Ayres v. 127 Restaurant Corp.

• Decision Date: 16 June 1998
• Docket Number: No. 96 Civ. 1255 (DC).,96 Civ. 1255 (DC).
• Citation: 12 F.Supp.2d 305
• Parties: Kevin AYRES, Vincent Camporeale Mary-Faith Cerasoli, Antonio Dasilva, Richard Duffy, Leah Fitshen, Luis Jerez, Walter Magnuson, Amy McCafferty, Robert McManus, Mark O'Callaghan, Christopher Palen, Todd Piorier, Humberto Ponce, Felipe Rodriguez, Jason Ruffo, Juan Seron, Matthew Talomie, and Roberto Virhuez, Plaintiffs, v. 127 RESTAURANT CORP. d/b/a Le Madri Restaurant, Defendants.
• Court: U.S. District Court — Southern District of New York

12 F.Supp.2d 305

Kevin AYRES, Vincent Camporeale Mary-Faith Cerasoli, Antonio Dasilva, Richard Duffy, Leah Fitshen, Luis Jerez, Walter Magnuson, Amy McCafferty, Robert McManus, Mark O'Callaghan, Christopher Palen, Todd Piorier, Humberto Ponce, Felipe Rodriguez, Jason Ruffo, Juan Seron, Matthew Talomie, and Roberto Virhuez, Plaintiffs, v. 127 RESTAURANT CORP. d/b/a Le Madri Restaurant, Defendants.

No. 96 Civ. 1255 (DC).

United States District Court, S.D. New York.

June 16, 1998.

COPYRIGHT MATERIAL OMITTED

Gladstein, Reif & MeGinniss, LLP by Beth M. Margolis, Yvonne Brown, New York City, for Plaintiffs.

Wachtel & Masyr, LLP by Michael S. Etkin, Howard I. Elman, New York City, for Defendant.

MEMORANDUM DECISION

CHIN, District Judge.

Plaintiffs, who are former or current members of the wait staff at Le Madri Restaurant, bring this action against defendant 127 Restaurant Corp. d/b/a Le Madri Restaurant pursuant to the Fair Labor Standards Act (the "FLSA"), 29 U.S.C. § 201 et seq., 203, 206, and the New York Labor Law § 196-d. They allege that Le Madri failed, among other things, to pay them the prevailing minimum wage and overtime rate, and failed to reimburse them for the purchase and maintenance of their required uniforms. Plaintiffs further contend that defendant misappropriated their gratuities through "an involuntary tip sharing scheme," and that defendant retaliated against two of the named plaintiffs for participating in this lawsuit by firing them. (Am.Compl. ¶ 1).

Plaintiffs move for partial summary judgment as to the tip-based claims. Defendants cross-move for partial summary judgment on various claims. For the reasons that follow, the cross-motions are granted in part and denied in part.

A. Plaintiffs' Motion for Partial Summary Judgment

1. Tip Pooling

Plaintiffs seek summary judgment on their gratuity claims, contending that Le Madri's practice of pooling tips earned by its wait staff and disbursing them centrally violated the New York Labor Law to the extent that Alain Elkaim, general manager of the restaurant, was permitted to share in the tips.

While tip-pooling is not per se illegal, see Hartnett v. Wade-Mark Eleven, Inc., 156 A.D.2d 559, 549 N.Y.S.2d 69, 70 (2d Dep't 1989), N.Y. Labor Law § 196-d prohibits any "employer or his agent" from "demand[ing] or accept[ing], directly or indirectly, any part of the gratuities, received by an employee, or retain[ing] any part of a gratuity or of any charge purported to be a gratuity for an employee." An employer "includes any person acting directly or indirectly in the interest of an employer in relation to an employee." 29 U.S.C. § 203(d). The issue here is whether Elkaim was an employer or agent of an employer for purposes of this provision.

Plaintiffs are entitled to summary judgment on this claim as a matter of law for the period of January to December of 1995, during which time Elkaim received $20,000 in gratuities in addition to his weekly salary of $2,000. (See Pls. Exh. L). A reasonable jury could only conclude that Elkaim became an "employer or his agent" in January of 1995 when he was formally promoted to "general manager" or "manager of the restaurant" (Luongo Dep. at 366-67), the post formerly filled exclusively by Pino Luongo, the President of 127 Restaurant Corp.¹ The uncontroverted facts are that at that point Elkaim: (1) gained "full authority" to suspend or terminate employees, which he formerly could not do without first consulting Luongo (Luongo Dep. at 6); (2) supervised the wait staff and made hiring decisions; (3) assumed greater responsibility for the restaurant's budget, including analyzing payroll and food costs; and (4) received a salary of $2,000 per week, regardless of the number of hours he worked. While Luongo retained some "supervisor[y]" authority, the undisputed facts show that he had delegated the bulk of his management responsibilities to Elkaim by January 1995. (See Luongo Dep. at 61-62). Hence, defendant violated Labor Law § 196-d by permitting Elkaim to receive a portion of the wait staff's gratuities after January 1995.

