1994 Decisions

Opinions of the United

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Precedential or Non-Precedential: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.

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1 

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 

 

1Honorable Louis H. Pollak, United States District Judge for the 

Eastern District of Pennsylvania, sitting by designation. 
2 

 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 

 

2Defendants-appellees have not filed a responsive brief in this 

appeal. We therefore have before us only the brief of appellant, 

Secretary Reich. 

3The 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). 
3 

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 
4 

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 

 

4The 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). 
5 

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) 
6 

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 
7 

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.