PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 18-2509

WAI MAN TOM,

Plaintiff - Appellant,

and

BRANDON KELLY, on behalf of himself and all others similarly situated,

Plaintiff,

v.

HOSPITALITY VENTURES LLC, d/b/a Umstead Hotel and Spa; SAS 

INSTITUTE, INC.; NC CULINARY VENTURES LLC, d/b/a Ãn Asian Cuisine,

Defendants – Appellees,

and

ANN B. GOODNIGHT,

Defendant.

Appeal from the United States District Court for the Eastern District of North Carolina, at 

Raleigh. Louise W. Flanagan, District Judge. (5:17-cv-00098-FL)

Argued: September 8, 2020 Decided: November 24, 2020

Before AGEE and QUATTLEBAUM, Circuit Judges, and Thomas S. KLEEH, United 

States District Judge for the Northern District of West Virginia, sitting by designation.
2

Affirmed in part, vacated in part and remanded by published opinion. Judge Quattlebaum 

wrote the opinion, in which Judge Agee and Judge Kleeh joined.

ARGUED: Gilda Adriana Hernandez, LAW OFFICES OF GILDA A. HERNANDEZ, 

PLLC, Cary, North Carolina, for Appellant. John R. Hunt, STOKES WAGNER, ALC, 

Atlanta, Georgia, for Appellees. ON BRIEF: Charlotte Smith, LAW OFFICES OF 

GILDA A. HERNANDEZ, PLLC, Cary, North Carolina, for Appellant. Arch Y. Stokes, 

Jordan A. Fishman, STOKES WAGNER, ALC, Atlanta, Georgia, for Appellees.
3

QUATTLEBAUM, Circuit Judge:

In this appeal, we are required to apply statutory provisions of the Fair Labor 

Standards Act (“FLSA”) and accompanying regulations to workers in the restaurant 

industry. Ãn Asian Cuisine (“Ãn”), an upscale sushi restaurant in Cary, North Carolina,

paid its servers an hourly rate plus tips and automatic gratuities, which generally consisted 

of twenty percent of the bill for parties of six or more. When combined, the hourly wage, 

tips and automatic gratuities almost always exceeded the FLSA’s minimum-wage and 

overtime requirements. The Appellants (the “Employees”) claim, however, that the tips 

and automatic gratuities cannot be considered in determining whether Ãn met its FLSA 

obligations because they were paid through an unlawful tip pool. Tip pools must only 

include employees who customarily and regularly receive tips. Ãn, according to the 

Employees, included in its tip pool employees who did not meet that criteria. Therefore, 

the Employees claim Ãn violated the FLSA, entitling them to damages, attorneys’ fees and 

costs.1

The district court disagreed and entered summary judgment in favor of Ãn. It

determined that the automatic gratuities were not tips but instead commissions, which, 

according to the court, entitled Ãn to invoke a statutory exemption to the FLSA’s 

requirements—29 U.S.C. § 207(i) (“the 7(i) exemption”). The district court held that the 

1 The Employees allege that Appellees Hospitality Ventures LLC, d/b/a Umstead 

Hotel and Spa, SAS Institute, Inc. and NC Culinary Ventures, LLC, d/b/a Ãn Asian Cuisine

are their joint employers. Appellees, referred to simply as Ãn here, dispute the Employees’ 

allegations.
4

automatic gratuities satisfied the requirements of the 7(i) exemption for most weeks at issue 

here and, for those that it did not, the tip pool was valid as a matter of law.

We agree with the district court that the automatic gratuities were not tips. But, for 

the reasons set forth below, we conclude the district court erred in its application of the 7(i) 

exemption. Accordingly, we affirm in part, vacate in part and remand the case to the district 

court for consideration of that exemption consistent with this decision. Further, to the 

extent that, on remand, Ãn’s tip pool remains relevant to its FLSA obligations, we conclude 

that there are genuine issues of material fact as to whether all of its participants customarily 

and regularly receive tips and, thus, whether the tip pool was lawful.

I.

We begin with some basics about the FLSA. Congress enacted the FLSA in 1938 in 

order “to protect all covered workers from substandard wages and oppressive working 

hours.” Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981). To that 

end, “the FLSA was designed to give specific minimum protections to individual workers 

and to ensure that each employee covered by the [FLSA] would receive ‘[a] fair day’s pay 

for a fair day’s work’ and would be protected from ‘the evil of overwork as well as 

underpay.’” Id. (quoting Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 578 (1942))

(internal quotation marks omitted).

Although it has many provisions, “[t]he FLSA is best understood as the ‘minimum 

wage/maximum hour law.’” Trejo v. Ryman Hosp. Props., Inc., 795 F.3d 442, 446 (4th Cir. 

2015) (quoting Monahan v. Cty. of Chesterfield, 95 F.3d 1263, 1266 (4th Cir. 1996)). 
5

“Thus, the [FLSA] requires payment of a minimum wage and limits the maximum working 

hours an employee may work without receiving overtime compensation.”2 Id. (internal 

citations omitted). The FLSA currently requires a minimum wage of $7.25 per hour. 29 

U.S.C. § 206(a)(1)(C). Furthermore, “the FLSA requires employers to pay overtime to 

covered employees who work more than 40 hours in a week.” Encino Motorcars, LLC v. 

