Reich v. Chez Robert, Inc. ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
7-7-1994
Reich v. Chez Robert, Inc. et al.
Precedential or Non-Precedential:
Docket 93-5619
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Recommended Citation
"Reich v. Chez Robert, Inc. et al." (1994). 1994 Decisions. Paper 76.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/76
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 93-5619
_______________
ROBERT REICH, Secretary of Labor,
United States Department of Labor,
Appellant
v.
CHEZ ROBERT, INC., ROBERT SLIWOWSKI,
individually and as Owner and President
Appellee
_______________
On Appeal From the United States District Court
for the District of New Jersey
(D.C. Civil No. 87-2219)
_______________
Submitted Under Third Circuit LAR 34.1(a)
May 12, 1994
Before: BECKER AND LEWIS, Circuit Judges
and POLLAK, District Judge1.
(Filed July 7, 1994)
LAURISTON H. LONG
WILLIAM J. STONE
United States Department of Labor
200 Constitution Avenue, N.W.
Washington, DC 20210
Attorneys for Appellant
ROBERT SLIWOWSKI
45 Covington Lane
Voorhees, NJ 08043
1
Honorable Louis H. Pollak, United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
1
Appellee
_______________
OPINION OF THE COURT
_______________
Pollak, District Judge.
Secretary of Labor Robert Reich ("Secretary") here
appeals from a judgment of the United States District Court for
the District of New Jersey in an action brought under the Fair
Labor Standards Act, 29 U.S.C. § 201 et seq. The Secretary
contends that the court erred in reducing the statutory liability
of defendants -- a restaurant and its owner -- for back wages by
improperly taking into account tips earned by employees during
the violation period.2 For the reasons set forth below, we agree
with the Secretary, and we remand for further proceedings
consistent with this opinion.
Background: The facts, insofar as relevant for this
appeal, are as follows.3 This suit to enforce the Fair Labor
Standards Act ("the Act") was commenced in 1987. The defendants
are Chez Robert, Inc., an "upscale" restaurant in New Jersey, and
its owner Robert Sliwowski. The complaint alleged violations of
the minimum wage, overtime, and record-keeping provisions of the
2
Defendants-appellees have not filed a responsive brief in this
appeal. We therefore have before us only the brief of appellant,
Secretary Reich.
3
The complete factual background and the many facets of the
underlying case are amply set forth in the district court's
comprehensive opinion, Reich v. Chez Robert, Inc., 821 F.Supp.
967 (D.N.J. 1993).
2
Act. After a bench trial that began in March, 1992, the district
court held that the defendants had willfully violated the wage,
overtime and record-keeping provisions of the Act. The court
awarded both damages and injunctive relief, and found defendants
liable for two kinds of damages: (1) "actual damages" -- i.e.
unpaid hours, underpaid overtime, and uniform maintenance
expenses -- in the amount of $177,809.66, and (2) tip credit
remunerations -- i.e. the cumulative amount by which the wages of
Chez Robert's employees fell short of the minimum wage -- in the
amount of $229,794.19. The total damages came to $407,603.85.
The court reduced the award to $305,702.88 to reflect tips earned
by employees during the relevant period. The Secretary contends
that the district court's decision to discount defendants'
liability was erroneous. As framed by the Secretary's brief, the
only issue before this court is "whether the district court erred
as a matter of law by sua sponte reducing, across the board, the
back wage awards to individual employees by 25% from the amounts
which the court found otherwise owed to them as a result of
defendants' violation of the [Act]." Appellant's Br. at 2.
Discussion: The Secretary bases his appeal upon
Section 3(m) of the Fair Labor Standards Act, which provides that
. . . In determining the wage of a tipped employee,
the amount paid such employee by his employer shall be
deemed to be increased on account of tips by an amount
determined by the employer . . . except that the amount
of the increase on account of tips determined by the
employer may not exceed the value of tips actually
received by the employee. The previous sentence shall
not apply with respect to any tipped employee unless
(1) such employee has been informed by the employer of
the provisions of this subsection, and (2) all tips
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received by such employee have been retained by the
employee . . .
29 U.S.C. § 203 (m).
Section 3(m) therefore allows an employer to reduce a
tipped employee's wage below the statutory minimum by an amount
to be made up in tips, but only if the employer informs the
tipped employee that her wage is being decreased under section
3(m)'s tip-credit provision. If the employer cannot show that it
has informed employees that tips are being credited against their
wages, then no tip credit can be taken and the employer is liable
for the full minimum-wage ($3.35/hr in this case). Martin v.
Tango's Restaurant, Inc., 969 F.2d 1319, 1322-23 (1st Cir. 1992).
