Court Opinion

ID: 3065468
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:31:53.612142+00
Date Added: 2024-06-11T11:25:38.877856
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

MISTY CUMBIE, on behalf of herself        
and all others similarly situated,
                 Plaintiff-Appellant,
                 v.                               No. 08-35718
WOODY WOO, INC., an Oregon                         D.C. No.
                                                3:08-cv-00504-PK
corporation, DBA Vita Café;
WOODY WOO II, INC., an Oregon                       OPINION
corporation, DBA Delta Café;
AARON WOO, an individual,
              Defendants-Appellees.
                                          
         Appeal from the United States District Court
                   for the District of Oregon
          Paul J. Papak, Magistrate Judge, Presiding

                    Argued and Submitted
              October 6, 2009—Portland, Oregon

                     Filed February 23, 2010

   Before: Diarmuid F. O’Scannlain and N. Randy Smith,
          Circuit Judges, and Charles R. Wolle,*
                   Senior District Judge.

                 Opinion by Judge O’Scannlain

   *The Honorable Charles R. Wolle, Senior United States District Judge
for the Southern District of Iowa, sitting by designation.

                                2885
2888             CUMBIE v. WOODY WOO, INC.

                         COUNSEL

Jon M. Egan, Lake Oswego, Oregon, argued the cause for the
appellant and filed briefs.

Eric A. Lindenauer, Garvey Schubert Barer, Portland, Ore-
gon, argued the cause for the appellees and filed a brief.

Maria Van Buren, United States Department of Labor, Wash-
ington, D.C., argued on behalf of the Secretary of Labor as
amicus curiae in support of the appellant. With her on the
brief were Carol A. De Deo, Steven J. Mandel, and Paul L.
Frieden.

Richard J. (Rex) Burch, Bruckner Burch PLLC, Houston,
Texas, filed a brief on behalf of the National Employment
Lawyers Association as amicus curiae in support of the appel-
lant. With him on the brief was Stefano Moscato, National
Employment Lawyers Association, San Francisco, California.

Eugene Scalia, Gibson, Dunn & Crutcher LLP, Washington,
D.C., filed a brief on behalf of the Nevada Restaurant Associ-
ation as amicus curiae in support of the appellees. With him
on the brief were Jesse A. Cripps, Jr. and Ann S. Robinson,
Gibson, Dunn & Crutcher LLP, Los Angeles, California; and
Samuel P. McMullen and Erin McMullen, Snell & Wilmer
LLP, Las Vegas, Nevada.

Kevin H. Kono, Davis Wright Tremaine LLP, Portland, Ore-
gon, filed a brief on behalf of the Oregon Restaurant Associa-
tion as amicus curiae in support of the appellees.
                     CUMBIE v. WOODY WOO, INC.                       2889
                              OPINION

O’SCANNLAIN, Circuit Judge:

   We must decide 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.

                                     I

   Misty Cumbie worked as a waitress at the Vita Café in
Portland, Oregon, which is owned and operated by Woody
Woo, Inc., Woody Woo II, Inc., and Aaron Woo (collectively,
“Woo”). Woo paid its servers1 a cash wage at or exceeding
Oregon’s minimum wage, which at the time was $2.10 more
than the federal minimum wage.2 In addition to this cash
wage, the servers received a portion of their daily tips.

   Woo required its servers to contribute their tips to a “tip
pool” that was redistributed to all restaurant employees.3 The
largest portion of the tip pool (between 55% and 70%) went
to kitchen staff (e.g., dishwashers and cooks), who are not
customarily tipped in the restaurant industry. The remainder
(between 30% and 45%) was returned to the servers in pro-
portion to their hours worked.

   Cumbie filed a putative collective and class action against
  1
     We use the term “server” to include the waiters and waitresses serving
tables.
   2
     At the time Cumbie filed her complaint, the minimum wage in Oregon
was $7.95, see Or. Rev. Stat. § 653.025(e); Minimum Wage: Questions
and      Answers,    available     at    http://www.oregon.gov/BOLI/TA/
T_FAQ_Min-wage2008.shtml (last accessed Jan. 3, 2010), and the federal
minimum wage was $5.85 per hour, see 29 U.S.C. § 206(a)(1)(A).
   3
     Neither Woo nor any managers participated in the tip pool.
2890                CUMBIE v. WOODY WOO, INC.
Woo, alleging that its tip-pooling arrangement violated the
minimum-wage provisions of the Fair Labor Standards Act of
1938 (“FLSA”), 29 U.S.C. § 201 et seq.4 The district court
dismissed Cumbie’s complaint for failure to state a claim
under Federal Rule of Civil Procedure 12(b)(6), and Cumbie
timely appealed.