Navarro, 138 S. Ct. 1134, 1138 (2018) (citing 29 U.S.C. § 207(a)). Overtime compensation 

must be “at a rate not less than one and one-half times the regular rate at which [a covered 

employee] is employed”—at least $10.88 per hour. 29 U.S.C. § 207(a)(2)(C). For 

convenience, we will refer to the minimum-wage and overtime requirements as the “FLSA 

obligations.”

The FLSA obligations are simple enough for employees who receive a traditional 

hourly wage. In those situations, employers satisfy their FLSA obligations by directly 

paying their employees hourly wages in excess of the statutory minimum-wage and 

overtime requirements. But things get more complicated in the restaurant industry. There, 

certain employees—such as servers—are typically paid lower hourly wages, well below 

the minimum wage. Yet they also receive compensation through tips or gratuities. The 

question then becomes how do restaurants satisfy their FLSA obligations? More 

specifically, can tips and/or gratuities be used to satisfy those obligations and, if so, what 

2 Unlike many state and federal employment laws, the applicability of the FLSA 

does not depend directly on the number of employees at a business. Instead, the FLSA’s 

minimum-wage and overtime requirements generally apply to all employees who are 

“engaged in commerce or the production of goods for commerce.” 29 U.S.C. §§ 206(a), 

207(a)(1).
6

FLSA rules govern how this should be done? Unfortunately, the FLSA provides only 

limited guidance. 

Generally, the FLSA characterizes employees’ non-hourly compensation in three 

different categories that may be relevant to restaurant employees—tips, service charges 

and commissions. The classification of a restaurant employee’s pay determines how, and 

to what extent, that compensation satisfies the FLSA’s minimum-wage or overtime 

requirements. We now discuss each category and how it can be used to satisfy an 

employer’s FLSA obligations.

The FLSA defines a “tipped employee” as “any employee engaged in an occupation 

in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. 

§ 203(t). The accompanying regulations further define “tips” as follows:

A tip is a sum presented by a customer as a gift or gratuity in recognition of 

some service performed for him. It is to be distinguished from payment of a 

charge, if any, made for the service. Whether a tip is to be given, and its 

amount, are amounts determined solely by the customer, who has the right to 

determine who shall be the recipient of the gratuity.

29 C.F.R. § 531.52 (emphasis added). In addition, that same regulation provides that tips 

can satisfy the FLSA’s minimum-wage requirement by use of the tip credit in 29 U.S.C. 

§ 203(m)(2)(A). Id. The tip credit provision permits an employer to pay tipped employees 

a reduced cash wage of $2.13 per hour and “take a credit against the minimum wage by 

using an employees’ [sic] tips as wages.” Trejo, 795 F.3d at 447 (internal quotation marks 

omitted). Thus, for an employee making $2.13 per hour, the employer can utilize a tip 

credit of $5.12 per hour to meet its minimum-wage obligations. See 29 C.F.R. 531.59(a).
7

This same tip credit can be applied to an employer’s overtime obligations. See 29 

C.F.R. § 531.60. To illustrate how this works, an employee working overtime must be paid 

$10.88 per hour—one and one-half times $7.25. The employer can still use the $5.12 tip 

credit but not more, meaning the hourly wage for overtime must be $5.76— $10.88 minus 

a $5.12 tip credit. 

Whether for regular wages or overtime wages, an employer must notify its 

employees in advance if it intends to rely on the tip credit provision to meet its FLSA 

obligations and must allow employees to retain “all tips received.” 29 U.S.C. 

§ 203(m)(2)(A). As described in more detail below, under certain circumstances, 

employers are permitted to allow “the pooling of tips among employees who customarily 

and regularly receive tips.” Id.

Service charges are not defined in the FLSA. But under FLSA regulations, “[a]

compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a 

customer by an employer’s establishment, is not a tip . . . .” 29 C.F.R. § 531.55(a). Instead, 

it is a service charge. Id. Further, service charges “may be used in their entirety to satisfy 

the monetary requirements of the [FLSA]” if they “are distributed by the employer to its 

employees.” Id. § 531.55(b). So, compensation that qualifies as service charges can satisfy 

the FLSA minimum-wage and overtime obligations. 

Finally, the third category of compensation is commissions on goods or services. 

For commissions, the FLSA instructs that:

No employer shall be deemed to have violated [29 U.S.C. § 207(a)] by 

employing any employee of a retail or service establishment for a workweek 

in excess of the applicable workweek specified therein, if (1) the regular rate 
8

of pay of such employee is in excess of one and one-half times the minimum 

hourly rate applicable to him under [29 U.S.C. § 206], and (2) more than half 

his compensation for a representative period (not less than one month) 

represents commissions on goods or services. In determining the proportion 

of compensation representing commissions, all earnings resulting from the 

application of a bona fide commission rate shall be deemed commissions on 

goods or services without regard to whether the computed commissions 

exceed the draw or guarantee.

