Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-14-15243/USCOURTS-ca9-14-15243-1/pdf.json

Parties Involved:
Joseph Cesarz
Appellant
Andrew Pascal
Appellee
Quy Ngoc Tang
Appellant
Steve Wynn
Appellee
Wynn Las Vegas, LLC
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

OREGON RESTAURANT AND

LODGING ASSOCIATION, a non-profit

Oregon corporation; WASHINGTON

RESTAURANT ASSOCIATION, a nonprofit Washington corporation;

ALASKA CABARET, HOTEL,

RESTAURANT & RETAILERS

ASSOCIATION, a non-profit Alaska

corporation; NATIONAL

RESTAURANT ASSOCIATION, a nonprofit Illinois corporation; DAVIS

STREET TAVERN LLC, an Oregon

limited liability company; SUSAN

PONTON, an individual,

Plaintiffs-Appellees,

v.

THOMAS PEREZ, in his official

capacity as Secretary of the U.S.

Department of Labor; LAURA

FORTMAN, in her official capacity as

Deputy Administrator of the U.S.

Department of Labor; U.S.

DEPARTMENT OF LABOR,

Defendants-Appellants.

No. 13-35765

D.C. No.

3:12-cv-01261-

MO

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2 OREGON REST. & LODGING ASS’N V. PEREZ

JOSEPH CESARZ; QUY NGOC TANG,

individually and on behalf of all

others similarly situated, and all

persons whose names are set forth in

Exhibit A to the First Amended

Complaint, 

Plaintiffs-Appellants,

v.

WYNN LAS VEGAS, LLC; ANDREW

PASCAL; STEVE WYNN,

Defendants-Appellees.

No. 14-15243

D.C. No.

2:13-cv-00109-

RCJ-CWH

ORDER

Filed September 6, 2016

Before: Harry Pregerson, N. Randy Smith,

and John B. Owens, Circuit Judges.

Order;

Dissent by Judge O’Scannlain

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OREGON REST. & LODGING ASS’N V. PEREZ 3

SUMMARY*

Fair Labor Standards Act

The panel denied a petition for panel for rehearing, and

denied on behalf of the court a petition for rehearing en banc.

In its opinion, filed February 23, 2016, the panel majority

reversed the district courts’ decisions in favor of employers,

and held that Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th

Cir. 2010), did not foreclose the Department of Labor’s

ability to promulgate subsequently a formal rule that

extended the tip pooling restrictions of Section 203(m) of the

Fair Labor Standards Act of 1938; and remanded for further

proceedings.

Judge O’Scannlain, joined by Judges Kozinski, Gould,

Tallman, Bybee, Callahan, Bea, M. Smith, Ikuta and

N.R. Smith, dissented from the denial of rehearing en banc

because the panel’s opinion rejected court precedents, and

opened two circuit splits.

COUNSEL

John S. Koppel (argued) and Michael Jay Singer, Attorneys,

United States Department of Justice, Civil Division,

Washington, D.C.; Stuart F. Delery, Assistant Attorney

General, Office of the Attorney General, Washington, D.C.;

S. Amanda Marshall, United States Attorney, United States

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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4 OREGON REST. & LODGING ASS’N V. PEREZ

Attorneys’ Office, Oregon, for Defendants-Appellants

Thomas Perez, et al.

Joshua D. Buck (argued), Thierman Buck, Reno, Nevada;

Leon Greenberg and Dana Sniegocki, Leon Greenberg

Professional Corporation, Las Vegas, Nevada, for PlaintiffsAppellants Joseph Cesarz and Quy Ngoc Tang.

Paul DeCamp (argued), Jackson Lewis P.C., Reston,

Virginia; Nicholas M. Beerman, Peter H. Nohle, and William

Robert Donovan, Jr., Jackson Lewis P.C., Seattle,

Washington; Scott Oberg Oborn, Jackson Lewis P.C.,

Portland, Oregon,for Plaintiffs-Appellees Oregon Restaurant

and Lodging Association, et al.

Eugene Scalia (argued) and Alexander Cox, Gibson Dunn &

Crutcher LLP, Washington, D.C.; Gregory J. Kamer and

Brian J. Cohen, Kamer Zucker Abbott, Las Vegas, Nevada,

for Defendants-Appellees Wynn Las Vegas, LLC, et al.

ORDER

Judges Pregerson and Owens have voted to deny the

petition for panel rehearing. Judge Owens has voted to deny

the petition for rehearing en banc, and Judge Pregerson has so

recommended. Judge N.R. Smith has voted to grant the

petition for panel rehearing and petition for rehearing en

banc.

The full court was advised of the petition for rehearing en

banc. A judge requested a vote on whether to rehear the

matter en banc. The matter failed to receive a majority of

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OREGON REST. & LODGING ASS’N V. PEREZ 5

votes of the nonrecused active judges in favor of en banc

consideration. Fed. R. App. P. 35.

