Esry v. P.F. Chang's Bistro, Inc.

• Decision Date: 09 May 2018
• Docket Number: No. 4:18CV00156 JLH,4:18CV00156 JLH
• Parties: JACQUELINE ESRY, individually and on behalf of all others similarly situated PLAINTIFFS v. P.F. CHANG'S BISTRO, INC., d/b/a P.F. Chang's China Bistro DEFENDANT
• Court: U.S. District Court — Eastern District of Arkansas

JACQUELINE ESRY, individually and on behalf of all others similarly situated PLAINTIFFS v. P.F. CHANG'S BISTRO, INC., d/b/a P.F. Chang's China Bistro DEFENDANT

No. 4:18CV00156 JLH

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS WESTERN DIVISION

May 9, 2018

OPINION AND ORDER

Jacqueline Esry brings this collective action against her former employer, P.F. Chang's China Bistro, alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201, et seq., and the Arkansas Minimum Wage Act ("AMWA"), Ark. Code Ann. § 11-4-201, et seq. Esry was a server at the P.F. Chang's restaurant in Little Rock, Arkansas. The complaint is based on P.F. Chang's use of a "tip credit" to calculate servers' wages for purposes of meeting the minimum wage requirements of the FLSA and the AMWA. P.F. Chang's has filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the motion is denied.

I.

The complaint alleges that P.F. Chang's paid its servers less than minimum wage, relying on the FLSA's "tip credit." Document #1 at 4, ¶ 23 (citing 29 U.S.C. § 203(m)). P.F. Chang's did not distinguish between tip-producing duties and nontip-producing duties; it paid the servers less than minimum wage each hour they worked. Id. at 5, ¶¶ 26-30. Esry and other servers spent more than 20 percent of their time performing nontip-producing duties for P.F. Chang's, such as opening and closing the restaurant, rolling silverware, and performing side-work. Id. at 1, ¶ 2. P.F. Chang's did not inform the servers of the law governing the tip credit prior to taking a tip credit against the minimum wage. Id. at 4, ¶ 24.

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). The Court accepts as true all of the factual allegations contained in the complaint and draws all reasonable inferences in favor of the nonmoving party. Gorog v. Best Buy Co., Inc., 760 F.3d 787, 792 (8th Cir. 2014). The complaint must contain more than labels, conclusions, or a formulaic recitation of the elements of a cause of action, which means that the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555, 127 S. Ct. at 1965.

II.

P.F. Chang's argues that there is no rule precluding an employer from taking advantage of the tip credit when an employee spends more than 20 percent of her time performing nontip-producing duties and, therefore, the complaint should be dismissed. Document #8 at 10-11. The FLSA requires employers to pay a minimum hourly wage, which is currently $7.25 per hour. 29 U.S.C. § 206(a)(1)(C). But with the tip credit, the "wage" an employer must pay a "tipped employee" is the sum of (1) the cash wage paid to the employee, which must be at least theminimum cash wage that was required to be paid to tipped employees on August 20, 1996 ($2.13 per hour) and (2) an additional amount based on tips received by the employee that is equal to the difference between the $2.13 cash wage and the current $7.25 minimum wage. 29 U.S.C. § 203(m). The FLSA defines "tipped employee" as an "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). The parties agree that Esry and those similarly situated are employed in a tipped occupation; they disagree as to whether P.F. Chang's must pay the current minimum wage to those employees, as opposed to the tip credit's cash wage, for the time they were performing nontip-producing duties.

The FLSA itself does not mention the 20 percent rule, nor does it explain when an employee is "engaged" in a tipped occupation. But recognizing that there are situations in which employees have more than one occupation under one employer—some occupations that are tipped and some that are not—the Department of Labor ("DOL") promulgated a "dual jobs" regulation interpreting and implementing the tip credit. See 29 C.F.R. § 531.56(e). The agency provides the example of a hotel employee working as a maintenance man and a server: The employer cannot take the tip credit for the employee's hours of employment as a maintenance man, but the employer can take the tip credit for the employee's hours of employment as a server. Id. The regulation explains that the hotel employee working a dual job—maintenance man and server—is different from a server "who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses . . . . Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips." Id.