29 U.S.C. § 207(i). As the corresponding regulation explains, the 7(i) exemption “was 

enacted to relieve an employer from the obligation of paying overtime compensation to 

certain employees of a retail or service establishment paid wholly or in greater part on the 

basis of commissions.” 29 C.F.R. § 779.414. Thus, if compensation qualifies as a 

commission under this provision, an employer is exempt from the FLSA’s overtime 

requirements, but not its minimum-wage requirements. 

Regrettably, neither the FLSA nor its regulations define a “commission.”3 Our best 

guidance is found in 29 C.F.R. § 779.414, which, in discussing the types of employees paid 

by commission, provides:

These employees are generally employed in so-called “big ticket”

departments and those establishments or parts of establishments where 

commission methods of payment traditionally have been used, typically 

those dealing in furniture, bedding and home furnishings, floor covering, 

draperies, major appliances, musical instruments, radios and television, 

men’s clothing, women’s ready to wear, shoes, corsets, home insulation, and 

various home custom orders. 

3 Black’s Law Dictionary defines a commission as “[a] fee paid to an agent or 

employee for a particular transaction, usu[ally] as a percentage of the money received from 

the transaction.” Commission, BLACK’S LAW DICTIONARY (11th ed. 2019).
9

Id. This is a non-exhaustive list, as “[t]here may be other segments in retailing where the 

proportionate amount of commission payments would be great enough for employees 

employed in such segments to come within the exemption.” Id.

While perhaps benign on the surface, these FLSA provisions are difficult to apply 

largely due to the potential overlap of the categories. Making matters worse is the lack of 

guidance as to how these provisions interact. Reflecting that difficulty, the parties present 

competing views on how to characterize Ãn’s automatic gratuities. The Employees contend 

they are tips, which, they argue, cannot be used to satisfy Ãn’s FLSA obligations because 

Ãn required the Employees to pool their tips with other staff members who did not 

“customarily and regularly receive tips.” See 29 U.S.C. § 203(m)(2)(A). Ãn, on the other 

hand, argues the automatic gratuities are commissions, which can be used to satisfy its 

FLSA obligations pursuant to the 7(i) exemption. To resolve this issue, we must delve into 

a morass of FLSA statutory and regulatory provisions. Doing so makes us sympathize with 

both employers and employees who must try to understand them. And it certainly amplifies 

the difficulties that district courts often face when resolving FLSA collective actions. 

Before turning to the difficult legal issues presented in this case, however, we turn first to 

the facts.
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II.

Ãn was an upscale, fine-dining sushi4 restaurant in Cary, North Carolina until it 

closed its doors on January 28, 2017. Ãn was unusual in that it did a majority of its business 

during the week. In fact, Ãn was closed on the weekends, except for the dinner shift on 

Saturday. A substantial portion of Ãn’s income came from large dinner parties of six guests 

or more, sometimes including groups with as many as seventy people. Frequently, these 

large groups occupied Ãn’s private dining rooms, leaving the main dining room empty. 

Ãn employed a variety of staff members, including Servers, Server Assistants, 

General Manager, Assistant Restaurant Manager, Beverage Manager, Closing Kitchen 

Supervisor, Sushi Chef, Sushi Chef Helpers, Chefs, Bartenders and Hosts/Hostesses. By 

and large, Ãn characterized these employees as either “front-of-the-house” or “back-ofthe-house” staff. Plaintiffs Wai Man Tom and Brandon Kelly held the role of “Captains,” 

as they were the Servers with the most experience. 

While working at Ãn, Servers and Server Assistants received compensation from 

four sources: (1) an hourly wage of at least $2.13 for the first forty hours of the week and 

at least $5.76 for all additional hours; (2) cash tips; (3) credit card tips and (4) automatic 

gratuities. The parties dispute the nature and legal effect of automatic gratuities. However, 

4 While many may think of sushi as a modern delicacy in the United States, it was, 

according to the Michelin Guide, actually “trendy in the very early 1900s.” Despite its early 

popularity, strained relations with Japan during the early twentieth century caused the sushi 

industry to lay somewhat dormant. Following the growth in international trade and 

relaxation of immigration laws in the Post-World War II era, however, the sushi industry 

spread rapidly across the country. Brandt T. Bowman, Roll Sushi, Roll: Defining “Sushi 

Grade” for the Consumer and the Sushi Bar, 116 Penn. St. L. Rev. 495, 504 (2011).
11

Ãn generally applied an automatic gratuity of twenty percent to the bill of parties of six or 

more people. 

In July 2014, Ãn implemented a tip pool for its evening shifts, pooling together all 

tips and automatic gratuities that were then “tipped out” to employees based on their job 

descriptions:

 Captain: 2% 

 Server: 54% 

 Bartender: 4% 

 Sushi Chef: 4% 

 Server Assistant/Runner/Expediter: 36% 

Apart from the tip pool, the Hostess received 100% of all tips received from to-go orders.

The tip pool policy was outlined in the employee handbook, and Ãn required employees to 

sign off on the policy. Under this system, many of the Servers were paid very well. For 

example, in 2015, Kelly, one of the Servers seeking relief here, made more than $81,000.

