Kilgore v. Outback Steakhouse of Florida, Inc.

• Citation: 160 F.3d 294
• Decision Date: 09 December 1998
• Docket Number: No. 97-5902,97-5902
• Parties: 136 Lab.Cas. P 33,758, 4 Wage & Hour Cas.2d (BNA) 1729 Misti A. KILGORE, Crystal I. Madison, Michael A. Badal, and Robert P. Andrews, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. OUTBACK STEAKHOUSE OF FLORIDA, INC., a/k/a FMI Restaurants, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 294

160 F.3d 294

136 Lab.Cas. P 33,758, 4 Wage & Hour Cas.2d

(BNA) 1729

Misti A. KILGORE, Crystal I. Madison, Michael A. Badal, and Robert P. Andrews, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. OUTBACK STEAKHOUSE OF FLORIDA, INC., a/k/a FMI Restaurants Inc., Defendant-Appellee.

No. 97-5902.

United States Court of Appeals Sixth Circuit.

Argued Sept. 21, 1998.

Decided Nov. 2, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied Dec. 9, 1998.

Dale J. Montpelier (briefed), Katherine A. Young (argued and briefed), Montpelier &amp William G. Trumpeter (argued and briefed), John Y. Elliott, III (briefed), Miller & Martin, Chattanooga, TN, for Defendants-Appellees.

Young, Knoxville, TN, for Plaintiffs-Appellants.

Before: KENNEDY and COLE, Circuit Judges; RUSSELL, District Judge. ^*

OPINION

KENNEDY, Circuit Judge.

Defendant Outback Steakhouse of Florida, Inc. ("Outback") requires its servers to give a share of their tips (a "tip out") to Outback, which then distributes this entire "tip pool" between hosts/hostesses ("hosts"), bus persons, and bartenders. Plaintiffs are hosts and servers at Outback who challenge Outback's tip pool arrangement under the Fair Labor Standards Act ("FLSA") minimum wage provisions. ¹ After the parties consented to referral to a magistrate judge for final disposition pursuant to 28 U.S.C. § 636(c), the magistrate judge granted summary judgment to the defendant on all of plaintiffs' claims. We affirm in part and reverse and remand in part.

I. Facts

As this appeal reviews the grant of a summary judgment motion for the defendant, we view the facts in the light most favorable to the plaintiffs. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Defendant Outback operates a chain of steakhouses. All Outback restaurants hire employees into the two positions at issue here: servers and hosts. Servers at Outback perform the traditional tasks of waiters and waitresses. They take orders, deliver food and drinks, and take care of other customer demands. Hosts primarily greet customers, pass out menus, and seat the customers. Hosts also take carry-out orders by phone and transfer carry-out information to the bar where the customer picks up her order, clear dirty dishes from tables although this is primarily the responsibility of the bus staff, fill customers' water glasses, "enhance the wait" by providing complementary appetizers or drinks to customers who are waiting for a table (Outback does not take reservations, so the wait can be substantial), and take appetizer orders to customers. The parties dispute how often hosts perform this latter list of tasks, but the plaintiffs accept that the hosts do perform them rarely. Plaintiffs in the instant case were servers and hosts at Outback at various times from 1995 to 1997.

Outback forbids hosts from taking tips from customers. Servers are allowed to receive tips. Plaintiffs assert that tips in the Outback restaurants where they work frequently fail to reach the "standard" fifteen percent level. Three of the plaintiffs have stated that "[i]t was not uncommon for customers to tip less than ten percent."

Outback compels its servers to contribute three percent of their "total gross sales" during each shift to a tip pool (hereinafter, referred to as the "tip-out" requirement). Management then distributes that entire pool of money between the hosts, bus people, and bartenders who worked that shift. According to the plaintiffs, a given server's total gross sales include the food and alcohol sold at the tables waited on by that server, sales of food which was returned to the kitchen for which the customer was not charged, "take-out" food ordered by customers seated in that server's assigned area, any sales tax, sales of Outback branded products like t-shirts and steak knives, food sold to an employee at its full-price even though the employee paid a discounted price, and gift certificates sold to customers at tables seated at the tables assigned to that server.

