Norsoph v. Riverside Resort & Casino, Inc.

• Decision Date: 11 February 2020
• Docket Number: Case No.: 2:13-cv-00580-APG-EJY, Case No.: 2:16-cv-02697-APG-DJA, Case No.: 2:19-cv-00644-APG-NJK
• Citation: 611 F.Supp.3d 1058
• Parties: Robert NORSOPH, Plaintiff v. RIVERSIDE RESORT AND CASINO, INC., et al., Defendants Kevin Carter, et al., Plaintiffs v. Wynn Las Vegas, LLC, Defendant Shawn Jaffee, et al., Plaintiffs v. Wynn Las Vegas LLC, Defendant
• Court: U.S. District Court — District of Nevada

611 F.Supp.3d 1058

Robert NORSOPH, Plaintiff

v.RIVERSIDE RESORT AND CASINO, INC., et al., Defendants

Kevin Carter, et al., Plaintiffs

v.Wynn Las Vegas, LLC, Defendant

Shawn Jaffee, et al., Plaintiffs

v.Wynn Las Vegas LLC, Defendant

Case No.: 2:13-cv-00580-APG-EJY

Case No.: 2:16-cv-02697-APG-DJA

Case No.: 2:19-cv-00644-APG-NJK

United States District Court, D. Nevada.

Signed February 11, 2020

Dana Sniegocki, Leon Marc Greenberg, Leon Greenberg Prof. Corp., James P. Kemp, Kemp & Kemp, Las Vegas, NV, Mark R. Thierman, Joshua D. Buck, Thierman Buck, LLP, Reno, NV, for Plaintiff.

Bryan J. Cohen, Edwin A. Keller, Jr., Gregory J. Kamer, Kaitlin H. Paxton, Richard T. Creer, Kamer Zucker Abbott, Las Vegas, NV, for Defendants.

Order Granting Motion for Judgment on the Pleadings

[ECF No. 88]

Order Granting in Part Motion for Judgment on the Pleadings and Granting Leave to Amend

[ECF No. 24]

Order Granting in Part Motion for Judgment on the Pleadings and Granting Leave to Amend

[ECF No. 21]

ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

The plaintiffs in each of these cases have filed claims on behalf of themselves and all others similarly situated under the Fair Labor Standards Act (FLSA) based on tip pooling regulations the Department of Labor (DOL) issued in 2011 (the "2011 regulations").

The defendants in each case have moved for judgment on the pleadings or to dismiss. The parties in all three cases dispute whether the plaintiffs can bring a claim under the 2011 regulations following DOL's position that it lacked statutory authority to issue those regulations and Congress's subsequent amendment of the FLSA in March 2018. The Carter and Jaffee cases also raise other issues, such as whether those plaintiffs have claims post-dating the March 2018 statutory amendments and whether the Jaffee plaintiffs were required to exhaust remedies under their collective bargaining agreement (CBA).

I consolidated the pending motions for hearing. As set forth more fully below, I grant the motion for judgment on the pleadings in the Norsoph case without leave to amend because amendment would be futile. I grant the motion for judgment on the pleadings in the Carter case and grant in part the motion to dismiss in the Jaffee case, but I grant the plaintiffs in those cases leave to amend because amendment by them would not be futile.

I. BACKGROUND

A. Factual Background

Plaintiff Robert Norsoph alleges that while he was a dealer at the Riverside Resort and Casino, he was required to pool tips with employees who do not customarily receive tips, in violation of DOL's 2011 regulations. Norsoph recently moved to amend his complaint to add post-2018 amendment claims, but Magistrate Judge Youchah denied the motion because Norsoph stopped working at Riverside in 2012 and thus he would not have a 2018 claim. Norsoph , ECF Nos. 110, 113.¹

Plaintiffs Kevin Carter, Michael Sacco, and Blake Reck allege that they are bartenders or servers at the Wynn Hotel Casino who are required to pool tips with employees who do not customarily receive tips, including management, in violation of DOL's 2011 regulations. They also assert state law claims for conversion and unjust enrichment. Plaintiff Shawn Jaffee alleges he is a bartender and plaintiff Derek Kritz alleges he is a server at the Wynn who are required to share tips with non-customarily tipped employees, including management, in violation of the 2011 regulations. They also assert state law claims for conversion and unjust enrichment.

B. Legal Background

Every employer subject to the FLSA must pay a minimum wage. 29 U.S.C. § 206(a). In 1942, the Supreme Court ruled that tips ordinarily belong to the tipped employee, unless a contrary arrangement is reached with the employer. Williams v. Jacksonville Terminal Co. , 315 U.S. 386, 397-98, 62 S.Ct. 659, 86 L.Ed. 914 (1942) (holding that tips could be included to meet the minimum wage requirement where the employer notified employees that their tips would be considered part of their wages and the employees continued to work there under the new arrangement).