At trial, defendants argued, pursuant to section 3(m),
that their liability for back wages should be calculated at
$2.01/hour, the rate at which Chez Robert's employees were
apparently paid. Defendants argued that they were entitled to a
tip credit of $1.34/hour for the balance of the $3.35 per hour
statutory minimum wage.4 The district court rejected defendants'
argument. The court found that defendants had not notified
employees of the tip credit as required under the Act, and
therefore were not entitled to the offset. Chez Robert, 821
F.Supp. at 977. Using the statutory minimum wage of $3.35/hour,
the court calculated defendants' liability for back wages to be
$177,809.66 in unpaid wages, underpaid overtime and uniform
4
The minimum wage applicable until March 31, 1990, was $3.35 per
hour. The violations by Chez Robert and its owner occurred prior
to that date. The current statutory minimum wage, which became
effective on March 31, 1991, is $4.35 per-hour. 29 U.S.C. §
206(a)(1).
4
maintenance, plus $229,794.19 in disallowed tip credit
deductions, for a total of $407,603.85. Id. at 985. The
Secretary does not challenge this initial determination.
The Secretary takes issue with what the district court
did next. Notwithstanding that the court found defendants not to
be entitled to the tip deduction under section 3(m), the court
made the following ruling:
the Secretary has made no provisions . . . for tips
actually received by employees. Certainly no precise
amount can be determined. . . . Chez Robert is an
expensive "upscale" restaurant and certainly capable of
generating income that would have supplemented
employees' incomes to a great degree. Since the
Secretary did not account for tips actually received,
the Court must apply a discount rate to the damages
owed to each employee. . . . The Court has adjusted
Defendants' liability to account for this inflating
factor. The $177,809.66 in actual damages and the
$229,794.19 in tip credit remunerations will be reduced
by 25%. Therefore, after discounting, Defendants'
[sic] are obligated to pay total damages, actual and
tip credit, in the amount of $305,702.88.
Id. at 985.
Appellant argues that the above ruling was erroneous
because it essentially gives defendants a tip credit which the
court had already determined they were statutorily barred from
claiming. The pertinent cases support the Secretary's argument.
In Tango's Restaurant, the First Circuit held that "Congress
chose to allow employers a partial tip credit if, but only if,
certain conditions are met." 969 F.2d at 1322. The notice
requirement is a firm one:
It may at first seem odd to award back pay against an
employer, doubled by liquidated damages, where the
employee has actually received and retained base wages
and tips that together amply satisfy the minimum wage
requirements. Yet Congress has in section 3(m)
5
expressly required notice as a condition of the tip
credit and the courts have enforced the requirement.
. . . If the penalty for omitting notice appears harsh,
it is also true that notice is not difficult for the
employer to provide.
Id. at 1323 (internal citations omitted).
In this case, the district court did exactly what
Tango's Restaurant instructs against doing: that is, alleviate
the harsh results of the notice requirement by reducing damages
out of an equitable sense that some offset for tips should be
allowed. 821 F.Supp. at 985. If such a ruling were permissible,
the district courts would effectively have discretion to waive
the notice requirement in the interests of perceived fairness to
the employer. While that is perhaps not in itself an undesirable
power for the district courts to have, it is not, as the First
Circuit tells us, what the statute permits.
The First Circuit's view is shared by other courts that
have addressed the section 3(m) notice requirement. In Richard
v. Marriott Corp., 549 F.2d 303 (4th Cir. 1977), the Fourth
Circuit held that the district court erred when it allowed a
partial tip credit for Marriott "out of a vague sense of fairness
and a feeling that $5.43 and up per hour is enough for a
wait[e]r[ess]", when it was established that "Marriott never
informed its employees of the provisions of Section 3(m) of the
[Act]." Id. at 305.
The Fifth Circuit has likewise held that where it was
agreed that a restaurant did not inform waiters that a tip-credit
was being deducted from their wages, "the district court properly
found that the employees were entitled to the full minimum wage
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for every hour" at issue. Barcellona v. Tiffany English Pub, 597
F.2d 464, 467-68 (5th Cir. 1979); see also Marshall v. Gerwill,
inc., 495 F.Supp. 744, 753 (D.Md. 1980) (without section 3(m)
notice, "retaining of tips by the [employees] cannot offset the
failure to pay the applicable minimum wage."); Bonham v. Copper
Cellar Corp., 476 F.Supp. 98, 101-02 (E.D.Tenn. 1979) (barring
tip credit for employer who failed to explain provisions of
section 3(m) to employees, even though employer acted in good
faith).
We have not previously had occasion to address whether
the notice requirement of section 3(m) may be waived by the
district court when there is evidence of actual tips received.
Now faced with that question, we agree with the interpretation of
the statute reached by the First Circuit in Tango's Restaurant.
When the employer has not notified employees that their wages are
being reduced pursuant to the Act's tip-credit provision, the
district court may not equitably reduce liability for back wages
to account for tips actually received.
Accordingly, we find that the district court erred in
reducing defendants' liability from $407,603.85 to $305,702.88.
The judgment of the district court is vacated and the case is
remanded to the district court for proceedings consistent with
this opinion.
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