In fact, some of the Servers made more than Ãn’s Managers. 

On February 21, 2017, Kelly sued Ãn under the FLSA and North Carolina Wage 

and Hour Act (“NCWHA”). Specifically, Kelly brought a putative collective action under 

the FLSA, alleging that Ãn violated the FLSA’s minimum-wage and overtime 

requirements by operating a tip pool that unlawfully included employees who did not

customarily and regularly receive tips and were, thus, ineligible. Kelly, on behalf of himself 

and all others similarly situated, also alleged violations of the NCWHA. Finally, Kelly, on 

behalf of himself and Tom, claimed that Ãn engaged in unlawful retaliation in violation of 

the FLSA. After the Complaint was filed, seven Opt-In Plaintiffs—including Tom—filed 

Consents to Sue As Party Plaintiffs.
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The Employees later filed a First Amended Complaint, substituting Tom as the 

Named Plaintiff. After Ãn filed an Answer, the district court entered an Order bifurcating 

discovery into two phases. The Order restricted Phase I discovery to issues of conditional 

certification of the Employees’ class and collective action. However, because Ãn advanced 

the argument that the 7(i) exemption barred the Employees’ claims, the district court also 

permitted discovery on that issue. 

After the first phase of discovery, the Employees moved to conditionally certify the 

case as an FLSA collective action and a Federal Rule of Civil Procedure 23 class action. 

Ãn moved for summary judgment contending that the automatic gratuities were 

commissions under the 7(i) exemption, which satisfied its FLSA obligations for each of

the Employees’ workweeks. Alternatively, assuming the 7(i) exemption did not apply, Ãn 

contended that it was entitled to a tip credit under 29 U.S.C. § 203(m)(2)(A). 

The district court granted summary judgment for Ãn on the Employees’ FLSA 

claims relying on two FLSA provisions. First, the district court held that Ãn satisfied its 

FLSA obligations in most weeks under the 7(i) exemption for “commissions on goods and 

services.” Second, the district court found that Ãn satisfied its FLSA obligations in the 

remaining weeks by operating a valid tip pool under 29 U.S.C. § 203(m)(2)(A). The court 

also entered judgment for Ãn on the FLSA retaliation claims, dismissed the Employees’ 

NCWHA claims without prejudice and denied the Employees’ Motion for Conditional 

Certification as moot. 

The Employees timely appealed. “We review de novo a district court’s decision to 

grant summary judgment, applying the same legal standards as the district court and 
13

viewing all facts and reasonable inferences in the light most favorable to the nonmoving 

party.” Ballengee v. CBS Broad., Inc., 968 F.3d 344, 349 (4th Cir. 2020) (citing News & 

Observer Publ’g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010)).

III.

Turning to the merits of the arguments presented on appeal, we first address the 

application of the 7(i) exemption. Then we consider the validity of the tip pool before 

finally considering the retaliation claim.

A.

The Employees first argue that the district court erred in concluding that Ãn satisfied 

its FLSA obligations by way of the 7(i) exemption. That argument has several sub-issues. 

First, the Employees argue that the automatic gratuities must be tips because Ãn notified 

the Employees that a tip pool would be used. Second, the Employees contend that there are

genuine issues of material fact as to whether the automatic gratuities are tips. Finally, the 

Employees argue that, on this record, the requirements of the 7(i) exemption have not been 

met. We will consider these arguments in turn.

1.

Initially, the Employees insist that the automatic gratuities cannot be considered 

anything but tips because Ãn informed Employees that tips would be used as a credit 
14

against Ãn’s FLSA obligations.

5 It is true the FLSA requires such a notification if an 

employer uses the tip credit to satisfy its FLSA obligations, see 29 U.S.C. § 203(m)(2)(A), 

and that Ãn provided such notice. Nonetheless, that does not negate Ãn’s ability to rely on 

other avenues to satisfy its FLSA obligations. The FLSA does not impose a proverbial 

“fork in the road” requiring an employer to pick one method of compliance and “stay in 

that lane” for perpetuity. To the contrary, we find nothing in the statutes or regulations that 

precludes Ãn from pursuing all available avenues of FLSA compliance. Thus, we reject 

the Employees’ attempt to limit the ways for Ãn to meet its FLSA obligations.

2.

Alternatively, the Employees argue that there are genuine issues of material fact as 

to whether the automatic gratuities are tips or commissions. Specifically, the Employees 

contend that customers and Servers, on occasion, asked management to remove the

automatic gratuity from the bill. Therefore, they argue that the automatic gratuity was 

sufficiently flexible and negotiable to qualify as a tip.

In response, Ãn argues that the automatic gratuities could not be tips, as the 

customers did not determine the application and amount of the automatic gratuity. Rather, 

Ãn argues the record establishes that its Managers had the final say about whether to waive 

the automatic gratuity. Because the automatic gratuities were nondiscretionary—at least 

5 As noted above, an employer is entitled to a credit against its FLSA obligations 

for compensation that qualifies as tips. 29 U.S.C. § 203(m)(2)(A). The tips can be paid 

either directly to the employee or indirectly through distributions from a tip pool. Id. But 

if an employer uses a tip pool, it must only include “employees who customarily and 

regularly receive tips.” Id.
15

on the customers’ part—Ãn argues that the district court properly characterized the 

automatic gratuities as commissions.