                                   II

   On appeal, Cumbie argues that because Woo’s tip pool
included employees who are not “customarily and regularly
tipped employees,” 29 U.S.C. § 203(m), it was “invalid”
under the FLSA, and Woo was therefore required to pay her
the minimum wage plus all of her tips. Woo argues that Cum-
bie’s reading of the FLSA is correct only vis-à-vis employers
who take a “tip credit” toward their minimum-wage obliga-
tion. See id. Because Woo did not claim a “tip credit,”5 it con-
tends that the tip-pooling arrangement was permissible so
long as it paid her the minimum wage, which it did.

   Although we ordinarily begin our analysis with the text of
the relevant statute, we pause to elucidate a background prin-
ciple that guides our inquiry: “In 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 statu-
tory interference, no reason is perceived for its invalidity.”
Williams v. Jacksonville Terminal Co., 315 U.S. 386, 397
(1942) (internal citations omitted) (emphasis added).6
  4
     Cumbie also asserted several wage-and-hour violations under Oregon
law but has abandoned them on appeal. See Collins v. City of San Diego,
841 F.2d 337, 339 (9th Cir. 1988).
   5
     Oregon law forbids tip credits. See Or. Rev. Stat. § 653.0355(3).
   6
     Accord 29 C.F.R. § 531.52 (“In the absence of an agreement to the
contrary between the recipient and a third party, a tip becomes the prop-
erty of the person in recognition of whose service it is presented by the
customer.”). Although the parties and amici debate whether this and other
                     CUMBIE v. WOODY WOO, INC.                         2891
  [1] Williams establishes the default rule that an arrange-
ment to turn over or to redistribute tips is presumptively valid.
Our task, therefore, is to determine whether the FLSA
imposes any “statutory interference” that would invalidate
Woo’s tip-pooling arrangement. The question presented is one
of first impression in this court.7

                                     A

   [2] Under the FLSA, employers must pay their employees
a minimum wage. See 29 U.S.C. § 206(a). The FLSA’s defi-
nition of “wage” recognizes that under certain circumstances,
employers of “tipped employees” may include part of such
employees’ tips as wage payments. See id. § 203(m). The
FLSA provides in relevant part:8

     In determining the wage an employer is required to
     pay a tipped employee, the amount paid such
     employee by the employee’s employer shall be an
     amount equal to—

Department of Labor regulations governing tips are still valid, we note that
the Secretary of Labor has not bothered to amend them in over forty years.
At any rate, because we conclude that the meaning of the FLSA’s tip
credit provision is clear, we need not decide whether these regulations are
still valid and what level of deference they merit. See Metro Leasing and
Development Corp. v. Comm’r of Internal Revenue Svc., 376 F.3d 1015,
1024 n.10 (9th Cir. 2004).
   7
     Cumbie suggests that various courts of appeals have already resolved
this issue in her favor, but the cases she cites are inapposite, as they
involve employers who satisfied their entire minimum-wage obligation out
of tips. See, e.g., Doty v. Elias, 733 F.2d 720 (10th Cir. 1984); Barcellona
v. Tiffany English Pub, Inc., 597 F.2d 464 (5th Cir. 1979); Richard v. Mar-
riott Corp., 549 F.2d 303 (4th Cir. 1977). In other words, the employers
in those cases took a tip credit, which is not the scenario we confront here.
   8
     The first part of section 203(m) allows employers to include in wages
the reasonable cost of board, lodging or “other facilities” furnished to
employees under certain circumstances. 29 U.S.C. § 203(m). This part of
the statute is not implicated here.
2892                  CUMBIE v. WOODY WOO, INC.
             (1) the cash wage paid such employee
             which for purposes of such determination
             shall be not less than the cash wage
             required to be paid such an employee on
             August 20, 1996; and

             (2) an additional amount on account of the
             tips received by such employee which
             amount is equal to the difference between
             the wage specified in paragraph (1) and the
             wage in effect under section 206(a)(1) of
             this title.

        The additional amount on account of tips may not
        exceed the value of the tips actually received by an
        employee. The preceding 2 sentences shall not apply
        with respect to any tipped employee unless such
        employee has been informed by the employer of the
        provisions of this subsection, and all tips received by
        such employee have been retained by the employee,
        except that this subsection shall not be construed to
        prohibit the pooling of tips among employees who
        customarily and regularly receive tips.

Id.