The petition for panel rehearing and the petition for

rehearing en banc are DENIED.

The order filed on April 1, 2016 denying rehearing in

Cesarz v. Wynn Las Vegas is hereby amended to reflect this

subsequent en banc activity, including the dissent from denial

of rehearing.

O’SCANNLAIN, Circuit Judge, with whom KOZINSKI,

GOULD, TALLMAN, BYBEE, CALLAHAN, BEA, M.

SMITH, IKUTA, N.R. SMITH, Circuit Judges, join,

dissenting from the denial of rehearing en banc:

Our court today rejects the most elemental teaching of

administrative law: agencies exercise whatever powers they

possess because—and only because—such powers have been

delegated to them by Congress. Flouting that first principle,

the panel majority equates a statute’s “silence” with an

agency’s invitation to regulate, thereby reaching the startling

conclusion that the Department of Labor can prohibit any

workplace practice Congress has not “unambiguously and

categorically protected” through positive law. The dissenting

opinion had it right; the panel majority’s extravagant theory

is more than the Constitution will bear. And it is more than

our own precedents will allow. Because the panel majority

reads our precedents out of existence, and opens not one, but

two circuit splits in the process, I respectfully dissent from

our refusal to rehear these consolidated cases en banc.

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6 OREGON REST. & LODGING ASS’N V. PEREZ

I

A

Here is a brief overview of the statutory and regulatory

landscape. The Fair Labor Standards Act (FLSA), 29 U.S.C.

§ 201 et seq., sets a minimum wage employers must pay their

employees, id. § 206(a). Employers who have “tipped

employee[s]” can meet the minimum-wage requirement in

either of two ways. Id. § 203(m). First, they can simply pay

such employees a cash wage at or above the minimum. Id.

Second, they can pay a cash wage below the minimum, but

only if such employees receive enough money in tips to make

up the difference. Id. Employers who choose the second

option are said to take a “tip credit.” In addition, for many

decades it has been common practice for employers across

service industries to require the people who work for them to

share tips with one another, a practice known as “tip

pooling.” But not all employees are alike. Some, like

restaurant servers,1are “customarily and regularly tipped,”

id.; others, like the kitchen staff, are not. Section 203(m) says

that if an employer takes a tip credit to satisfy its federal

minimum-wage obligations, it is not allowed to institute a tip

pool comprising both categories of employees. Id. So, if a

restaurant takes a tip credit, it cannot require its servers to

share their tips with the kitchen staff (but it can require the

servers to share tips with their fellow servers).

Although § 203(m) speaks directly about the tip-pooling

practices of employers who take advantage of the tip credit,

it says absolutely nothing about tip pooling by employers

1 We use the term “server” to include the waiters and waitresses serving

tables.

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OREGON REST. & LODGING ASS’N V. PEREZ 7

who do not take a tip credit. In Cumbie v. Woodie Woo, Inc.,

596 F.3d 577, 578 (9th Cir. 2010), we addressed “whether a

restaurant violates the Fair Labor Standards Act, when,

despite paying a cash wage greater than the minimum wage,

it requires its wait staff to participate in a ‘tip pool’ that

redistributes some of their tips to the kitchen staff.” We held

it does not; instead, the statute’s carefully calibrated scope

evidenced Congress’s clear intent to leave employers who do

not take a tip credit free to arrange their tip-pooling affairs

however they and their employees see fit. Id. at 580–83. So,

if a restaurant guarantees its employees the federal minimum

wage, the restaurant can (so far as federal labor law is

concerned) force its servers to share their tips with the

bussers, cooks, and dishwashers. Section 203(m) does not

apply here—it is simply indifferent to the fate of the servers’

tips.

Two background principles informed Cumbie’s

construction of the statute. First, it has been settled law for

three-quarters of a century that “[i]n businesses where tipping

is customary, the tips, in the absence of an explicit contrary

understanding, belong to the recipient. Where, however, such

an arrangement is made, in the absence of statutory

interference, no reason is perceived for its invalidity.” Id. at

579 (quoting Williams v. Jacksonville Terminal Co., 315 U.S.

386, 397 (1942)) (alterations omitted) (emphasis deleted). 

“Williams establishes the default rule that an arrangement to

turn over or to redistribute tips is presumptively valid.” Id. at

583. Second, the “Supreme Court has made it clear that an

employment practice does not violate the FLSA unless the

FLSA prohibits it.” Id. (citing Christensen v. Harris Cty.,

529 U.S. 576, 588 (2000) (“Unless the FLSA prohibits

respondents from adopting its policy, petitioners cannot show

that Harris County has violated the FLSA.”)).

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8 OREGON REST. & LODGING ASS’N V. PEREZ

After examining the statute’s text and structure, id. at

580–81, we determined that the “plain text” of § 203(m) only

“imposes conditions on taking a tip credit and does not state

freestanding requirements pertaining to all tipped

employees,” id. at 581. As a result, we concluded that the

“FLSA does not restrict tip pooling when no tip credit is

taken.” Id. at 582. “Since Woo [the employer] did not take

a tip credit, we perceive[d] no basis for concluding that

Woo’s tippooling arrangement violated section 203(m).” Id.

