Addressing an unusual set of facts, the U.S. District Court for the Northern District of Georgia has dismissed a suit challenging an employer’s practice of retaining tips that customers give to valets. The plaintiff in Malivuk v. Ameripark, No. 1:15:cv-2570 WSD (N.D. Ga. 2016), alleged that she was promised an hourly wage plus tips but that her employer, who provided valet parking services, retained a portion of the tips.
The defendant moved to dismiss the case because the plaintiff did not allege that the company took a tip credit against the minimum wage or in any other way did not pay the minimum wage. The court agreed and dismissed the case, relying on section 203(m) of the FLSA, which provides that an employer must pay a cash wage but if that wage is less than the federal minimum wage, it can make up the difference with the employee’s tips. If the cash wages plus the tips are not sufficient to amount to the minimum wage, the employer must increase the cash wages so the employee is paid the minimum.
In its ruling, the court declined to follow a recent Ninth Circuit case, Oregon Restaurant and Lodging Ass’n v. Perez, 816 F.23d 1080 (9th Cir. 2016), that upheld a DOL regulation that most courts have rejected. This regulation, 29 C.F.R. §531.52, provides that tips are the property of the employee, whether or not the employer takes a tip credit. The Ameripark court reasoned that if Congress wanted to articulate the principal that tips are the property of the employee, absent a valid tip pool, it could have done so without reference to the tip credit, and it concluded that the DOL regulation violates the plain language of section 203(m).
Although it would seem that employers in industries where employees customarily receive tips normally take a tip credit unless otherwise prohibited by state or local laws, Ameripark suggests that if an employer does not take a tip credit, it may retain a portion of the employees’ tips—at least in the jurisdiction of this federal court. Of course, other courts may hold to the contrary. Employers considering adopting such an approach would be wise to review whether the courts in their jurisdictions have weighed in on this subject, or whether such a practice could give rise to other types of claims. And while the practice might be attractive to employers in some industries where employees receive significant tips, restaurant employers in particular might find it hard to recruit and retain servers to work once they are told that the restaurant will be keeping a portion of the tips.