2006), we agree.
    The district court’s Klinghoffer analysis conflates two distinct concepts:
    (1) the tips that Romero “earn[ed],” see App. 79, and (2) the “wages” that the
    defendants “pa[id],” see § 206(a). True, the former is relevant to the minimum-wage
    inquiry to the extent that § 203(m) allows an employer to “us[e]” some of an
    employee’s tips as wages. Trejo v. Ryman Hosp. Props., Inc., 
    795 F.3d 442
    , 447 (4th
    7
    Cir. 2015). But only the latter is actually dispositive of such a claim. See
    § 206(a)(1)(C) (requiring “[e]very employer [to] pay [its] employees . . . wages [of]
    . . . not less than . . . $7.25 an hour” (emphases added)).
    And this distinction between tips earned and wages paid simply wasn’t at issue
    in Klinghoffer; there, the plaintiff never disputed that every cent the employees
    earned for the work they performed constituted “wages” their employers “pa[id]”
    them for purposes of § 206(a). 285 F.2d at 490. Moreover, as Romero points out, this
    issue couldn’t have arisen in Klinghoffer; the Second Circuit decided that case years
    before Congress amended the FLSA to include § 203(m)’s tip-credit provision. See
    Or. Rest. & Lodging Ass’n v. Perez, 
    816 F.3d 1080
    , 1083 (9th Cir. 2016).
    Here, on the other hand, the entire upshot of Romero’s argument is that the
    defendants impermissibly treated a portion of her tips as “wages” for purposes of
    § 206(a) by taking § 203(m)’s tip credit for hours that, according to Romero, weren’t
    tip-credit eligible under 
    29 C.F.R. § 531.56
    (e) and § 30d00(e) of the applicable FOH.
    In other words, we can assume that the district court correctly derived from
    Klinghoffer the general rule that an employer satisfies § 206(a) so long as, after “the
    total wage paid to each [employee] during any given week is divided by the total time
    [that employee] worked that week, the resulting average hourly wage” meets or
    exceeds $7.25 an hour. 285 F.2d at 490. But even then, the district court couldn’t
    apply that general rule to Romero’s claim without first determining what “total
    wage” the defendants actually “paid” her. Id. And the district court couldn’t make
    that determination without evaluating whether, as Romero alleges, the defendants
    8
    took § 203(m)’s tip credit for hours that weren’t tip-credit eligible. Cf. Fast, 
    638 F.3d at 874-75, 876-81
     (acknowledging that parties agreed “the plaintiffs received in
    employer cash payments and tips a sum at least equal to the required minimum wage
    per hour for all hours worked,” but nevertheless proceeding to analyze effect of 
    29 C.F.R. § 531.56
    (e) and § 30d00(e) of applicable FOH on plaintiffs’ minimum-wage
    claim).
    The defendants suggest that by drawing a line between what an employer pays
    in wages and what an employee receives in tips, we miss the forest for the trees.
    After all, the purpose of the FLSA is to ensure that every covered worker receives
    “[a] fair day’s pay for a fair day’s work.” Barrentine v. Ark.-Best Freight Sys., Inc.,
    
    450 U.S. 728
    , 739 (1981) (quoting Overnight Motor Transp. Co. v. Missel, 
    316 U.S. 572
    , 578 (1942)). And according to the defendants, that “purpose is filled” when “an
    employee like Romero receives pay . . . above the minimum wage,” Aplee. Br. 14,
    even if that pay happens to take the form of tips rather than wages. So even assuming
    they wrongfully took the tip credit for one or more hours, the defendants insist,
    Romero’s complaint still doesn’t state a claim under § 206(a).
    But if the defendants’ interpretation of § 206(a) is correct, then an employer
    can pay a tipped employee nothing at all, so long as that employee’s weekly tips—
    when divided by the number of hours he or she worked—average at least $7.25 an
    hour. We find this reading of § 206(a) impossible to square with § 203(m)’s plain
    language: the latter explicitly requires employers to pay their tipped employees
    something, regardless of how much those employees receive in tips. See § 203(m)(1)
    9
    (“[T]he cash wage paid such employee . . . shall be not less than [$2.13 an hour.]”);
    see also Schaefer v. Walker Bros. Enters., 
    829 F.3d 551
    , 553 (7th Cir. 2016) (noting
    that FLSA “require[s] some cash payment from the employer . . . no matter how
    much a worker receives in tips”); cf. Doty v. Elias, 
    733 F.2d 720
    , 722, 724 (10th Cir.
    1984) (rejecting, under previous version of § 203(m), defendant’s argument that “an
    employer who allows employees to keep their tips complies with [§ 206(a)] so long
    as the employees make at least as much in tips as they would if they received only
    the minimum hourly wage”; such interpretation would “do[] violence to the language
    of § 203(m) and . . . render much of that section superfluous”).
    Accordingly, we reject the defendants’ argument—and the district court’s
    conclusion—that “if [a] tipped employee makes enough [in tips] to meet the
    minimum wage,” then the employer has necessarily complied with § 206(a). App. 79.
    Instead, we hold that to the extent an employee’s tips are relevant in determining
    whether an employer has satisfied its minimum-wage obligations under § 206(a), the
    threshold question is whether the employer can treat those tips as wages under
    § 203(m). And because the district court declined to answer that threshold question
    here, we reverse and remand to give the district court an opportunity to do so in the
    first instance. See Pac. Frontier v. Pleasant Grove City, 
    414 F.3d 1221
    , 1238 (10th
    Cir. 2005) (“Where an issue has been raised, but not ruled on, proper judicial
    administration generally favors remand for the district court to examine the issue
    initially.”); see also Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino &
    Resort, 
    629 F.3d 1173
    , 1181 (10th Cir. 2010) (“Because the district court wrongly
    10
    concluded that [defendants] were not subordinate economic entities entitled to tribal
    sovereign immunity, and consequently did not reach the issue of whether
    [defendants] waived their immunity from suit . . . , we remand for the district court to
    address that question in the first instance.”).
    11