“Having concluded that nothing in the text of the FLSA

purports to restrict employee tip-pooling arrangements when

no tip credit is taken, we perceive[d] no statutory impediment

to Woo’s” tip-pooling practice. Id. at 583.

B

We decided Cumbie in 2010. Unhappywith our decision,

in 2011 the Department of Labor issued new regulations

addressing the very same issue. See Updating Regulations

Issued Under the Fair Labor Standards Act, 76 Fed. Reg.

18,832 (Apr. 5, 2011). The preamble to those regulations

confessed that Cumbie advanced a “‘plain meaning’

construction,” id. at 18,842, but nevertheless voiced the

Department’s opinion that Cumbie was wrongly decided, id.

at 18,841–42. The Department then announced that, statutory

text and Cumbie notwithstanding, henceforth “tips are the

property of the employee, and . . . section [203(m)] sets forth

the only permitted uses of an employee’s tips—either through

a tip credit or a valid tip pool—whether or not the employer

has elected the tip credit.” Id. at 18,842 (By “valid” tip pool,

the Department apparently means a tip pool consisting

exclusively of employees who are “customarily and regularly

tipped.”) The Department replaced this language:

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OREGON REST. & LODGING ASS’N V. PEREZ 9

In the absence of an agreement to the contrary

between the recipient and a third party, a tip

becomes the property of the person in

recognition of whose service it is presented by

the customer.

with the following:

Tips are the property of the employee whether

or not the employer has taken a tip credit

under section [203(m)] of the FLSA. The

employer is prohibited from using an

employee’s tips, whether or not it has taken a

tip credit, for any reason other than that which

is statutorily permitted in section [203(m)]:

As a credit against its minimum wage

obligations to the employee, or in furtherance

of a valid tip pool.

Compare 32 Fed. Reg. 13,575, 13,580 (1967), with 29 C.F.R.

§ 531.52.

This new regulation thus flips Williams and Christensen

on their heads. It takes the longstanding rule that federal law

permits employers to institute any tip-pooling arrangement

the FLSA does not prohibit, and turns it into a rule that

employers may only institute a tip pool if the FLSA expressly

authorizes it.

II

The facts of these consolidated cases are straightforward

and undisputed. The Appellees are employers who pay all of

their employees at or above the minimum wage. Or. Rest. &

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10 OREGON REST. & LODGING ASS’N V. PEREZ

Lodging Ass’n v. Perez, 816 F.3d 1080, 1082 (9th Cir. 2016). 

That is, none of them takes a tip credit. In addition, the

employers have opted to institute tip pools comprised of both

customarily tipped employees and non-customarily tipped

employees. Specifically, Wynn Las Vegas requires its casino

dealers to share a portion of their tips with casino floor

supervisors, while the employers represented by the Oregon

Restaurant and Lodging Association require their servers to

share a portion of their tips with the kitchen staff. Id. at 1085. 

The question for us is whether such tip pools are prohibited

by § 203(m).

So far, so Cumbie. The facts are the same. The statute is

the same. But this time the panel holds that the tip-pooling

arrangements just described are illegal. The only difference

is that here we have a Department of Labor regulation

declaring that it simply will not follow what Cumbie said was

permitted. The problem for the Department is that the

Supreme Court has prohibited an agency in its position from

doing exactly that. That is, “a court’s interpretation of a

statute trumps an agency’s . . . if the prior court holding

‘determined a statute’s clear meaning.’” Nat’l Cable &

Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967,

984 (2005) (emphasis deleted) (quoting Maislin Indus., U.S.,

Inc. v. Primary Steel, Inc., 497 U.S. 116, 131 (1990)).

That is precisely what we did in Cumbie: we held that

§ 203(m) is clear and unambiguous—and that it clearly and

unambiguously permits employers who forgo a tip credit to

arrange their tip-pooling affairs however they see fit. We

said this explicitly no fewer than six times. Cumbie, 596 F.3d

at 579 n.6 (“[W]e conclude that the meaning of the FLSA’s

tip credit provision is clear . . . .”); id. at 581 (“[W]e cannot

reconcile [Cumbie’s] interpretation with the plain text of [the

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OREGON REST. & LODGING ASS’N V. PEREZ 11

statute] . . . .”); id. at 581 n.11 (“[W]e do not resort to

legislative history to cloud a statutory text that is clear.”

(quoting Ratzlaf v. United States, 510 U.S. 135, 147–48

(1994))); id. at 582 (describingCumbie’s reading of § 203(m)

as “plainly erroneous”); id. at 582 (refusing to “depart[] from

the plain language of the statute” (quoting Ingalls

Shipbuilding, Inc. v. Dir., Office of Workers’ Comp.