In practice, the three percent of total sales tip-out requirement routinely required servers to tip out more than fifteen percent of the tips they received in a given shift. The plaintiffs have produced evidence that over a two week period, the three percent gross sales tip-out requirement resulted in Outback servers tipping out 37.5% of the tips they received. One server states in an affidavit that "I have personally known of people who made so little in tips that other employees took up a collection of money to help them be able to pay their 'tip-out.' "

Outback paid hosts and servers $2.125 per hour not including tips and tip outs. In an affidavit, an employee of the defendant asserts that when respective shares of the tip out are included, the plaintiff hosts and servers never received less than minimum wage for a work week during their employment at Outback. The plaintiffs do not rebut this assertion.

The parties dispute whether Outback provided sufficient notice regarding its intent to take a tip credit to the plaintiffs. We discuss the factual details relating to the notice issue in section II.A. of this opinion.

II. Discussion

On appeal, plaintiffs make three primary arguments. First, they argue that Outback did not "inform" the plaintiffs of its intent to take a tip credit toward its minimum wage obligations. Thus, Outback's tip credit was invalid and Outback owes them the difference between the minimum wage and what Outback directly paid to the plaintiffs. Second, the plaintiffs argue that hosts are not "tipped employees" as defined in 29 U.S.C. § 203(t) because a host at Outback is not an employee who is "engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." Thus, Outback cannot use the 29 U.S.C. § 203(m) tip credit provision to include tips in their minimum wage calculations. Similarly, plaintiffs argue that hosts at Outback are not "employees who customarily and regularly receive tips." Thus, the tip pool is invalid because 29 U.S.C. § 203(m) authorizes tip pools only among "employees who customarily and regularly receive tips." Third, plaintiffs argue that the amount of tip out required of servers by Outback is excessive and in violation of administrative interpretations of 29 U.S.C. §§ 203(m) and 206(a). After first noting the standard of review and then summarizing the applicable FLSA sections, we discuss these three arguments in turn below and then briefly discuss plaintiffs' other arguments.

We review a district court's grant of summary judgment de novo. See Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 683, 136 L.Ed.2d 608 (1997). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). We must view the facts and all inferences drawn from the facts in the light most favorable to the nonmoving party. See, e.g., Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). When confronted with a properly-supported motion for summary judgment, the nonmoving party must set forth specific facts showing that there is a genuine issue for trial. A genuine issue for trial exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The FLSA, 29 U.S.C. §§ 201-219, establishes a minimum wage. Between 1991 and October 1, 1996, the minimum wage was $4.25 per hour:

Every employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, wages at the following rates:

(1) except as otherwise provided in this section ... not less that $4.25 an hour after March 31, 1991....

29 U.S.C. § 206(a) (1994) ("subsection 206(a)"). ²

Another provision of the FLSA, 29 U.S.C. § 203(m), allows employers to pay less than minimum wage to employees who receive tips. The mechanism it creates to allow employers to pay less than minimum wage is the "tip credit." The tip credit allows employers to include in its calculation of a "tipped employee's" wage the amount that an employee receives in tips up to fifty percent of the minimum wage:

In determining the wage of a tipped employee, the amount paid such employee by his employer shall be deemed to be increased on account of tips by an amount determined by the employer, but not by an amount in excess of ... 50 percent of the applicable minimum wage rate after March 31, 1991, except that the amount of the increase on account of tips determined by the employer may not exceed the value of tips actually received by the employee.

29 U.S.C. § 203(m) (1994) (emphasis added) ("subsection 203(m)"). ³ The first words of this quoted language limits how employers can use the tip credit. Employers can take a tip credit only toward the wages of employees who qualify as "tipped employee[s]." Subsection 203(t) defines "tipped employee" as "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." 29 U.S.C. § 203(t) (1994) ("subsection 203(t)").

Subsection 203(m) also requires an employer to satisfy two other conditions to use a tip credit toward an employee's minimum wage:

The previous sentence [establishing the tip credit] shall not apply with respect to any tipped employee unless (1) such employee has been informed by the employer of the provisions of this subsection, and (2) all tips received by such employee have been...