                                     1

   [3] We shall unpack this dense statutory language sentence
by sentence. The first sentence states that an employer must
pay a tipped employee an amount equal to (1) a cash wage of
at least $2.13,9 plus (2) an additional amount in tips equal to
the federal minimum wage minus such cash wage.10 That is,
an employer must pay a tipped employee a cash wage of at
least $2.13, but if the cash wage is less than the federal mini-
  9
      See 29 U.S.C. §§ 203(m), 206(a)(1) (1996).
  10
       See 29 U.S.C. § 206(a)(1).
                  CUMBIE v. WOODY WOO, INC.                 2893
mum wage, the employer can make up the difference with the
employee’s tips (also known as a “tip credit”). The second
sentence clarifies that the difference may not be greater than
the actual tips received. Therefore, if the cash wage plus tips
are not enough to meet the minimum wage, the employer
must “top up” the cash wage. Collectively, these two sen-
tences provide that an employer may take a partial tip credit
toward its minimum-wage obligation.

   [4] The third sentence states that the preceding two sen-
tences do not apply (i.e., the employer may not take a tip
credit) unless two conditions are met. First, the employer
must inform the employee of the tip-credit provisions in sec-
tion 203(m). Second, the employer must allow the employee
to keep all of her tips, except when the employee participates
in a tip pool with other customarily tipped employees.

                               2

   [5] Cumbie argues that under section 203(m), an employee
must be allowed to retain all of her tips—except in the case
of a “valid” tip pool involving only customarily tipped
employees—regardless of whether her employer claims a tip
credit. Essentially, she argues that section 203(m) has over-
ruled Williams, rendering tip-redistribution agreements pre-
sumptively invalid. However, we cannot reconcile this
interpretation with the plain text of the third sentence, which
imposes conditions on taking a tip credit and does not state
freestanding requirements pertaining to all tipped employees.
A statute that provides that a person must do X in order to
achieve Y does not mandate that a person must do X, period.

   [6] If Congress wanted to articulate a general principle that
tips are the property of the employee absent a “valid” tip pool,
it could have done so without reference to the tip credit. “It
is our duty to give effect, if possible, to every clause and word
of a statute.” United States v. Menasche, 348 U.S. 528, 538-
39 (1955) (internal quotation marks omitted). Therefore, we
2894                  CUMBIE v. WOODY WOO, INC.
decline to read the third sentence in such a way as to render
its reference to the tip credit, as well as its conditional lan-
guage and structure, superfluous.11

    [7] Here, there is no question that Woo’s tip pool included
non-customarily tipped employees, and that Cumbie did not
retain all of her tips because of her participation in the pool.
Accordingly, Woo was not entitled to take a tip credit, nor did
it. See Richard v. Marriott Corp., 549 F.2d 303, 305 (4th Cir.
1977) (“[I]f the employer does not follow the command of the
statute, he gets no [tip] credit.”). Since Woo did not take a tip
credit, we perceive no basis for concluding that Woo’s tip-
pooling arrangement violated section 203(m).12

                                       B

   [8] Recognizing that section 203(m) is of no assistance to
her, Cumbie disavowed reliance on it in her reply brief and at
oral argument, claiming instead that “[t]he rule against forced
transfer of tips actually originates in the minimum wage sec-
tion of the FLSA, 29 U.S.C. § 206.” Section 206 provides that
“[e]very employer shall pay to each of his employees . . .
wages” at the prescribed minimum hourly rate. Id. § 206(a).
  11
      Cumbie and amici rely extensively on legislative history of the 1974
amendments to the FLSA, see Pub. L. No. 93-259, § 13, 88 Stat. 55
(1974), to support their contention that section 203(m)’s tip-credit condi-
tions were intended to be freestanding requirements. Of course, “we do
not resort to legislative history to cloud a statutory text that is clear.” Ratz-
laf v. United States, 510 U.S. 135, 147-48 (1994).
   12
      Cumbie also argued that even if Woo’s tip pool were legal, it violated
the FLSA by requiring her to contribute a greater percentage of her tips
than is “customary and reasonable.” However, we have no reason to dis-
agree with the Secretary that the “customary and reasonable” requirement,
which appears only in opinion letters, a handbook, and a fact sheet, contra-
venes “court decisions and the unequivocal statutory language.” Updating
Regulations Issued Under the Fair Labor Standards Act, 73 Fed. Reg.
43654, 43660 (July 28, 2008). Accordingly, we decline to recognize any
such requirement. See Kilgore v. Outback Steakhouse, 160 F.3d 294, 302-
03 (6th Cir. 1998).
                  CUMBIE v. WOODY WOO, INC.                 2895
   [9] While section 206 does not mention tips, let alone tip
pools, Cumbie maintains that a Department of Labor (“DOL”)
regulation elucidates the meaning of the term “pay” in such
a way as to prohibit Woo’s tip-pooling arrangement. She
refers to the regulation which requires that the minimum wage
be “paid finally and unconditionally or ‘free and clear,’ ” and
forbids any “ ‘kick[ ]-back’ . . . to the employer or to another
person for the employer’s benefit the whole or part of the
wage delivered to the employee.” 29 C.F.R. § 531.35. The
“free and clear” regulation provides as an example of a pro-
hibited kick-back a requirement that an employee purchase
tools for the job, where such purchase “cuts into the minimum
or overtime wages required to be paid him under the Act.” Id.