Programs, 519 U.S. 248, 261 (1997))); id. at 583 (reiterating

that our statutory construction proceeded “[a]bsent an

ambiguity”).

Remarkably, we even declined to consider then-existing

Department of Labor regulations—as well as an amicus brief

filed by the Secretary of Labor on Cumbie’s

behalf—precisely because “we conclude[d] that the meaning

of the FLSA’s tip credit provision is clear,” and hence “we

need not decide . . . what level of deference [the Department’s

interpretations] merit.” Id. at 579 n.6. And, as if the

substance of our holding were not already obvious beyond

doubt, we cited a Chevron Step One decision to illustrate our

reasoning. Id. (citing Metro Leasing & Dev. Corp. v.

Comm’r, 376 F.3d 1015, 1027 n.10 (9th Cir. 2004) (“Because

we conclude that [the] meaning of the statute is clear, we

need not decide whether this regulation should be upheld.”)).

Cumbie’s teaching is straightforward: § 203(m) simply

does not protect an employee’s tips except when his or her

employer takes a tip credit. Hence, § 203(m) unambiguously

establishes that, so far as the FLSA is concerned, employers

who forgo the tip credit must be left free to institute tip pools

comprising servers and line cooks, casino dealers and floor

supervisors, or whatever other combination of employees the

affected parties decide.

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12 OREGON REST. & LODGING ASS’N V. PEREZ

III

It would take some mighty fancy footwork to get around

Cumbie; if Brand X does not foreclose a contrary agency

construction here, the doctrine is a dead letter. Indeed, in the

panel majority’s attempt to dance around Cumbie and its

manifestly correct reading of § 203(m), it has stumbled off a

constitutional precipice.

A

The problems begin at the beginning. The majority

acknowledges that “section 203(m) does not restrict the tip

pooling practices of employers who do not take tip credits.” 

Or. Rest., 816 F.3d at 1084. That was the holding of Cumbie. 

As Cumbie explained, Congress wrote § 203(m) against the

longstanding background norm that tip pooling is a matter of

private contract. 596 F.3d at 579. Thus, given Congress’s

deliberate choice to subject one and only one class of

employer to regulation—namely, employers who take a tip

credit—the clear implication is that all other employers

remain free to arrange their tip-pooling affairs without federal

interference, just as they were before the statute was passed. 

And my colleagues say they have “no quarrel with Cumbie.” 

Or. Rest., 816 F.3d at 1090. So we all agree that Congress

has chosen not to regulate the tip-pooling practices of

employers like the ones we have here; we all agree that such

conduct indisputably falls beyond the outer reaches of the

FLSA. But then where does the panel majority think the

Department of Labor gets authority to ban the very thing

Congress has decided not to interfere with?

Here is where the panel majority’s analysis goes wrong,

and dangerously so. The majority claims to perceive a

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OREGON REST. & LODGING ASS’N V. PEREZ 13

“crucial distinction between statutory language that

affirmatively protects or prohibits a practice and statutory

language that is silent about that practice.” Or. Rest.,

816 F.3d at 1087. From that premise, it concludes that the

Department of Labor can ban these employers’ tip pooling

because § 203(m) does not “unambiguously and categorically

protect” it; instead, the statute is simply “silent about that

practice.” Id. at 1086–87 (emphasis added). For that reason

alone, the panel majority holds, the Department has a free

hand to prohibit it. Id. As the majority says, any time a

statute does not “unambiguously protect[] or prohibit[]

certain conduct,” the statute necessarily “leaves room for

agency discretion” to regulate such conduct as it sees fit. Id.

at 1088.

This is a caricature of Chevron. Indeed, the notion is

entirely alien to our system of laws.2

In one sense, the panel majority is correct: § 203(m) is

“silent” about whether employers who do not take a tip credit

may require tip pooling, just like it is “silent” about whether

I can require my law clerks to wear business attire in

chambers. Section 203(m) does not “unambiguously and

categorically protect” either practice. Does that mean the

Department of Labor is free to prohibit them both? Of course

not; obviously, the FLSA cannot serve as a source of

2

See, e.g., Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 585

(1952) (“The President’s power, if any, to issue the order must stem either

from an act of Congress or from the Constitution itself.”). The point of

Youngstown is that the Executive must always derive its authority to act

either from an act of Congress or directly from the Constitution;

Youngstown necessarily rejects the idea that the Executive may interfere

with a given interest simply because Congress has not “unambiguously

and categorically protected” it.