The district court agreed with Ãn, finding that the automatic gratuities imposed by 

Ãn and distributed to the Employees qualified as commissions that could be used to satisfy 

Ãn’s FLSA obligations. In so holding, the district court found that Ãn’s management had 

the sole discretion to remove an automatic gratuity from a customer’s bill. 

After reviewing the record, we find no error in the district court’s determination that 

the automatic gratuities were not tips. In granting summary judgment on this issue, it 

properly applied Rule 56, which states “[t]he court shall grant summary judgment if the 

movant shows that there is no genuine dispute as to any material fact and the movant is 

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” if proof 

of its existence or non-existence would affect disposition of the case under applicable law. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is 

“genuine” if the evidence offered is such that a reasonable jury might return a verdict for 

the non-movant. Id. When determining whether a genuine issue of material fact has been 

raised, the court must construe all reasonable inferences and ambiguities against the 

movant and in favor of the nonmoving party. Ballengee, 968 F.3d at 349.

The party seeking summary judgment shoulders the initial burden of demonstrating 

to the court that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 

U.S. 317, 323 (1986). Once the movant has made this threshold demonstration, the 

nonmoving party, to survive the motion for summary judgment, may not rest on the 

allegations averred in his pleadings. Id. at 324. Rather, the nonmoving party must 
16

demonstrate specific, material facts exist that give rise to a genuine issue. Id. Under this 

standard, the existence of a mere scintilla of evidence in support of the non-movant’s 

position is insufficient to withstand the summary judgment motion. Anderson, 477 U.S. at 

252. Likewise, conclusory allegations or denials, without more, are insufficient to preclude 

granting the summary judgment motion. See Strickler v. Waters, 989 F.2d 1375, 1383 (4th 

Cir. 1993). “Only disputes over facts that might affect the outcome of the suit under the 

governing law will properly preclude the entry of summary judgment. Factual disputes that 

are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248 (citation 

omitted). 

With those principles in mind, we turn to Ãn’s motion. The Employees do raise a 

factual dispute about whether Ãn charged every qualifying group of six or more customers 

an automatic gratuity. However, not all factual disputes defeat a motion for summary 

judgment. To do so, a factual dispute must be material. Id. Recall that a fact is “material” 

if proof of its existence or non-existence would affect disposition of the case under 

applicable law. Id. To consider the applicable law, we refer again to the regulatory 

requirements for a tip. A sum of money “presented by a customer as a gift or gratuity in 

recognition of some service performed” is only a tip when both the decision to pay the 

gratuity and the amount of the gratuity are “determined solely by the customer.” 29 C.F.R. 

§ 531.52. Therefore, under this regulation, the material issue is not whether customers 

always paid a twenty-percent automatic gratuity. The material issue is who determined 

whether and how much to pay. 
17

As it is undisputed that the customers did not have unfettered discretion to leave (or 

not leave) the twenty-percent gratuity, the Employees have not raised a question of fact 

that would enable a reasonable jury to determine that the automatic gratuities were tips.

The decision to remove or modify the automatic gratuity—even construing the evidence in 

the light most favorable to the Employees—was Ãn’s. Consequently, even if the 

Employees could prove that Ãn would occasionally waive the automatic gratuities, that

fact would not be material as it still would not enable a reasonable jury to find the twentypercent automatic gratuity was a tip.

Our decision should not be construed to mean that any time a fixed-rate gratuity is 

placed on a restaurant bill, it is not a tip. The Employees point to several district court 

decisions where there was a genuine issue of material fact concerning the proper 

classification of automatic gratuities. See, e.g., Alban v. 2k Clevelander LLC, No. 17-CV23923, 2018 WL 4859068, at *5 (S.D. Fla. Aug. 28, 2018) (finding a genuine issue of 

material fact as to whether a fixed-rate gratuity was discretionary); Shehata v. Sobe Miami, 

LLC, No. 17-cv-23175, 2018 WL 2995603, at *3 (S.D. Fla. June 14, 2018) (finding a 

genuine issue of material fact when plaintiffs offered evidence that a twenty-percent

gratuity was suggested rather than mandatory). But those cases involved disputes as to 

whether the discretion concerning the charge rested with the customer or the restaurant. 

For example, if a bill listed a twenty-percent charge for a party of six or more, but indicated 

the charge was “suggested,” our decision might be different. But the record here is clear. 

The twenty-percent gratuity was automatically applied absent Ãn’s decision to waive it.

Therefore, we agree with the district court that the automatic gratuities are not tips under 
18

the FLSA. This finding, however, does not end the inquiry, as we still must determine 

whether the district court properly applied the 7(i) exemption. 

3.

Finally—assuming the automatic gratuities were not tips—the Employees argue the 

district court erred in its application of the 7(i) exemption. They first argue that the district 

court incorrectly held that the 7(i) exemption satisfied both Ãn’s minimum-wage and 

overtime obligations. We agree. The 7(i) exemption applies only to overtime obligations. 