In 1966, Congress amended the FLSA to allow employers to meet the minimum wage requirement through the use of a tip credit. During the time relevant to this dispute until amended in March 2018, 29 U.S.C. § 203(m) of the FLSA provided:

In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee's employer shall be an amount equal to—

(1) the cash wage paid such employee which for purposes of such determination shall not be less than the cash wage required to be paid such an employee [$2.13]; and

(2) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title [meaning the minimum wage].

The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

Thus, an employer who took a tip credit was required "to (1) give notice to its employees, and (2) allow its employees to retain all the tips they receive, unless such employees participate in a valid tip pool." Oregon Rest. & Lodging Ass'n v. Perez (ORLA) , 816 F.3d 1080, 1082 (9th Cir. 2016). A tip pool was valid if it was "comprised exclusively of employees who are ‘customarily and regularly’ tipped." Id. (quoting § 203(m) ).

In 2010, the Ninth Circuit held that where an employer does not take a tip credit under § 203(m) and instead pays its employees the federal minimum wage in cash regardless of tips, the employer could require employees to participate in tip pools that include employees who are not customarily tipped, such as kitchen staff. Cumbie v. Woody Woo, Inc. , 596 F.3d 577 (9th Cir. 2010). The Cumbie court held this did not violate the FLSA because § 203(m) did not apply to employers who did not take a tip credit so the FLSA does not prohibit the practice and, under Williams , such arrangements are otherwise presumptively valid. Id. at 580-81.

DOL issued regulations in 2011 that sought to overrule Cumbie by extending the tip pooling rules to all employers, including those who did not take a tip credit. Updating Regulations Issued Under the Fair Labor Standards Act , 76 Fed. Reg. 18832-01, 2011 WL 1231289 (April 5, 2011). Specifically, DOL changed 29 C.F.R. § 531.52 to state that tips are the employee's property regardless of whether the employer takes a tip credit, and the employer is prohibited from using tips except as a credit against its minimum wage obligations or in furtherance of a valid tip pool. Thus, the new regulation prohibited tip pooling that violates § 203(m) (such as by pooling with employees who are not customarily tipped) regardless of whether the employer claimed a tip credit under that section.

Some tipped employees thereafter sued their employers under the 2011 regulations, including two cases in the Ninth Circuit: Oregon Restaurant and Lodging Association (ORLA) and Cesarz v. Wynn Las Vegas, LLC . In both cases, the employers required customarily tipped employees to share tips with employees who are not customarily tipped, such as kitchen staff and casino floor supervisors. ORLA , 816 F.3d at 1082. Neither employer took a tip credit. Id. The employers challenged the 2011 regulations, arguing DOL lacked a statutory basis to impose the tip pooling rules in § 203(m) to an employer who did not take the tip credit. The district courts in both cases agreed with the employers. Id. at 1083.

In consolidated appeals of ORLA and Cesarz , the Ninth Circuit applied Chevron² deference and upheld the 2011 regulations. The ORLA majority held that Cumbie was based on the FLSA being silent on the issue of an employer who did not take a tip credit, and that DOL, as the agency charged with enforcing the statute, could fill the statutory gap with its regulations. Id. at 1088. The majority also held that the 2011 regulations were a reasonable interpretation of § 203(m). Id. at 1089-90.

Judge N.R. Smith dissented, arguing that these cases were just like Cumbie and that § 203(m) "only imposed a condition on employers who take a tip credit, rather than a blanket requirement on all employers regardless of whether they take a tip credit." Id. at 1091-92 (emphasis omitted). He argued that because the statute was clear (and Cumbie said it was clear), the majority should not have deferred to DOL's interpretation. Id. at 1092-93.³

The employers in ORLA and Cesarz appealed to the Supreme Court in January 2017. Wynn Las Vegas, LLC v. Cesarz , No. 16-163, Pet. for Writ of Certiorari, 2016 WL 11266214 (Aug. 1, 2016) ; Nat'l Restaurant Ass'n v. U.S. Dep't of Labor , No. 16-920, Pet. for Writ of Certiorari, 2017 WL 360483 (Jan. 19, 2017).

In June 2017, the Tenth Circuit sided with the dissent in ORLA . Marlow v. New Food Guy, Inc. , 861 F.3d 1157 (10th Cir. 2017). The Tenth Circuit concluded that " § 203(m)'s ‘silence’ about employers who decline the tip credit is no ‘gap’ for an agency to fill. Instead, the text limits the tip restrictions in § 203(m) to those employers who take the tip credit, leaving DOL without authority to regulate to the contrary." Id. at 1164.

In response to the Marlow decision, the ORLA dissent, and DOL's own concerns about the 2011 regulations, DOL adopted a nonenforcement policy in December 2017, stating it would not enforce the 2011 regulations where the employer paid a direct cash wage of at least the minimum wage. Tip Regulations Under the Fair Labor Standards Act , 82 Fed. Reg. 57,395, 57,399 (Dec. 5, 2017). It also issued a...