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14 OREGON REST. & LODGING ASS’N V. PEREZ

authority to prohibit activities it does not cover, just as a

statute reading “No dogs in the park” cannot be said to

authorize a Parks Department to ban birds as well. The

reason is basic but fundamental, and it has nothing to do with

any sort of free-floating nondelegation presumption. Rather,

the point is that a statute’s deliberate non-interference with a

class of activity is not a “gap” in the statute at all; it simply

marks the point where Congress decided to stop authorization

to regulate. And while I do not question that Congress has

given the Department “broad authority . . . to implement the

FLSA,” Or. Rest., 816 F.3d at 1084, one does not

“implement” a statute by expanding its domain to allow

interference with conduct it consciously left alone. The

Department is in reality legislating, yet that is a power the

Constitution does not permit executive agencies to exercise.3

The problem here is that the majority has confused two

very different types of statutory silence. Sometimes

“[statutory] silence is meant to convey nothing more than a

refusal to tie the agency’s hands,” meaning that Congress has

given the agency discretion to choose between policy options

3 As every novice learns, the official theory of the administrative state

begins fromthe premise that “the lawmaking function belongs toCongress

. . . and may not be conveyed to another branch or entity.” Loving v.

United States, 517 U.S. 748, 758 (1996). Agency rulemaking respects that

constraint so long as it remains guided by an “intelligible principle”

supplied by Congress. E.g., City of Arlington v. FCC, 133 S. Ct. 1863,

1873 n.4 (2013). But the panel majority would effectively vaporize even

that flimsy constraint by holding that an agency need not justify a given

rule by tracing it to a valid statutory grant of authority; instead, it need

only demonstrate that Congress has not affirmatively voiced opposition to

the rule in question. The majority’s vision makes a fear of “delegation

running riot” look quaint by comparison, A.L.A. Schechter Poultry Corp.

v. United States, 295 U.S. 495, 553 (1935) (Cardozo, J., concurring), for

it would dispense with even the pretense of delegation altogether.

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OREGON REST. & LODGING ASS’N V. PEREZ 15

Congress itself has placed on the table. Entergy Corp. v.

Riverkeeper, Inc., 556 U.S. 208, 222 (2009). But “sometimes

statutory silence, when viewed in context, is best interpreted

as limiting agency discretion.” Id. at 223. In other words, not

all statutory silences are created equal. But you would never

know that from the majority’s opinion. The majority seems

to think executive agencies have plenary power to regulate

whatever they want, unless and until Congress affirmatively

preempts them. With all due respect, that is a profoundly

misguided understanding of administrative law.

An agency may not issue a given regulation unless it has

a “textual commitment of authority” to do so. Whitman v.

Am. Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001). Indeed,

it is axiomatic that “an agency literally has no power to act

. . . unless and until Congress confers power upon it.” La.

Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986). Thus,

it should go without saying that an agency “may not construe

the statute in a way that completely nullifies textually

applicable provisions meant to limit its discretion.” Am.

Trucking, 531 U.S. at 485. And “Congress knows to speak in

plain terms when it wishes to circumscribe, and in capacious

terms when it wishes to enlarge, agency discretion.” City of

Arlington, 133 S. Ct. at 1868.

Section 203(m) speaks in plain terms, not capacious ones. 

To illustrate the contrast, imagine a statute that said, simply,

“Unfair tipping practices are prohibited. The Secretary may

promulgate rules necessary to carry into execution the

foregoing prohibition.” Now that would be a capacious

statute. I will stipulate that a reasonable person could read it

to prohibit tip pooling even by employers who do not take a

tip credit; on the other hand, a reasonable person could read

it not to interfere with such practice. Our hypothetical statute

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16 OREGON REST. & LODGING ASS’N V. PEREZ

is “silent” in the relevant sense: in the sense that we might

read it to cover the practice in question, but we are not

compelled to read it that way, so the choice is for the agency

to make. But § 203(m) is nothing like that hypothetical

statute. It regulates tip pooling by one, and only one, specific

class of employer: the employer who takes a tip credit. 

Hence, as we put it in Cumbie, § 203(m) “does not restrict tip

pooling when no tip credit is taken.” 596 F.3d at 582. There

is no question, therefore, that § 203(m) stops short of

regulating employers who do not take a tip credit. The

Department has no power to put words in Congress’s mouth

when Congress has deliberately chosen to stay quiet in the

face of activity it knows is taking place.

Simply put, Congress intended to control, not to delegate,

when employers may require tip pooling. And there can be

no question that the Department of Labor has no power to

extend the statute beyond its stopping point. As the Supreme

Court has said time and again, “an administrative agency’s

power to regulate . . . must always be grounded in a valid

grant of authority from Congress. And ‘[i]n our anxiety to

effectuate the congressional purpose . . . , we must take care

not to extend the scope of the statute beyond the point where

Congress indicated it would stop.’” FDA v. Brown &

Williamson Tobacco Corp., 529 U.S. 120, 161 (2000)

(quoting United States v. Article of Drug . . . Bacto-Unidisk

. . . , 394 U.S. 784, 800 (1969)).

Thus, as in Brown & Williamson, here “Congress has

clearlyprecluded the [Department] fromasserting jurisdiction

to regulate” tip pooling by employers who do not take a tip

credit. Id. at 126. “Such authority is inconsistent with the

intent that Congress has expressed in the [FLSA’s] overall

regulatory scheme . . . . In light of this clear intent, the

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[Department’s] assertion of jurisdiction is impermissible.” 