See 29 U.S.C. § 207(i) (“No employer shall be deemed to have violated [29 U.S.C. 

§ 207(a)] by employing any employee of a retail or service establishment for a workweek 

in excess of the applicable workweek specified therein, if [] the regular rate of pay of such 

employee is in excess of one and one-half times the minimum hourly rate applicable to him 

under [29 U.S.C. § 206] . . . .” (emphasis added)). In other words, if the 7(i) exemption 

applies, an employer does not have to pay FLSA overtime wages for the applicable 

workweek. It says nothing about the FLSA’s non-overtime minimum-wage requirements, 

which apply regardless of whether overtime is also due. 

Second, the Employees argue that the automatic gratuities fail to satisfy the 

requirements of the 7(i) exemption. To qualify as commissions, the 7(i) exemption requires 

that “more than half [of the employee’s] compensation . . . represents commissions on 

goods or services.”6 29 U.S.C. § 207(i). The Employees argue that it was necessary to 

6 For purposes of this appeal, the Employees concede that the other statutory 

requirements of the 7(i) exemption are met – i.e., that Ãn operated a qualifying retail or 

service establishment and the Employees’ regular rates of pay exceeded one and one-half 

times the applicable minimum wage.
19

include both tips and automatic gratuities in determining whether the automatic gratuities 

exceeded fifty percent of the Employees’ total compensation. They also argue that, in all 

relevant years, their regular wages, overtime wages and tips regularly exceeded the 

automatic gratuities. Therefore, the Employees contend that Ãn has not satisfied the 

requirements of the 7(i) exemption. 

The district court rejected this argument. It held, as a matter of law, that tips need 

not be included if they were not used to satisfy Ãn’s FLSA obligations. Specifically, the 

court relied on a regulation which provided that “[a]ny tips received by the employee in 

excess of the tip credit need not be included in the regular rate.” 29 C.F.R § 531.60.

We find the Employees’ arguments on this point persuasive. The regulation relied 

on by Ãn—29 C.F.R § 531.60—details how to calculate the “regular rate of pay” for a 

tipped employee who works overtime. See 29 C.F.R § 531.60. The district court imported 

that regulation’s “regular rate of pay” language into its analysis of “compensation” under 

the 7(i) exemption. “Compensation” and “regular rate of pay,” however, are distinct issues. 

This is made clear by the plain language of the 7(i) exemption, which uses both terms in 

different contexts. See 29 U.S.C. § 207(i) (requiring an employer to prove that “the regular 

rate of pay of [an] employee is in excess of one and one-half times the minimum hourly 

rate” and “more than half his compensation for a representative period (not less than one 

month) represents commissions on goods or services”). 

Moreover, the governing regulation provides guidance on computing an employee’s 

compensation for the representative period under the 7(i) exemption. See 29 C.F.R. 

§ 779.415. Specifically, the regulation instructs: 
20

In determining for purposes of section 7(i) whether more than half of an 

employee’s compensation represents commissions on goods or services it is 

necessary first to total all compensation paid to or on behalf of the employee 

as remuneration for his employment during the period. All such 

compensation in whatever form or by whatever method paid should be 

included . . . . 

Id. § 779.415(a) (emphasis added) (internal quotation marks omitted). This language is 

straightforward. “[A]ll compensation” means what it says. Id. It does not exclude tips or 

any other form of compensation. Further, the broad language—“in whatever form or by 

whatever method paid”—plainly indicates that tips are not to be excluded. Id. Therefore, 

we conclude that the district court erred in declining to include tips when determining 

whether the automatic gratuities constituted more than half of the Employees’

compensation for a representative period.

Accordingly, we remand the case to the district court to consider whether the 

automatic gratuities qualify as commissions under the 7(i) exemption as we have explained

and, if so, to what extent they satisfy Ãn’s overtime obligations. In so doing, we do not 

intend to limit any other ways in which Ãn can satisfy its FLSA obligations. Ãn may rely 

on other avenues of FLSA compliance other than the 7(i) exemption as this case proceeds 

on remand. For example, it may contend that the automatic gratuities are “service 

charges.”7 As mentioned above, “[a] compulsory charge for service, such as 15 percent of 

the amount of the bill, imposed on a customer by an employer’s establishment” is a service 

7 The district court and the parties appear to have considered service charges to be 

interchangeable with commissions. But, at least on the face of the statutory and regulatory 

provisions, we find nothing that supports such treatment.
21

charge. 29 C.F.R. § 531.55(a). And service charges “may be used in their entirety to satisfy 

the monetary requirement of the [FLSA]” if they “are distributed by the employer to its 

employee.” Id. § 531.55(b). Therefore, the “service charges” category of compensation 

may form an independent basis for satisfying Ãn’s FLSA obligations.8

With that, we turn to the propriety of the tip pool.

B.

