Martin v. Tango's Restaurant, Inc.

• Decision Date: 04 June 1992
• Docket Number: No. 91-2213,91-2213
• Citation: 969 F.2d 1319
• Parties: 30 Wage & Hour Cas. (BNA) 1641, 122 Lab.Cas. P 35,675 Lynn MARTIN, Secretary of Labor, United States Department of Labor, Plaintiff, Appellant, v. TANGO'S RESTAURANT, INC., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1319

969 F.2d 1319

30 Wage & Hour Cas. (BNA) 1641, 122 Lab.Cas.

P 35,675

Lynn MARTIN, Secretary of Labor, United States Department of Labor, Plaintiff, Appellant, v. TANGO'S RESTAURANT, INC., et al., Defendants, Appellees.

No. 91-2213.

United States Court of Appeals First Circuit.

Heard June 4, 1992.

Decided July 20, 1992.

Lauriston H. Long, Atty., U.S. Dept. of Labor, with whom Marshall J. Breger, Sol. of Labor, Patricia M. Rodenhausen, Regional Sol., Monica Gallagher, Associate Sol., and William J. Stone, Counsel for Appellate Litigation, U.S. Dept. of Labor, were on brief for appellant.

Wallace Vazquez Sanabria for appellees.

Before CYR, Circuit Judge, RONEY, ^* Senior Circuit Judge, and BOUDIN, Circuit Judge.

BOUDIN, Circuit Judge.

The Secretary of Labor brought suit under the Fair Labor Standards Act of 1938 ("FLSA" or "the Act"), 29 U.S.C. § 201 et seq., against a corporation and its owners ("the defendants") to enjoin and redress violations of the statute. After a trial, the district court awarded some but not all of the relief sought by the Secretary. The Secretary seeks review on two issues. On one of them, we agree with the Secretary and reverse the district court; and on the other, we remand for further proceedings.

I. BACKGROUND

Tango's Restaurant, Inc. ("Tango's"), is a corporation conducting a restaurant business in Hato Rey, Puerto Rico. Its president is Jorge Carcavallo, who manages the business together with his wife, Vilma Carcavallo, the restaurant's secretary, treasurer and office manager. Together, they own the business. The Secretary, who is responsible for enforcing the FLSA, conducted an investigation of Tango's and concluded that Tango's was keeping inaccurate records and failing to pay minimum wages and required overtime compensation. On June 11, 1991, the Secretary brought suit in the district court, naming the corporation and both Carcavallos as defendants. Although the complaint charged a number of violations, only two episodes are pertinent to this appeal, and the facts set forth below are limited to those episodes.

In the district court, the Secretary sought back pay and liquidated damages for the waiters at Tango's, asserting that they had not been paid the minimum wage (FLSA § 6, 29 U.S.C. § 206) or required overtime compensation. FLSA § 7, 29 U.S.C. § 207. After extensive discovery, a six-day trial was held before the district judge. On July 31, 1991, the district court entered judgment, together with findings of fact and conclusions of law, granting extensive relief against defendants but not all of the relief sought by the Secretary. The relief granted included, as provided by the Act, awards of back pay and liquidated damages for most of the waiters. FLSA § 16, 29 U.S.C. § 216.

The district court ruled that 15 of the waiters (together with seven other former or present employees) were entitled to $51,880.68 in back pay, and a like amount in statutory liquidated damages. The court found that Tango's books reported these waiters as working a uniform 40 hour week at an hourly rate of $2.95 per hour. Although the waiters had been paid this amount by Tango's, they had generally worked six days a week and had averaged 53 hours a week. Further, under the Act the minimum wage in force at the time of their employment was $3.35 per hour (FLSA § 6(a)(1), (c)(1)(B), 29 U.S.C. § 206(a)(1), (c)(1)(B)), with "time and a half" the employee's regular rate for hours in excess of 40. FLSA § 7(a)(1), 29 U.S.C. § 207(a)(1). The waiters had also averaged about $66 per day each in tips which they pooled, divided, and retained.

The district court held, over the Secretary's objection, that the defendants were entitled to treat a portion of the tips received by the waiters as a credit against the defendants' minimum wage and overtime compensation obligations. The Act permits such a "tip credit" under certain conditions, including a requirement (described more fully below) of notice to the employees. FLSA § 3(m), 29 U.S.C. § 203(m). The district court found that the notice requirement had been met in this case and allowed the defendants to take a tip credit of 40 cents per hour for both the minimum wage and overtime compensation. This credit eliminated any underpayment for the first 40 hours ($2.95 + 40 cents = $3.35) and reduced the defendants' liability for overtime hours and liquidated damages.

