Or. Rest. & Lodging Ass'n v. Perez

• Decision Date: 06 September 2016
• Docket Number: No. 13-35765, No. 14-15243,13-35765
• Citation: 843 F.3d 355 (Mem)
• Parties: Oregon Restaurant and Lodging Association, a non-profit Oregon corporation; Washington Restaurant Association, a non-profit Washington corporation; Alaska Cabaret, Hotel, Restaurant & Retailers Association, a non-profit Alaska corporation; National Restaurant Association, a non-profit Illinois corporation; Davis Street Tavern LLC, an Oregon limited liability company; Susan Ponton, an individual, Plaintiffs–Appellees, v. Thomas Perez, in his official capacity as Secretary of the U.S. Department of Labor; Laura Fortman, in her official capacity as Deputy Administrator of the U.S. Department of Labor; U.S. Department of Labor, Defendants–Appellants. Joseph Cesarz; Quy Ngoc Tang, individually and on behalf of all others similarly situated, and all persons whose names are set forth in Exhibit A to the First Amended Complaint, Plaintiffs–Appellants, v. Wynn Las Vegas, LLC; Andrew Pascal; Steve Wynn, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

843 F.3d 355 (Mem)

Oregon Restaurant and Lodging Association, a non-profit Oregon corporation; Washington Restaurant Association, a non-profit Washington corporation; Alaska Cabaret, Hotel, Restaurant & Retailers Association, a non-profit Alaska corporation; National Restaurant Association, a non-profit Illinois corporation; Davis Street Tavern LLC, an Oregon limited liability company; Susan Ponton, an individual, Plaintiffs–Appellees,

v.Thomas Perez, in his official capacity as Secretary of the U.S. Department of Labor; Laura Fortman, in her official capacity as Deputy Administrator of the U.S. Department of Labor; U.S. Department of Labor, Defendants–Appellants.

Joseph Cesarz; Quy Ngoc Tang, individually and on behalf of all others similarly situated, and all persons whose names are set forth in Exhibit A to the First Amended Complaint, Plaintiffs–Appellants,

v.Wynn Las Vegas, LLC; Andrew Pascal; Steve Wynn, Defendants–Appellees.

No. 13-35765

No. 14-15243

United States Court of Appeals, Ninth Circuit.

Filed September 6, 2016

John S. Koppel (argued) and Michael Jay Singer, Attorneys, United States Department of Justice, Civil Division, Washington, D.C.; Stuart F. Delery, Assistant Attorney General, Office of the Attorney General, Washington, D.C.; S. Amanda Marshall, United States Attorney, United States Attorneys' Office, Oregon, for Defendants–Appellants Thomas Perez, et al.

Joshua D. Buck (argued), Thierman Buck, Reno, Nevada; Leon Greenberg and Dana Sniegocki, Leon Greenberg Professional Corporation, Las Vegas, Nevada, for Plaintiffs–Appellants Joseph Cesarz and Quy Ngoc Tang.

Paul DeCamp (argued), Jackson Lewis P.C., Reston, Virginia; Nicholas M. Beerman, Peter H. Nohle, and William Robert Donovan, Jr., Jackson Lewis P.C., Seattle, Washington; Scott Oberg Oborn, Jackson Lewis P.C., Portland, Oregon, for Plaintiffs–Appellees Oregon Restaurant and Lodging Association, et al.

Eugene Scalia (argued) and Alexander Cox, Gibson Dunn & Crutcher LLP, Washington, D.C.; Gregory J. Kamer and Brian J. Cohen, Kamer Zucker Abbott, Las Vegas, Nevada, for Defendants–Appellees Wynn Las Vegas, LLC, et al.

Before: Harry Pregerson, N. Randy Smith, and John B. Owens, Circuit Judges.

Dissent by Judge O'Scannlain

ORDER

Judges Pregerson and Owens have voted to deny the petition for panel rehearing. Judge Owens has voted to deny the petition for rehearing en banc, and Judge Pregerson has so recommended. Judge N.R. Smith has voted to grant the petition for panel rehearing and petition for rehearing en banc.

The full court was advised of the petition for rehearing en banc. A judge requested a vote on whether to rehear the matter en banc. The matter failed to receive a majority of votes of the nonrecused active judges in favor of en banc consideration. Fed. R. App. P. 35.

The petition for panel rehearing and the petition for rehearing en banc are DENIED .

The order filed on April 1, 2016 denying rehearing in Cesarz v. Wynn Las Vegas is hereby amended to reflect this subsequent en banc activity, including the dissent from denial of rehearing.