Id. Because “the statutory text forecloses the agency’s

assertion of authority,” its attempt to prohibit tip pooling by

employers like the ones before us “is ultra vires.” City of

Arlington, 133 S. Ct. at 1871, 1869.

The majority’s reasoning flies in the face of the above

principles. To prop up its theory that an agency’s power to

regulate surges like an expansive body of water, covering

everything until it bumps up against a wall erected by

Congress, the majority relies on Christensen v. Harris

County, 529 U.S. 576 (2000), and “Judge Souter’s [sic]

concurrence,” Or. Rest., 816 F.3d at 1088. But Christensen

and Justice Souter’s concurrence give absolutely no support

to the majority’s radical idea that an agency can regulate

whatever it wants until Congress says out loud that it must

stop. Christensen says only what everybody already knows:

if a statute can reasonably be read either to permit or to

prohibit a given practice, then the agency has discretion to

choose which reading to enforce. 529 U.S. at 587–88; id. at

589 (Souter, J., concurring). But the whole question is

whether a particular statute can be read either way. 

Sometimes the answer is yes; other times the answer is no,

depending on the statute. In this case, Cumbie already said,

correctly, that § 203(m) cannot be read either way—it

subjects to regulation only employers who take a tip credit,

and nobody else. 596 F.3d at 582. The Department has no

power to enlarge the statute beyond the point where Congress

decided to stop regulating. The Department, and my

colleagues along with it, have yet to grasp that “an agency’s

power is no greater than that delegated to it by Congress.” 

Lyng v. Payne, 476 U.S. 926, 937 (1986).

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18 OREGON REST. & LODGING ASS’N V. PEREZ

B

It should come as no surprise that our sister circuits have

roundly and forcefully repudiated the specious theory of

agency power our court now adopts. Those circuits have

echoed again and again the basic reality that silence does not

always constitute a gap an agency may fill, but often reflects

Congress’s decision not to regulate in a particular area at all,

a decision that is binding on the agency.

As the D.C. Circuit has explained, “[w]ere courts to

presume a delegation of power absent an express withholding

of such power, agencies would enjoy virtually limitless

hegemony, a result plainly out of keeping with Chevron and

quite likely with the Constitution as well.” Ry. Labor Execs.

Ass’n v. Nat’l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir.

1994) (en banc) (as amended); id. at 659 (“[T]he Board

would have us presume a delegation of power from Congress

absent an express withholding of such power. This comes

close to saying that the Board has the power to do whatever

it pleases merely by virtue of its existence, a suggestion that

we view to be incredible.”); id. at 671 (“To suggest, as the

Board effectively does, that Chevron step two is implicated

any time a statute does not expressly negate the existence of

a claimed administrative power (i.e. when the statute is not

written in ‘thou shalt not’ terms), is both flatly unfaithful to

the principles of administrative law . . . , and refuted by

precedent.”); see also Aid Ass’n for Lutherans v. U.S. Postal

Serv., 321 F.3d 1166, 1174–75 (D.C. Cir. 2003) (“[T]he

Postal Service’s position seems to be that the disputed

regulations are permissible because the statute does not

expressly foreclose the construction advanced by the agency. 

We reject this position as entirely untenable under well-

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OREGON REST. & LODGING ASS’N V. PEREZ 19

established case law.”); Motion Picture Ass’n of Am., Inc. v.

FCC, 309 F.3d 796, 805 (D.C. Cir. 2002) (same).

Likewise, the Third Circuit has recognized that “[e]ven

where a statute is ‘silent’ on the question at issue, such

silence ‘does not confer gap-filling power on an agency

unless the question is in fact a gap—an ambiguity tied up

with the provisions of the statute.’” Coffelt v. Fawkes,

765 F.3d 197, 202 (3d Cir. 2014) (quoting Lin-Zheng v.

Attorney Gen., 557 F.3d 147, 156 (3d Cir. 2009) (en banc)).

The Fourth Circuit, as well, has held that “[b]ecause we

do not presume a delegation of power simply from the

absence of an express withholding of power, we do not find

that Chevron’s second step is implicated ‘any time a statute

does not expressly negate the existence of a claimed

administrative power.’” Chamber of Commerce v. NLRB,

721 F.3d 152, 160 (4th Cir. 2013) (quoting Am. Bar Ass’n v.

FTC, 430 F.3d 457, 468 (D.C. Cir. 2005)).

The Fifth Circuit agrees. See Texas v. United States,

809 F.3d 134, 186 (5th Cir. 2015) (as revised) (“The dissent

repeatedly claims that congressional silence has conferred on

DHS the power to act. To the contrary, any such inaction

cannot create such power.” (citation omitted)).

