Opinion ID: 587248
Heading Depth: 1
Heading Rank: 2

Heading: the tip credit

Text: 8 A stranger to the FLSA might suppose that, in determining an employer's minimum wage obligations, the tips regularly received and retained by an employee either would be treated as wages paid by the employer or, in the alternative, would be wholly ignored. Instead, in a legislative compromise, Congress chose to allow employers a partial tip credit if, but only if, certain conditions are met. At the time of the employment in this case, section 3(m) of the Act provided that in computing minimum wages the employer could treat as wages paid by the employer tips actually received by the employee up to an amount determined by the employer but not ... in excess of 40 per centum of the applicable minimum wage. See 29 U.S.C. § 203(m) (1982). Section 3(m) also provided, however, that this tip credit provision would not apply unless 9 (1) such employee has been informed by the employer of the provisions of this subsection, and 10 (2) all tips received by such employee have been retained by the employee [except that pooling of tips among tipped employees is permitted]. 11 In this case, the Secretary called at trial eight waiters who testified uniformly that defendants had told them nothing about either the minimum wage or Tango's intention to treat tips as wages under the Act. Jorge and Vilma Carcavallo each testified at trial, as did the waiter-manager Santiago, but none of the three testified that the waiters had been notified of either the minimum wage or the tip credit. The Secretary's compliance officer allowed a 40 cent tip credit in his investigative report, but the Secretary tells us that this was a tentative allowance made prior to the waiters' trial testimony and that the compliance officer relied in part on an affidavit of Vilma Carcavallo, asserting that at the outset of employment each waiter was told that Tango's utilized a tip credit against its minimum wage obligations. We are further told that the affidavit was not offered at trial nor did Vilma Carcavallo repeat this assertion in her testimony. 12 The trial judge nevertheless found that the waiters were told that the restaurant would utilize a tip credit against its obligations to pay minimum wages to the waiters. The court said that it did not find the waiters' denial of notice credible because employees would not be likely to accept employment at $2.95 an hour when San Juan offered many jobs at the minimum wage of $3.35. The court stressed that the waiters had received and retained substantial tips and that the compliance officer had allowed the tip credit on the first 40 hours of work. The Secretary contends that the trial court erred in ruling that notice had been given. We agree with the Secretary. 13 Section 3(m) requires as a condition of the tip credit that the employee be informed by the employer of the provisions of this subsection.... The core provisions of section 3(m) allow an employer to take a tip credit against the employer's minimum wage obligations, in an amount to be determined by the employer, subject to certain limitations. We read section 3(m) to require at the very least notice to employees of the employer's intention to treat tips as satisfying part of the employer's minimum wage obligations. It could easily be read to require more--for example, notice of the amount ... determined by the employer to constitute wages--but how much more need not be decided in this case. 14 As the finder of fact, the district judge may be reversed only where a finding is clearly erroneous. Fed.R.Civ.P. 52(a); Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). As the record stands, we are pointed to substantial, uniform testimony that the minimum wage or tip credit was never mentioned to the waiters but cited to no evidence that Tango's gave its waiters any notice of either. The inference that notice was given, drawn by the trial judge, seems to us to be faulty. The waiters' willingness to work for wages of $2.95, where $3.35 might be earned in other available jobs, might be some proof that the waiters expected to earn and retain their tips, but it does not suggest even mildly that the waiters knew anything of the minimum wage laws or defendants' intention to claim a tip credit against their obligations. 15 As for the investigating officer, he testified at trial that no notice of the tip credit was given to the waiters and no one [among the waiters] even knew what a tip credit meant; that in making his calculations he nevertheless allowed a 40 cent tip credit for each waiter's first 40 hours a week; and that he did so not because the law warranted it but because the tips were actually paid and the officer thought a tip credit would be more fair. This testimony plainly undercuts, rather than supports, a claim that notice was given. Cases are ordinarily decided in accordance with the evidence presented at trial. Defendants have provided no reason or precedent to bind the government by its agent's generous impulse to be fair in making his computations. 16 We have considered whether defendants were misled to their prejudice by the Secretary's change of position. Prior to trial the Secretary said that she did not challenge the tip credit as applied to the waiters' first 40 hours but only as applied to their overtime compensation. When the Secretary altered her position after trial, in light of the evidence, defendants made no claim that they had proof of notice which they had not offered at trial, nor do they make such a claim now. Further, notice of the tip credit was at issue in the trial (because of the Secretary's overtime claim), so defendants had ample reason to offer what proof they had, and they apparently offered none. 17 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) expressly required notice as a condition of the tip credit and the courts have enforced that requirement. See Richard v. Marriott Corp., 549 F.2d 303, 305 (4th Cir.), cert. denied, 433 U.S. 915, 97 S.Ct. 2988, 53 L.Ed.2d 1100 (1977); Bonham v. Copper Cellar Corp., 476 F.Supp. 98, 101-02 (E.D.Tenn.1979); Donovan v. 75 Truck Stop Inc., 92 Lab.Cas. (CCH) p 34,071, at 44,091 (M.D.Fla.1981). It does not matter in this case (although it might were the adequacy of a specific notice in issue) whether Congress deemed notice a matter of fairness to the employee, a device for enforcing minimum wage payments, or both. If the penalty for omitting notice appears harsh, it is also true that notice is not difficult for the employer to provide. 18 Accordingly, on this issue we reverse the district court and remand so that the court can recompute defendants' liability to the waiters with no tip credit allowed.