The district court declined to order any back pay award for Manuel Santiago, who acted both as a waiter and as the manager of other waiters. Santiago was also carried on Tango's books as working a 40 hour week at $2.95 per hour. In fact he was paid not only the book figure of $118 per week (40 X $2.95) but an additional off-book payment of $200 per week, regardless of hours actually worked. The trial judge found that Santiago's hours of work varied from week to week but averaged 58 hours a week. Santiago shared tips on the same basis as the other waiters. The district court ruled that Santiago's wages of $318 per week adequately compensated him for his 58 hours of work, and it added that he was in any event an involuntary plaintiff and responsible for the illegal practices that led to the case.

This appeal followed. In this court, the Secretary contends that no tip credit should have been allowed in computing liability to the waiters and that Santiago was entitled to an award for uncompensated overtime.

II. THE TIP CREDIT

A stranger to the FLSA might suppose that, in determining an employer's minimum wage obligations, the tips regularly received and retained by an employee either would be treated as wages paid by the employer or, in the alternative, would be wholly ignored. Instead, in a legislative compromise, Congress chose to allow employers a partial tip credit if, but only if, certain conditions are met. At the time of the employment in this case, section 3(m) of the Act provided that in computing minimum wages the employer could treat as wages paid by the employer tips actually received by the employee up to "an amount determined by the employer but not ... in excess of 40 per centum of the applicable minimum wage." See 29 U.S.C. § 203(m) (1982). Section 3(m) also provided, however, that this tip credit provision would not apply 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 retained by the employee [except that pooling of tips among tipped employees is permitted]."

In this case, the Secretary called at trial eight waiters who testified uniformly that defendants had told them nothing about either the minimum wage or Tango's intention to treat tips as wages under the Act. Jorge and Vilma Carcavallo each testified at trial, as did the waiter-manager Santiago, but none of the three testified that the waiters had been notified of either the minimum wage or the tip credit. The Secretary's compliance officer allowed a 40 cent tip credit in his investigative report, but the Secretary tells us that this was a tentative allowance made prior to the waiters' trial testimony and that the compliance officer relied in part on an affidavit of Vilma Carcavallo, asserting that at the outset of employment each waiter was told that Tango's utilized a tip credit against its minimum wage obligations. We are further told that the affidavit was not offered at trial nor did Vilma Carcavallo repeat this assertion in her testimony.

The trial judge nevertheless found that "the waiters were told that the restaurant would utilize a tip credit against its obligations to pay minimum wages" to the waiters. The court said that it did not find the waiters' denial of notice credible because employees would not be likely to accept employment at $2.95 an hour when San Juan offered many jobs at the minimum wage of $3.35. The court stressed that the waiters had received and retained substantial tips and that the compliance officer had allowed the tip credit on the first 40 hours of work. The Secretary contends that the trial court erred in ruling that notice had been given. We agree with the Secretary.

Section 3(m) requires as a condition of the tip credit that the employee be informed by the employer "of the provisions of this subsection...." The core provisions of section 3(m) allow an employer to take a tip credit against the employer's minimum wage obligations, in an amount to be determined by the employer, subject to certain limitations. We read section 3(m) to require at the very least notice to employees of the employer's intention to treat tips as satisfying part of the employer's minimum wage obligations. It could easily be read to require more--for example, notice of "the amount ... determined by the employer" to constitute wages--but how much more need not be decided in this case.

As the finder of fact, the district judge may be reversed only where a finding is "clearly erroneous." Fed.R.Civ.P. 52(a); Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). As the record stands, we are pointed to substantial, uniform testimony that the minimum wage or tip credit was never mentioned to the waiters but cited to no evidence that Tango's gave its waiters any notice of either. The inference that notice was given, drawn by the trial judge, seems to us to be faulty. The waiters' willingness to work for wages of $2.95, where $3.35 might be earned in other available jobs, might be some proof that the waiters expected to earn and retain their tips, but it does not suggest even mildly that the waiters knew anything of the minimum wage laws or defendants' intention to claim a tip credit against their obligations.

As for the investigating officer, he testified at trial that no notice of the tip credit was given to the waiters and "no one [among the waiters] even knew what a tip credit meant"; that in making his calculations he nevertheless allowed a 40 cent tip credit for...