The regulation itself does not mention the 20 percent rule nor does it elaborate on what duties are considered "related," but the DOL has further interpreted its dual jobs regulation in a Field Operations Handbook. The Handbook provides:

(f) Dual jobs

* * *

(2) 29 CFR 531.56(e) permits the employer to take a tip credit for time spent in duties related to the tipped occupation of an employee, even though such duties are not by themselves directed toward producing tips, provided such related duties are incidental to the regular duties of the tipped employee. For example, duties related to the tipped occupation may include a server who does preparatory or closing activities, rolls silverware and fills salt and pepper shakers while the restaurant is open, cleans and sets tables, makes coffee, and occasionally washes dishes or glasses.

(3) However, where the facts indicate that tipped employees spend a substantial amount of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties. All related duties count toward the 20 percent tolerance.

Dep't of Labor, Wage and Hour Division Field Operations Handbook ch. 30d00(f) (2016), available at https://www.dol.gov/whd/FOH/FOH_Ch30.pdf. Esry's complaint hinges on whether the Court must look to the Handbook to determine when an employer is precluded from using the tip credit to pay its employees in tipped occupations. P.F. Chang's maintains that this section of the Handbook is "arbitrary, capricious, contrary to law, and unworthy of deference." Document #8 at 10.

The Eighth Circuit held in Fast v. Applebee's Int'l, Inc. that the DOL's interpretation of the dual jobs regulation was entitled to deference pursuant to Auer v. Robbins, 519 U.S. 452, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997) (calling for deference to an agency's interpretation of its own ambiguous regulation) and that the DOL's interpretation was not "clearly erroneous or inconsistentwith the regulation."¹ See 638 F.3d 872, 877-881 (8th Cir. 2011) (cert. denied, 565 U.S. 1156, 132 S. Ct. 1094, 181 L. Ed. 2d 977 (2012)). Though Fast is directly on point, P.F. Chang's argues that it is no longer binding precedent in light of two "subsequent developments:" (1) Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 132 S. Ct. 2156, 183 L. Ed. 2d 153 (2012) and (2) the DOL's changes to its interpretation of the dual jobs regulation. Document #8 at 39.

First, Fast is still good law after Christopher, which involved a different regulation, different facts, and different concerns about what affording deference to the agency's interpretation would mean for employers. See Romero v. Top-Tier Colorado LLC, 849 F.3d 1281, 1284 (10th Cir. 2017) (citing Fast); Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186, 190, n. 8 (5th Cir. 2015) (same); Flood v. Carlson Rests., Inc., 94 F. Supp. 3d 572, 582 (S.D.N.Y. 2015) (citing the Eighth Circuit's "well-reasoned decision in Fast"). In Christopher, the Supreme Court held that the DOL's interpretation of its own ambiguous regulation concerning the exemption of an "outside salesman" from the minimum wage and maximum hours requirements of the FLSA was not entitled to Auer deference. 567 U.S. at 155-159, 132 S. Ct. at 2166-69. The court, citing Auer, focused on the "strong reasons" for withholding deference, such as the imposition of "potentially massive liability," unfair surprise, and changing the pharmaceutical industry's "decades-long practice" of classifying pharmaceutical sales representatives as outside salesman exempt from the FLSA. Id. at 155-58, 132 S. Ct. at 2167-68. The Supreme Court in Christopher, like the Eighth Circuit in Fast, applied the general principles of agency deference created in Auer. Its holding does not affect Fast.

Second, changes the DOL has made to its position on the 20 percent rule do not render Fast obsolete. P.F. Chang's cites two sources for the changes: an opinion letter and the Handbook. In 2009, the DOL issued and withdrew an opinion letter stating that it had never intended to implement a 20 percent rule: "We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with customer-service duties and all other requirements of the Act are met." Document #7-4 at 46. In Fast, the district court mentioned the 2009 opinion letter in a footnote, stating that it "appear[ed] to have been triggered by this litigation," that it was withdrawn, and that the DOL stated the letter cannot be relied on as a...