   According to Cumbie, her forced participation in the “in-
valid” tip pool constituted an indirect kick-back to the kitchen
staff for Woo’s benefit, in violation of the free-and-clear regu-
lation. As she sees it, the money she turned over to the tip
pool brought her cash wage below the federal minimum in the
same way as the tools in the regulation’s example. The Secre-
tary of Labor agrees, asserting that “if the tipped employees
did not receive the full federal minimum wage plus all tips
received, they cannot be deemed under federal law to have
received the minimum wage ‘free and clear,’ and the money
diverted into the invalid tip pool is an improper deduction
from wages that violates section [20]6 of the Act.”

   [10] Cumbie acknowledges that the applicability of the
“free and clear” regulation hinges on “whether or not the tips
belong to the servers to whom they are given.” This question
brings us back to section 203(m), which we have already
determined does not alter the default rule in Williams that tips
belong to the servers to whom they are given only “in the
absence of an explicit contrary understanding” that is not oth-
erwise prohibited. 315 U.S. at 397. Hence, whether a server
owns her tips depends on whether there existed an agreement
to redistribute her tips that was not barred by the FLSA.
2896                CUMBIE v. WOODY WOO, INC.
   [11] Here, such an agreement existed by virtue of the tip-
pooling arrangement. The FLSA does not restrict tip pooling
when no tip credit is taken. Therefore, only the tips redistrib-
uted to Cumbie from the pool ever belonged to her, and her
contributions to the pool did not, and could not, reduce her
wages below the statutory minimum. We reject Cumbie and
the Secretary’s interpretation of the regulation as plainly erro-
neous and unworthy of any deference,13 see Auer v. Robbins,
519 U.S. 452, 461 (1997), and conclude that Woo did not vio-
late section 206 by way of the “free and clear” regulation.

                                   III

   Finally, Cumbie argues against the result we reach because
“[a]s a practical matter, it nullifies legislation passed by Con-
gress.” Her argument, as we understand it, is that Woo is
functionally taking a tip credit by using a tip-pooling arrange-
ment to subsidize the wages of its non-tipped employees. The
money saved in wage payments is more money in Woo’s
pocket, which is financially equivalent to confiscating Cum-
bie’s tips via a section 203(m) tip credit (with the added bene-
fit that this “de facto” tip credit allows Woo to bypass section
203(m)’s conditions).

   [12] Even if Cumbie were correct, “we do not find [this]
possibility . . . so absurd or glaringly unjust as to warrant a
departure from the plain language of the statute.” Ingalls
Shipbuilding, Inc. v. Dir., Office of Workers’ Comp. Pro-
grams, 519 U.S. 248, 261 (1997). The purpose of the FLSA
is to protect workers from “substandard wages and oppressive
working hours.” Barrentine v. Ark.-Best Freight Sys., Inc.,
  13
    Their interpretation is also inconsistent with the regulation itself,
which prohibits kickbacks that reduce the wages paid below the federal
minimum. Even assuming Cumbie’s tips belonged to her ab initio, they
were not wages under the FLSA because Woo did not take a tip credit. See
29 U.S.C. § 203(m); see also Platek v. Duquesne Club, 961 F. Supp. 835,
838 (W.D. Pa. 1995), aff’d without opinion by Platek v. Duquesne Club,
107 F.3d 863 (3d Cir. 1997).
                 CUMBIE v. WOODY WOO, INC.                2897
450 U.S. 728, 739 (1981) (citing 29 U.S.C. § 202(a)). Our
conclusion that the FLSA does not prohibit Woo’s tip-pooling
arrangement does not thwart this purpose. Cumbie received a
wage that was far greater than the federally prescribed mini-
mum, plus a substantial portion of her tips. Naturally, she
would prefer to receive all of her tips, but the FLSA does not
create such an entitlement where no tip credit is taken. Absent
an ambiguity or an irreconcilable conflict with another statu-
tory provision, “we will not alter the text in order to satisfy
the policy preferences” of Cumbie and amici. Barnhart v. Sig-
mon Coal Co., Inc., 534 U.S. 438, 462 (2002).

                              IV

   [13] The Supreme Court has made it clear that an employ-
ment practice does not violate the FLSA unless the FLSA
prohibits it. Christensen v. Harris County, 529 U.S. 576, 588
(2000). 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 no statutory impedi-
ment to Woo’s practice. Accordingly, the judgment of the dis-
trict court is

  AFFIRMED.