O'SCANNLAIN, Circuit Judge, with whom KOZINSKI, GOULD, TALLMAN, BYBEE, CALLAHAN, BEA, M. SMITH, IKUTA, N.R. SMITH, Circuit Judges, join, dissenting from the denial of rehearing en banc:

Our court today rejects the most elemental teaching of administrative law: agencies exercise whatever powers they possess because—and only because—such powers have been delegated to them by Congress. Flouting that first principle, the panel majority equates a statute's "silence" with an agency's invitation to regulate, thereby reaching the startling conclusion that the Department of Labor can prohibit any workplace practice Congress has not "unambiguously and categorically protected" through positive law. The dissenting opinion had it right; the panel majority's extravagant theory is more than the Constitution will bear. And it is more than our own precedents will allow. Because the panel majority reads our precedents out of existence, and opens not one, but two circuit splits in the process, I respectfully dissent from our refusal to rehear these consolidated cases en banc.

I

A

Here is a brief overview of the statutory and regulatory landscape. The Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. , sets a minimum wage employers must pay their employees, id. § 206(a). Employers who have "tipped employee[s]" can meet the minimum-wage requirement in either of two ways. Id. § 203(m). First, they can simply pay such employees a cash wage at or above the minimum. Id. Second, they can pay a cash wage below the minimum, but only if such employees receive enough money in tips to make up the difference. Id. Employers who choose the second option are said to take a "tip credit." In addition, for many decades it has been common practice for employers across service industries to require the people who work for them to share tips with one another, a practice known as "tip pooling." But not all employees are alike. Some, like restaurant servers,¹ are "customarily and regularly tipped," id. ; others, like the kitchen staff, are not. Section 203(m) says that if an employer takes a tip credit to satisfy its federal minimum-wage obligations, it is not allowed to institute a tip pool comprising both categories of employees. Id. So, if a restaurant takes a tip credit, it cannot require its servers to share their tips with the kitchen staff (but it can require the servers to share tips with their fellow servers).

Although § 203(m) speaks directly about the tip-pooling practices of employers who take advantage of the tip credit, it says absolutely nothing about tip pooling by employers who do not take a tip credit. In Cumbie v. Wood y Woo, Inc. , 596 F.3d 577, 578 (9th Cir. 2010), we addressed "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." We held it does not; instead, the statute's carefully calibrated scope evidenced Congress's clear intent to leave employers who do not take a tip credit free to arrange their tip-pooling affairs however they and their employees see fit. Id. at 580–83. So, if a restaurant guarantees its employees the federal minimum wage, the restaurant can (so far as federal labor law is concerned) force its servers to share their tips with the bussers, cooks, and dishwashers. Section 203(m) does not apply here—it is simply indifferent to the fate of the servers' tips.

Two background principles informed Cumbie 's construction of the statute. First, it has been settled law for three-quarters of a century that "[i]n 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 statutory interference, no reason is perceived for its invalidity." Id. at 579 (quoting Williams v. Jacksonville Terminal Co. , 315 U.S. 386, 397, 62 S.Ct. 659, 86 L.Ed. 914 (1942) ) (alterations omitted) (emphasis deleted). " Williams establishes the default rule that an arrangement to turn over or to redistribute tips is presumptively valid." Id. at 583. Second, the "Supreme Court has made it clear that an employment practice does not violate the FLSA unless the FLSA prohibits it." Id. (citing Christensen v. Harris Cty. , 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) ("Unless the FLSA prohibits respondents from adopting its policy, petitioners cannot show that Harris County has violated the FLSA.")).

After examining the statute's text and structure, id. at 580–81, we determined that the "plain text" of § 203(m) only "imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees," id. at 581. As a result, we concluded that the "FLSA does not restrict tip pooling when no tip credit is taken." Id. at 582. "Since Woo [the employer] did not take a tip credit, we perceive[d] no basis for concluding that Woo's tip-pooling arrangement violated section 203(m)." Id. "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[d] no statutory impediment to Woo's" tip-pooling practice. Id. at 583.

B

We decided Cumbie in 2010. Unhappy with our decision, in 2011 the Department of Labor issued new regulations addressing the very same issue. See Updating Regulations Issued Under the Fair Labor Standards Act, 76 Fed. Reg. 18,832 (Apr. 5, 2011). The preamble to those regulations confessed that Cumbie advanced a " ‘plain meaning’ construction," id. at 18,842, but nevertheless voiced the Department's opinion that Cumbie was wrongly decided, id. at 18,841 –42. The Department then announced that, statutory text and Cumbie notwithstanding, henceforth "tips are the property of the employee, and ... section [203(m) ] sets forth the only permitted uses of an employee's tips—either through a tip credit or a valid tip pool—whether or not the employer has elected the tip credit." Id. at 18,842 (By "valid" tip pool, the Department apparently means a tip pool consisting exclusively of employees who are "customarily and regularly tipped.") The Department replaced this language:

In the absence of an agreement to the contrary between the recipient and a third party, a tip becomes the property of the person in recognition of whose service it is presented by the customer.

with the following:

Tips are the property of the employee whether or not the employer has taken a tip credit under section [203(m) ] of the FLSA. The employer is prohibited from using an employee's tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section [203(m) ]: As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool.

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