There is, however, a triable issue of fact as to whether Elkaim was an "employer or agent" prior to January 1995 or whether he was merely a senior floor captain with more limited supervisory responsibilities during this period. The record reflects that he had considerable responsibilities prior to this time and signed employee documents as "manager" or "general manager." On the other hand, there are questions as to how much time Elkaim spent at the restaurant, the extent of his supervisory responsibilities before 1995, and whether he could make unilateral personnel decisions.

2. Tip Credit

Plaintiffs further move for summary judgment on the ground that defendant illegally took a "tip credit" against their hourly wage. The FLSA, as well as New York law, permits employers to take a tip credit against the wages of a "tipped employee"² by paying them a slightly lower hourly wage,³ provided that "such employee has been informed by the employer of the provisions of [the law] and ... all tips received by such employee have been retained by the employee." 29 U.S.C. § 203(m).

Plaintiffs' motion is granted to the extent that Elkaim participated in the tip pool from January to December of 1995. Here, the undisputed facts indicate that the employees against whom a tip credit was taken did not retain all tips received between January and December of 1995 because a portion of their gratuities went to Elkaim. Defendant, therefore, failed to qualify for the tip credit during this time period. According to defendant's own practices, as a general manager Elkaim was not an employee "who customarily and regularly receive[d] tips." 29 U.S.C. § 203(m). Luongo testified in his deposition that neither he nor "the general manager" (nor any member of the "back-of-the house" staff) was to receive any tips, that had he known Elkaim was still in the pool as the general manager he "would have really done everything to ... stop him from collecting tips," and that when it was brought to his attention in 1996 that Elkaim still received tips, Elkaim was barred from the tip pool. (Luongo Dep. at 442-43). Similarly, Le Madri's Controller Jerry Bruinooge testified at his deposition that, in retrospect, he believed that Elkaim's participation in the tip pool violated state law. (See Bruinooge Dep. at 180).

Because Le Madri "d[id] not qualify for the tip credit [during this period], tips received by plaintiffs may not be considered as part of wages paid to them for purposes of satisfying defendant's minimum wage obligations." Bonham v. Copper Cellar Corp., 476 F.Supp. 98, 102 (E.D.Tenn.1979). Accordingly, defendant must disgorge the amount of tip credit deducted from each plaintiff's wages during the period that the tip pool violated § 203(m).

3. Wilfulness

The next question is whether defendant acted wilfully so as to entitle plaintiffs to statutory liquidated damages. A violation of the New York Labor Law is wilful, warranting an award of 25% liquidated damages in addition to lost wages, where the employer "knowingly, deliberately, [or] voluntarily" disregards its obligation to pay wages. P & L Group, Inc. v. Garfinkel, 150 A.D.2d 663, 541 N.Y.S.2d 535, 537 (2d Dep't 1989). No finding of malice or bad faith, however, is necessary. See In re CIS Corp., 206 B.R. 680, 689 (Bankr.S.D.N.Y.1997).

Under the FLSA, "double damages are the norm" unless a defendant shows that it acted in good-faith and that its conduct was lawful by providing "plain and substantial evidence of at least an honest intention to ascertain what the Act requires and to comply with it." Brock v. Wilamowsky, 833 F.2d 11, 19 (2d Cir.1987); see Donovan v. Carls Drug Co., 703 F.2d 650, 652 (2d Cir.1983) ("[e]mployers wilfully violate FLSA when (1) they know that their business is subject to FLSA and (2) their practices do not conform to FLSA requirements."); 29 U.S.C. § 260.

Here, a reasonable jury could only find that Le Madri intentionally, or at least recklessly, permitted Elkaim to share in the wait staff's gratuities. Luongo denied under oath knowing that Elkaim continued to receive tips after January 1995, but stated that had he discovered it, he would have "done everything to stop it." (Luongo Dep. at 443). Bruinooge testified at his deposition that despite his general knowledge of the law and his awareness that as general manager Elkaim continued to receive a share of the wait staff's gratuities, he never reviewed the tip pooling practices at Le Madri to ascertain whether they were lawful. (See Bruinooge Dep. at 170) ("I didn't have a tremendous interest in the tips, other than the fact that I didn't pay out more than what we collected.... I had no interest in reviewing the tip pool"). Luongo and Bruinooge were the only individuals who signed paychecks in 1995. (See Bruinooge Dep. at 78). Had Bruinooge or Luongo made reasonable inquiries, they would have also learned that Elkaim continued to receive gratuities for a full year after becoming general manager. Moreover, diligent review would have showed that Elkaim's unlawful participation in the tip pool precluded Le Madri from legally claiming a tip credit. See Reich v. Waldbaum, Inc., 52 F.3d 35, 39 (2d Cir.1995) (holding that violation of FLSA is wilful where employer "either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the law").

Defendant attempts to create an issue of fact as to wilfulness by now asserting that it believed in good faith at the time that Elkaim was entitled to a portion of the gratuities as a member of the service team. Le Madri offers no evidence, however, that it made reasonable inquiries into the relevant law, or that it actually reviewed its own tip pooling practices, or that it relied on the advice of counsel as to the lawfulness of Elkaim's continued participation in the pool or Le Madri's entitlement to the tip credit in ...