The Employees next contend that the district court erred in finding that Ãn satisfied 

its FLSA obligations in the workweeks not covered by the 7(i) exemption by operating a 

valid tip pool under 29 U.S.C. § 203(m)(2)(A). Given our remand on the 7(i) exemption 

and the early procedural posture of this case, it remains to be seen whether Ãn will need to 

invoke the tip credit to satisfy any of its FLSA obligations. It may very well be the case 

that Ãn can satisfy its minimum-wage and overtime obligations by relying on the service 

charge regulation or another exemption to the FLSA. However, because Ãn may need to 

rely on the tip pool to meet its obligations, we turn to the merits of the Employees’ 

arguments.

As noted above, the FLSA allows an employer to pay a tipped employee a reduced 

hourly wage and utilize a tip credit to meet its FLSA obligations. See Trejo, 795 F.3d at 

447. If an employer seeks to use tips to meet its FLSA requirements, it must inform its 

8 Of course, whether service charges are in fact a separate avenue for satisfying Ãn’s 

FLSA obligations is not before us. Likewise, we express no opinion on the merit of any 

additional defenses Ãn may offer in response to the Employees’ claims. Therefore, our 

directions on remand should not be construed as an opinion on the outcome of the district 

court’s consideration of this issue. 
22

employees of its use of the tip credit, and the employees must be permitted to retain the 

tips. 29 U.S.C. § 203(m)(2)(A). The employer may only pool, however, the “tips among 

employees who customarily and regularly receive tips.” Id. While our Court has not 

addressed the question of when an employee is deemed to receive tips customarily and 

regularly, those that have analyze the employee’s job duties rather than the employee’s job 

description. See, e.g., Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186, 191 (5th Cir. 

2015) (“Labels are easily molded to fit a party’s goals and cannot be determinative of 

whether an employee customarily and regularly receives tips.”). In this inquiry, our sister 

circuits have looked to whether the employee “ha[s] ‘more than de minimis interaction 

with the customers’ in an industry in which ‘undesignated tips are common.’” Montano, 

800 F.3d at 192 (quoting Kilgore v. Outback Steakhouse of Fla., Inc., 160 F.3d 294, 301 

(6th Cir. 1998)). We find that test persuasive and apply it here. 

The Employees argue that the Kitchen Closing Supervisor (Nicholas Papas) and the 

Sushi Chef Helpers did not customarily and regularly receive tips. Therefore, according to 

the Employees, Ãn’s inclusion of these employees in the tip pool renders it invalid. The 

district court rejected the Employees’ arguments and found Papas and the Sushi Chef 

Helpers were proper participants in Ãn’s tip pool. On appeal, the Employees contend that 

the district court improperly weighed the evidence and did not recognize genuine and 

material factual disputes about the validity of the tip pool. 

1.

First, the district court held that Papas—the Kitchen Closing Supervisor who also 

sometimes served as an Expediter—was a valid tip pool participant because he “had more 
23

than de minimis interaction with the customers of [Ãn].” J.A. 3534. In large part, the district 

court relied on Papas’s characterization of his job duties and frequent interaction with 

customers. While the district court acknowledged that the Employees produced conflicting 

testimony that indicated Papas had little, if any, interaction with customers and was almost 

exclusively a back-of-the-house employee, it held that the Employees’ observations “only 

provide[d] a first-person view point of time periods in which such servers were working 

and watching the activities of Papas, whereas Papas’s statements reflect his complete firsthand account of his activities . . . .” J.A. 3536. The Employees contend that the district 

court improperly weighed the evidence in granting summary judgment for Ãn. We agree.

The record contains evidence that indicates Papas frequently served guests at the 

sushi bar, interacted with customers in the dining room and ran food to tables as an 

Expediter. Conversely, the Employees produced testimony that Papas primarily worked in 

the kitchen, rarely interacted with customers and had only de minimis interactions with 

customers. This presents a quintessential factual dispute that is both genuine and material 

to the Employees’ claims about the validity of the tip pool. Thus, we must conclude that 

the district court erred in discounting the conflicting evidence about Papas’s duties. 

2.

Second, the district court held that the Sushi Chef Helpers “also meet the criteria of 

valid tip pool participants.” J.A. 3536. In support of this finding, the district court noted 

that the Sushi Chef Helpers frequently interacted with customers and often took orders 

from guests. The district court recognized conflicting evidence offered by the Employees 

but, as with Papas, held that the Employees’ observations “only provide[d] a first-person 
24

view point of time periods in which [the Employees] were working and watching the 

activities of sushi chef helpers, whereas statements by the sushi chefs and sushi chef helpers 

. . . reflect[ed] their complete first-hand account of their activities.” J.A. 3538. Here, again, 

the Employees contend that the district court improperly weighed the evidence and 

discounted the Employees’ evidence. We agree that this aspect of the district court’s 

decision appears to constitute weighing the evidence in a way that is improper at the 

summary judgment stage of the case. After all, we must consider the evidence in the light 

most favorable to the Employees as the nonmoving parties. 