Same for the Seventh Circuit: “Courts ‘will not presume

a delegation of power based solely on the fact that there is not

an express withholding of such power.’” Sierra Club v. EPA,

311 F.3d 853, 861 (7th Cir. 2002) (quoting Am. Petroleum

Inst. v. EPA, 52 F.3d 1113, 1120 (D.C. Cir. 1995)).

The Eleventh Circuit piles on: “[I]f congressional silence

is a sufficient basis upon which an agency may build a

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20 OREGON REST. & LODGING ASS’N V. PEREZ

rulemaking authority, the relationship between the executive

and legislative branches would undergo a fundamental

change and ‘agencies would enjoy virtually limitless

hegemony, a result plainly out of keeping with Chevron . . .

and quite likely with the Constitution as well.’” Bayou Lawn

& Landscape Servs. v. Sec’y of Labor, 713 F.3d 1080, 1085

(11th Cir. 2013) (quoting Ethyl Corp. v. EPA, 51 F.3d 1053,

1060 (D.C. Cir. 1995)).

Notice what the panel majority has not produced: a

citation to a single case endorsing the extravagant theory of

executive lawmaking our court adopts today. Meaningful

silence?

At any rate we, too, once knew all of this. In Martinez v.

Wells Fargo Home Mortgage, Inc., 598 F.3d 549, 554 n.5

(9th Cir. 2010), we were asked to defer to an agency’s

regulation of certain bank “overcharges” on the theory that

the Real Estate Settlement Procedures Act did “not

specifically address the situation at bar” and was therefore

“sufficiently silent on the precise matter as to be ambiguous.” 

Nonsense, we said; statutory “‘silence’ on the subject of

overcharges does not mean that Congress’s actions were

ambiguous on that subject. Congress simply did not legislate

at all on overcharges.” Id. So, too, with tip pooling by

employers who do not take a tip credit, or so I would have

thought.

Oh well. Add Martinez to the heap of controlling

authorities the panel majority has so casually tossed aside,

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OREGON REST. & LODGING ASS’N V. PEREZ 21

placing us, here as elsewhere, directly at odds with our

colleagues in the rest of the country.

4

IV

A

Even if this case were framed in terms of Chevron Step

Two, it would not make any difference to the analysis or the

outcome. Precisely because the Department has not been

delegated authority to ban tip pooling by employers who

forgo the tip credit, the Department’s assertion of regulatory

jurisdiction “is ‘manifestly contrary to the statute,’ and

exceeds [its] statutory authority.” Sullivan v. Zebley,

493 U.S. 521, 541 (1990) (quotingChevron, 467 U.S. at 844).

Mypanel-majoritycolleagues prove the point themselves. 

Notwithstanding their conviction that the Department of

Labor can regulate any private activity Congress has not

“unambiguously and categorically protect[ed]” through

positive law, they still undertake to reassure themselves that

the Department’s interpretation of § 203(m) is “reasonable.” 

Or. Rest., 816 F.3d at 1089. Yet their analysis on this score

is so perfunctory that it only confirms they must really

believe what they have repeatedly said, namely, that an

agency does not need a discernible grant of regulatory power

over a given subject matter before it can insert itself into the

affairs of ordinary citizens.

4

“Circuit split” perhaps does not fully describe the resulting state of

affairs. It is more like we have spun out of the known legal universe and

are now orbiting alone in some cold, dark corner of a far-off galaxy, where

no one can hear the scream “separation of powers.”

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22 OREGON REST. & LODGING ASS’N V. PEREZ

Unsurprisingly, the majority never mentions the text the

Department is (purportedly) executing, not even once. Here

is what the majority offers instead:

First, that it was reasonable for the Department of Labor

to conclude “that, as written, [§] 203(m) contain[s] a

‘loophole’ that allow[s] employers to exploit FLSA tipping

provisions.” Id. Which quite obviously begs the question. 

But not only is it entirely question-begging, it unwittingly

concedes that the statute “as written” limits the agency to

regulating only those employers who take a tip credit. As

explained above, an agency “may not construe the statute in

a waythat completelynullifies textuallyapplicable provisions

meant to limit its discretion,” Am. Trucking, 532 U.S. at 485,

for otherwise it would be exercising “the lawmaking function

[which] belongs to Congress . . . and may not be conveyed to

another branch or entity,” Loving, 517 U.S. 758.

Second, the majority invokes the FLSA’s legislative

history, even though in Cumbie we explicitly refused to do so,

explaining that “[o]f course, ‘we do not resort to legislative

history to cloud a statutory text that is clear.’” 596 F.3d at

581 n.11 (quoting Ratzlaf, 510 U.S. at 147–48). In any event,

the primary source the majority quotes implicitly disavows

the Department of Labor’s interpretation. The very Senate

Committee Report the majority relies on explains that an

“employer will lose the benefit of [the tip credit] exception if

tipped employees are required to share their tips with

employees who do not customarily and regularly receive

tips.” Or. Rest., 816 F.3d at 1089 (quoting S. Rep. No. 93-

690, at 43 (1974)). That statement makes sense only on the

assumption that employers who forgo the tip credit can

require tip pooling among customarily and non-customarily

tipped employees, just as Cumbie had said. All the majority

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OREGON REST. & LODGING ASS’N V. PEREZ 23

can muster in response is a more general statement from the

same report that § 203(m) “requir[es] . . . that all tips received

be paid out to tipped employees.” Id. at 1090. That’s it. 

