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Getting to the Bottom Line
GETTING TO THE BOTTOM LINE By Paul Bielaczyc Getting to the bottom line at mediation many times depends on the level of preparedness of all sides. The process is hindered in cases where no...

Ninth Circuit Clarifies When Non-Tipped Employees May Participate In Tip Pools

In case of first impression for it, the Ninth Circuit clarified the validity of tip pools under the Fair Labor Standards Act ("FLSA") where the tip pool includes employees who are not customarily and regularly tipped. In Cumbie v. Woody Woo, Inc., the Court of Appeals held that where workers make more than the minimum wage and the employer takes no tip credit, tip pools including non-tipped employees do not violate the FLSA.

Plaintiff Misty Cumbie was a server at the Vita Café in Portland, Oregon, which is owned and operated by Defendants Woody Woo, Inc., Woody Woo II, Inc., and Aaron Woo (collectively "Woo"). Woo's servers were paid a wage at or exceeding the Oregon minimum wage, which at the time was higher than the federal minimum wage, and also received a portion of their daily tips. The servers were required to contribute their tips to a "tip pool" that was redistributed to all restaurant employees, except managers. Between 55% and 70% of the tip pool went to the kitchen staff (e.g. dishwashers and cooks), who are not customarily tipped in the restaurant industry. The remainder of the tip pool (between 30% and 45%) was returned to the servers in proportion to their hours worked.

Cumbie alleged that Woo's tip pooling policy violated the FLSA's minimum wage provisions. She argued that the FLSA requires employers to allow employees to keep all of their tips, except where the employee participates in a tip pool with other customarily tipped employees. Because Woo's tip pooling policy included employees who are not customarily and regularly tipped, Cumbie argued it was invalid under the FLSA and Woo was required to pay her the minimum wage plus all of her tips.

The Court of Appeal held that Woo's tip pooling policy did not violate the FLSA because the FLSA only restricts tip pools to employees who are customarily tipped when the employer takes a tip credit. The Court began with the principle that tip pools are valid where there is an explicit arrangement to turn over or redistribute tips and there is no "statutory interference" that would invalidate the arrangement. In its analysis the Court found that the language of the statute limiting tip pools to customarily tipped employees imposes a condition on taking a tip credit and does not state a freestanding requirement. A "tip credit" is where an employer is allowed to take credit for a certain amount of tips earned by their employees toward the employer's payment of the minimum wage. Tip credits are not allowed under Oregon law, and so Woo was not allowed to, and did not, take one. Because Woo did not take a tip credit, its tip pooling requirement was not subject to this limitation. Therefore, the Court found that there was no "statutory interference" and Woo's tip pooling requirement was valid.

The Court also rejected Cumbie's arguments that Woo's tip pooling policy violated the FLSA's requirement that the minimum wage be paid "free and clear" and that allowing Woo's tip pooling policy would violate the purpose of the FLSA. The Court found that the "free and clear" regulation hinges on whether the tips belong to the servers to whom they are given. Because Woo had a valid tip pooling policy, only the tips redistributed to Cumbie out of the pool belonged to her. Because Woo's tip pooling policy did not take tips belonging to Cumbie away from her, the Court found that Woo did not violate the "free and clear" regulation. Finally, the Court found that its conclusion that the FLSA does not prohibit Woo's tip pooling policy did not thwart the purpose of the FLSA. The purpose of the FLSA is to protect workers from substandard wages and oppressive working hours. Under Woo's tip pooling policy, Cumbie did not experience such conditions because she received a wage that was greater than the federal minimum wage, plus a substantial portion of her tips.

Cumbie provides employers with greater clarity under federal law regarding which employees can be included in a tip pool when their employees make at least the minimum wage and the employer does not take a tip credit. However, employers are cautioned to ensure that any tip pooling policy complies with both the law in their respective state as well as federal law. Simply because a tip pooling policy may be valid under federal law does not necessarily mean that it is legal under state law.