But that is not the end of our inquiry. We must still examine whether the Employees 

presented evidence that creates a genuine issue of material fact as to whether the Sushi 

Chef Helpers had more than de minimis interaction with the customers. To be sure, Tom

and Opt-In Plaintiff Deion Dorsey testified that Sushi Chef Helpers rarely interacted with 

guests. Aside from this conclusory testimony, however, the Employees offered no other 

evidence in support of their argument. On the other hand, Ãn produced specific, compelling 

evidence from multiple sources, including some of the Employees and the witnesses they 

offered, that the Sushi Chef Helpers spent most of their time in the front of the house and 

frequently interacted with and served customers. 

Applying the standard for summary judgment described above, Ãn made a threshold 

showing that there is no genuine issue of material fact. Accordingly, the Employees were 

required to demonstrate specific, material facts exist that give rise to a genuine issue. 

Celotex, 477 U.S. at 323–24. Under this standard, the existence of a mere scintilla of 

evidence in support of the non-movant’s position is insufficient to withstand the summary 
25

judgment motion. Anderson, 477 U.S. at 252. Likewise, conclusory allegations or denials, 

without more, are insufficient to preclude granting the summary judgment motion. See 

Strickler, 989 F.2d at 1383. The limited testimony offered by the Employees are conclusory 

allegations. Without more, even construing all reasonable inferences and ambiguities 

against Ãn and in favor of the Employees, we cannot say the district court erred in granting 

summary judgment.

Despite our conclusion about the Sushi Chef Helpers, assuming the automatic 

gratuities—either as service charges or by another method—do not satisfy Ãn’s FLSA 

obligations, our decision about Papas is enough to create a genuine issue of material fact 

about the validity of the tip pool. See Oregon Rest. & Lodging Ass’n v. Perez, 816 F.3d 

1080, 1082 (9th Cir. 2016) (noting that a tip pool is only valid “if it is comprised 

exclusively of employees who are ‘customarily and regularly’ tipped” (quoting 29 U.S.C. 

§ 203(m)(2)(A))); Montano, 800 F.3d. at 189 (“Therefore, the narrow issue is whether the 

coffeeman was an employee who ‘customarily and regularly receive[d] tips.’ 29 U.S.C. § 

203(m). If the answer is yes, [the restaurant] prevails. If the answer is no, [the restaurant] 

violated the FLSA by failing to pay Appellants $7.25 per hour.” (footnote omitted)).

However, any further consideration of the validity of the tip pool shall be based on evidence 

related to Papas and not the Sushi Chef Helpers.
26

C.

Last, we turn to Tom’s retaliation claim.9 This Court has held:

A plaintiff asserting a prima facie claim of retaliation under the FLSA must 

show that (1) he engaged in an activity protected by the FLSA; (2) he suffered 

adverse action by the employer subsequent to or contemporaneous with such 

protected activity; and (3) a causal connection exists between the employee’s 

activity and the employer’s adverse action. 

Darveau v. Detecon, Inc., 515 F.3d 334, 340 (4th Cir. 2008) (citation omitted). Courts 

generally look to the Title VII framework when analyzing the “adverse action” element of 

a FLSA retaliation case. Id. at 341–43. Therefore, “a plaintiff asserting a retaliation claim 

under the FLSA need only allege that his employer retaliated against him by engaging in 

an action ‘that would have been materially adverse to a reasonable employee’ because the 

‘employer’s actions . . . could well dissuade a reasonable worker from making or 

supporting a charge of discrimination.’” Id. at 343 (quoting Burlington N. & Sante Fe Ry. 

Co. v. White, 548 U.S. 53, 57 (2006)).

The district court held that Tom’s retaliation claims fail as a matter of law because 

he has not shown that he suffered an adverse employment action after complaining to 

management about wage and hour policies. The parties agree that Tom complained to Ãn’s 

General Manager in September 2016. However, Tom testified that his income generally 

stayed the same or increased and that he did not notice a reduction in his hours. 

9 It is not clear from the proceedings below whether Kelly pled an individual cause 

of action for retaliation. Although it appears the district court addressed such a claim, Kelly 

did not file a Notice of Appeal from the district court’s judgment. In any event, we would 

find no error in the district court’s well-reasoned analysis.
27

Tom raises two arguments on appeal. First, he argues that summary judgment on 

his retaliation claim was premature given the bifurcated discovery. Second, he contends

that the evidence in the record is sufficient to create a genuine issue of material fact as to 

the necessary elements of an FLSA retaliation claim. Despite his argument that summary 

judgment is premature, Tom has not articulated what discovery remains that would aid him

in proving his retaliation claim. Moreover, Tom’s testimony serves as a tacit admission 

that he did not suffer any adverse action as a result of his complaint to Ãn’s management. 

Even viewing the evidence in the light most favorable to Tom, we agree with the district 

court that Tom has not articulated a genuine issue of material fact as to whether he suffered 

an adverse employment action. See Anderson, 477 U.S. at 248 (noting that a dispute about 

a material fact is genuine only “if the evidence is such that a reasonable jury could return 

a verdict for the nonmoving party”). Accordingly, we affirm the district court’s judgment 

as to Tom’s retaliation claim.

IV.

For the reasons stated above, the district court’s order granting Ãn’s Motion for 

Summary Judgment is

AFFIRMED IN PART, VACATED IN PART AND REMANDED.