Even fans of legislative history should hold their noses before

allowing one vague statement from one committee report to

trump not only the clear text of the statute, but also the

express interpretation of that text as set out in the very same

report.

Third and finally, the majority says that “the FLSA is a

broad and remedial act that Congress has frequentlyexpanded

and extended.” Id. Here we have yet one more frank

admission that the Department of Labor is “expand[ing] and

extend[ing],” not “executing,” the statute Congress enacted. 

But notice that even on the majority’s telling, Congressis the

one empowered to expand and extend the statute; the

Department of Labor emphatically is not. And whatever the

majority thinks “the purpose of the FLSA” happens to be, id.,

the Supreme Court has told us that “the purpose of a statute

includes not only what it sets out to change, but also what it

resolves to leave alone,” W. Va. Univ. Hosps., Inc. v. Casey,

499 U.S. 83, 98 (1991). In this case there is no doubt that

Congress resolved to leave employers like the ones before us

alone, at least as far as their tip-pooling practices are

concerned. Neither we nor the Department have any power

to “expand or extend” Congress’s decision.

B

Predictably enough, such shoddy reasoning has opened

yet another circuit split on this precise issue. By defying

Cumbie and rejecting its obviously correct reading of

§ 203(m), the majority has created another split with the

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24 OREGON REST. & LODGING ASS’N V. PEREZ

Fourth Circuit and has set us on a collision course with

several others.

Most immediately, in Trejo v. Ryman Hospitality Props.,

Inc., 795 F.3d 442 (4th Cir. 2015), the Fourth Circuit

expressly agreed with Cumbie that “§ 203(m) ‘does not state

freestanding requirements pertaining to all tipped

employees,’ but rather creates rights and obligations for

employers attempting to use tips as a credit against the

minimum wage.” Id. at 448 (quoting Cumbie, 596 F.3d 581). 

Accordingly, the Fourth Circuit held that “it is clear that th[e]

language [of § 203(m)] could give rise to a cause of action

only if the employer is using tips to satisfy its minimum wage

requirements.” Id. For the reasons explained above, that

holding necessarily forecloses the Department’s effort to ban

tip pooling by employers who do not take a tip credit. Brand

X, 545 U.S. at 984 (“[A] precedent holding a statute to be

unambiguous forecloses a contrary agency construction.”).

Looking beyond Trejo, the forecast is not encouraging for

the panel majority here. In fact, “[r]elying on Cumbie and

other cases, nearly every court that has considered the DOL

Regulation has invalidated it under Chevron.” Malivuk v.

Ameripark, LLC, No. 1:15-CV-2570-WSD, 2016 WL

3999878, at *4 (N.D. Ga. July 26, 2016); see, e.g., id.;

Brueningsen v. Resort Express Inc., No. 2:12-CV-00843-DN,

2015 WL 339671, at *5 (D. Utah Jan. 26, 2015); Mould v.

NJG Food Serv. Inc., No. CIV. JKB-13-1305, 2014 WL

2768635, at *5 (D. Md. June 17, 2014); Stephenson v. All

Resort Coach, Inc., No. 2:12-CV-1097 TS, 2013 WL

4519781, at *8 (D. Utah Aug. 26, 2013); see also Trinidad v.

Pret A Manger (USA) Ltd., 962 F. Supp. 2d 545, 563

(S.D.N.Y. 2013) (“Because the Court is highly skeptical that

DOL’s regulations permissibly construe the statute, and

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OREGON REST. & LODGING ASS’N V. PEREZ 25

because it is undisputed that Pret paid its employees the

minimum wage without taking into account the tip credit, the

Court, in its discretion, declines to conditionally certify a

class based on plaintiffs’ tip-pooling claims.”).

The only court in the land to misread Cumbie is our own!

V

Never let a statute get in the way of a tempting regulation. 

That, at any rate, seems to be the prevailing mood on our

court. I cannot go along with such a breezy approach to the

separation of powers, and I regret our decision to let stand the

majority’s catalog of errors. The majority ignores binding

Supreme Court and circuit precedent, allows the Department

of Labor to defy the clear and unambiguous limits on its

discretion written into the Fair Labor Standards Act, and

creates not one, but two circuit splits in the process. 

Amazingly, however, those might be the least offensive

things about the panel majority’s opinion.

More reckless is the unsupported and indefensible idea

that federal agencies can regulate any class of activity that

Congress has not “unambiguously and categorically

protected” through positive law. Such notion is completely

out of step with the most basic principles of administrative

law, if not the rule of law itself.

I respectfully dissent.

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