Jason Zink, owner of taverns in Baltimore, would often bartend alongside his employees. He would receive tips, add those tips to a collective tip pool, and then share in that tip pool when it was divided among his employee bartenders. In a question of first impression within the Fourth Circuit, Judge Richard Bennett of the U.S. District Court for the District of Maryland ruled this month that Zink, as an employer, could not receive a “tip credit” while participating in the tip pool without violating the Fair Labor Standards Act and the Maryland Wage and Hour Law.

The Fair Labor Standards Act (FLSA) requires that certain employers pay their employees a minimum wage, currently set at $7.25 per hour. An exception to this requirement exists for employers with respect to “tipped employees” – employees who make at least $30 per month in tips. For tipped employees, employers may pay a wage of $2.13 per hour as long as the tips received make up the minimum $7.25 wage requirement. This is referred to as a “tip credit” for employers. Also under the FLSA, tipped employees may participate in tip-pooling or tip-splitting arrangements, but such arrangements are invalid if anyone participating in the pooling or splitting is an employee who does not ordinarily receive tips (in other words, not a tipped employee). If the tip pool is invalid for this reason, an employer cannot take advantage of the FLSA tip credit, and must pay its tipped employees the minimum wage.

The plaintiffs in Gionfriddo v. Jason Zink, LLC, Civil Action No. RDB-09-1733 (D. Md. Mar. 11, 2011) were three former employees at Zink’s taverns. They brought suit alleging that defendants violated the FLSA and the Maryland Wage and Hour Law (MWHL), when Zink, as an employer, participated in the tip pool and also took advantage of the “tip credit” rule.

The Court addressed the question “to what extent, if any, an owner-employer who also tends bar is permitted to receive tips from an employee tip pool.” The Court noted that in some close circumstances, an individual could have managerial authority and also be a tipped employee – for example, a maitre d’ or general manager. But this particular case was not close. The Court found that Zink was “unquestionably” an employer under the FLSA, and, thus, “the sole beneficiary of the ‘tip credit’ provision” of the statute. Therefore, Zink was prohibited from participating in the tip pool at the taverns. Because of the “congruent nature” of the FLSA and MWHL, the Court also found a violation of the latter state statute on the same grounds.