United States Supreme Court Grants Review of Employee Privacy/Text-Messaging Case

On December 14, 2009, the United States Supreme Court granted review in the case of Quon v. Arch Wireless Operating and The Ontario Police Department, 529 F.3d. 892 (9th Cir. 2008). In this case, the Ninth Circuit Court of Appeal held that the City of Ontario violated the Fourth Amendment and California constitutional privacy rights of the SWAT team member and the officers he texted when, as part of an overage audit, Management read transcripts of the messages the officer sent on his City-issued pager.

As a reminder, in Quon, the Ninth Circuit ruled against the City despite the City's written “Computer Usage, Internet, and E-mail Policy,” which stated that use of those devices was limited to city business only and that employees were to have no expectation of privacy when using those devices. Here, the problem was that a lieutenant told employees that text messages would not be audited as long as employees paid any overage charges incurred, and the employees argued that they had relied on this statement. The Ninth Circuit held that the lieutenant's oral agreement not to audit the messages trumped the written policy, thereby creating a reasonable expectation of privacy by the employees and any other individuals who sent messages to the employees. The Ninth Circuit further held that the City’s review of the text messages was not reasonable in its scope as there were less intrusive means to audit overages.

The questions presented to the United State Supreme Court for review are:

(1) Whether a SWAT team member has a reasonable expectation of privacy in text messages transmitted on his SWAT pager, where the police department has an official no-privacy policy but a non-policymaking lieutenant announced an informal policy of allowing some personal use of the pagers.

(2) Whether the Ninth Circuit violated the Supreme Court’s prior Fourth Amendment cases and created a conflict among the appellate courts by analyzing whether the police department could have used “less intrusive methods” of reviewing text messages transmitted by a SWAT team member on his SWAT pager.

(3) Whether individuals who send text messages to a SWAT team member’s SWAT pager have a reasonable expectation that their messages will be free from review by the recipient’s government employer.

Regardless of its outcome, this case serves as a reminder to employers to ensure that not only are employee handbooks updated, but that they are also being strictly followed by managers.

New Law School Graduates May Be Particularly Adept at Defeating the Technical Language Trap
In the current economy, as banks seek to foreclose on deeds of trust, attorneys for banks and borrowers in default will be pouring over deeds to discover - and defeat - defects in the title. Newly-graduated associates fresh from the Bar exam may be particularly helpful when examining unusual deeds with complicated remainder interests or archaic, technical language that every lawyer learns for the bar exam, but that rarely appears in actual practice.

Employment Agreement Shortening Statute of Limitation Is Invalid

In Maria Pellegrino, et al. v. Robert Half International, Inc., the plaintiffs were former employees who sued for unpaid overtime, violation of meal and rest period rules, failure to pay commissions, and failure to provide accurate pay stubs. Each of the employees had signed an employment agreement providing that no claims against the company shall be valid if asserted more than six months after the employee’s termination. The employment agreement also provided that each employee expressly waived any statute of limitation to the contrary. The company asserted that the employees’ claims were time barred because they filed their lawsuit more than six months after termination. The employees argued that the contractual provision truncating the time frame in which to sue was invalid.

In certain situations, California law allows parties to agree to shorten the time period in which to sue. Whether a shortened time period is permitted depends upon the types of claims and rights involved as well as the reasonableness of the time period. The rights at issue in this lawsuit were all supported by strong public policy. The statutes regarding overtime, meal and rest periods, timely payment of commissions and pay stubs were designed to protect employees and the general public. Laws that are designed to benefit the public, as opposed to laws that merely benefit an individual, cannot be set aside in a private agreement between employer and employee. In addition, the six month time period in the employment agreement was substantially shorter than the time frame in which the employees would ordinarily be able to sue under the applicable statutes of limitation.

Enforcing the shortened limitation period provision would result in barring legitimate, unwaivable statutory claims by employees who failed to discover the employer’s error within six months of termination. The court, therefore, concluded that the contractual provision shortening the time to sue unlawfully restricted the employees’ ability to vindicate their statutory rights. The court refused to enforce the contractual provision shortening the limitations period to six months after termination because it was contrary to public policy.

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