In Hernandez, et al. v. Harvard University, the U.S. District Court for the District of Massachusetts rejected Harvard's argument that federal labor law completely preempted a putative class action brought under Mass. Gen. Laws ch. 149, § 152A (the Tip Statute) and the common law (unjust enrichment) and remanded the case to Massachusetts Superior Court for further proceedings.
Plaintiffs, wait staff at the Harvard Faculty Club, were paid a flat hourly rate pursuant to the terms of a collective bargaining agreement (CBA). While the CBA was silent on the subject of tips, patrons were told not to tip wait staff, and employees were not permitted to retain tips. The Faculty Club imposed an 18-22% surcharge on certain food and beverage events, but proceeds from that charge were not remitted to wait staff, and the restaurant did not inform patrons that the charge was not a tip. Because of the no-tipping policy, wait staff received hourly wages higher than peers in other restaurants.
After the plaintiffs filed their complaint in Massachusetts Superior Court, Harvard removed the case to the U.S. District Court on the ground of "complete preemption" under § 301 of the Labor Management Relations Act (LMRA). Plaintiffs then moved to remand the case back to the Superior Court.
The District Court granted the plaintiffs' motion to remand, holding that the LMRA did not preempt the plaintiffs' claims. While preemption can apply where a state law claim is either founded on rights created in a CBA or would require interpretation of the CBA, the operative CBA was silent on the issue of tips. Although Harvard argued that the Court would need to interpret the CBA to determine whether the parties modified the state law tip standard, but the Court rejected this argument and noted that mere consultation of a CBA does not lead to complete preemption in a case where the right at issue stems purely from state law.
The Court also held that the plaintiffs' unjust enrichment claim was "on its face derivative of liability under the Tips Law," and thus similarly grounded on an independent state law interest and not preempted. Lastly, the District Court rejected Harvard's argument that liability would result in a windfall for the well-compensated plaintiffs, noting that Massachusetts courts do not consider a plaintiff's earnings in determining whether a Tip Statute violation occurred.
Although the Hernandez decision narrowed the applicability of the complete preemption doctrine, it did not address the validity of other preemption defenses that may be available to employers. Food and beverage employers with unionized workforces subject to a no-tipping policy should consider negotiating the terms of the no-tipping policy into their CBA. All employers should be vigilant that their compensation policies are compliant with the Tip Statute, as non-compliance can lead to claims of significant value, including automatic treble damages and attorneys' fees.