Romero v. Top-Tier Colorado , 849 F.3d 1281 ( 2017 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS March 7, 2017
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
AARICA ROMERO,
Plaintiff - Appellant,
v. No. 16-1057
TOP-TIER COLORADO LLC; RICHARD
J. WARWICK,
Defendants - Appellees.
___________________________
SECRETARY OF LABOR,
Amicus Curiae.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:15-CV-02101-MEH)
_________________________________
Jamie G. Sypulski, Law Office of Jamie Golden Sypulski, Chicago, Illinois (Clifford P.
Bendau, II, The Bendau Law Firm, Phoenix, Arizona, Douglas M. Werman, and Sarah J.
Arendt, Werman, Salas P.C., with her on the briefs), for Plaintiff-Appellant.
Gregory E. Givens, Gregory E. Givens Law Offices, Colorado Springs, Colorado, for
Defendants-Appellees.
M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand, Associate Solicitor, Paul L.
Frieden, Counsel for Appellate Litigation, and Sarah Kay Marcus, Senior Attorney, U.S.
Department of Labor, Washington, D.C., filed a brief for Amicus Curiae.
_________________________________
Before TYMKOVICH, Chief Judge, BACHARACH and MORITZ, Circuit Judges.
_________________________________
MORITZ, Circuit Judge.
_________________________________
In dismissing Aarica Romero’s minimum-wage claim under Fed. R. Civ.
P. 12(b)(6), the district court relied on a single, undisputed fact: Romero has never
alleged that she earned less than the federal minimum wage of $7.25 an hour—at
least after taking into account both (1) the cash wage that her employer paid her and
(2) all of the tips that she received each week.
But an employer doesn’t comply with its federal minimum-wage obligations
just because its employees receive at least $7.25 an hour in tips. Instead, an employer
complies with its minimum-wage obligations if it “pay[s]” its employees at least
$7.25 an hour in “wages.” 29 U.S.C. § 206(a)(1)(C). And while an employer can treat
tips as wages under certain circumstances, see id. § 203(m), Romero asserts that her
employer impermissibly did so here.
The district court declined to address this argument. But without first resolving
whether Romero’s employer was entitled to treat her tips as wages under § 203(m),
the district court couldn’t have determined whether that employer “pa[id]” Romero
“wages” of at least $7.25 an hour under § 206(a)(1)(C). Accordingly, we reverse and
remand to the district court to make this threshold determination in the first instance.
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BACKGROUND
Romero worked as a server for defendant Top-Tier Colorado LLC (Top-Tier)
at one of its restaurants.1 Rather than directly paying Romero the federal minimum
wage of $7.25 an hour, see § 206(a)(1)(C), the defendants instead took advantage of
what’s known colloquially as the “tip credit”: they paid Romero a “cash wage” of
$4.98 an hour2 and then used some of the tips that Romero received to cover the gap
between that cash wage and the federal minimum wage, see Fast v. Applebee’s Int’l,
Inc., 638 F.3d 872, 876 (8th Cir. 2011) (explaining that tip credit “allows the
employer to avoid a larger cash payment to the employee as long as the employee’s
tips make up the difference between $2.13 per hour and the current minimum wage”
(citing § 203(m)).
But the tip credit only applies to “tipped employee[s].” § 203(m). And during
some of the hours she worked, Romero performed what she describes as “non-tipped”
tasks, e.g.,
brewing tea, brewing coffee, rolling silverware, cleaning soft drink
dispensers, wiping down tables, setting tables, busing tables, cutting and
stocking fruit, stocking ice, taking out trash, scrubbing walls, sweeping
floors, restocking to-go supplies, cleaning booths, cleaning ramekins,
1
During the relevant time period, defendant Richard Warwick managed the
restaurant where Romero worked. We refer to Top-Tier and Warwick collectively as
“the defendants.”
2
We take the bulk of these facts from Romero’s complaint. See Hall v.
Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991) (“A court reviewing the sufficiency
of a complaint presumes all of plaintiff’s factual allegations are true and construes
them in the light most favorable to the plaintiff.”). The complaint doesn’t allege the
precise cash wage the defendants paid Romero; instead, it asserts only that they paid
her “the reduced tip[-]credit rate.” App. 11. But the defendants admit in their opening
brief that they paid Romero a cash wage of $4.98 an hour.
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sweeping, mopping, restocking all stations, washing dishes, and
breaking down and cleaning the expo line.
App. 9.
Reasoning that she wasn’t a “tipped employee” under § 203(m) for at least
some of the hours she spent performing these tasks, Romero asserts that the
defendants should have paid her a cash wage of at least $7.25 an hour—rather than a
cash wage of $4.98 an hour—for those hours. And because they failed to do so,
Romero alleges, they violated § 206(a)(1)(C).
More specifically, Romero divides the non-tipped tasks she performed into two
categories: “related” tasks and “unrelated” ones. App. 9. She alleges that the
defendants weren’t entitled to take the tip credit for any of the hours she spent
performing unrelated non-tipped tasks—a rule that she derives primarily from 29
C.F.R. § 531.56(e). And she alleges that the defendants weren’t entitled to take the
tip credit for those hours “in excess of [20 percent] of her regular workweek” that she
spent performing related non-tipped tasks—a rule that she derives primarily from
§ 30d00(e) of applicable version of the Department of Labor’s Field Operations
Handbook. App. 10.
The defendants moved to dismiss Romero’s complaint under Rule 12(b)(6). In
relevant part, they argued that Romero’s complaint doesn’t state a claim under
§ 206(a) because it doesn’t “allege that she failed to receive the minimum wage when
including [all] the tips she received as a server.” App. 18. Relying on United States v.
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Klinghoffer Bros. Realty Corp., 285 F.2d 487 (2d Cir. 1960), the district court
agreed.
In Klinghoffer, the Second Circuit held that an employer complies with
§ 206(a) “so long as the total weekly wage paid by an employer meets the minimum
weekly requirements of the statute, such minimum weekly requirement being equal to
the number of hours actually worked that week multiplied by the minimum hourly
statutory requirement.” 285 F. 2d at 490. Thus, the district court reasoned, “whether
[an employee] is able to state [a] minimum wage violation depends on [the
employee’s] total pay earned for the workweek divided by the total number of hours
worked in that same week.” App. 77. And as the district court noted, Romero’s
complaint doesn’t allege that, after (1) adding up her cash wages and all the tips she
received in any given week and (2) dividing that amount by the number of hours she
worked, she didn’t “earn[]” at least “the minimum wage every week she worked at
the restaurant.” Id. at 79. Accordingly, the district court dismissed Romero’s
complaint for failure to state a claim. Romero appeals.
DISCUSSION
The Fair Labor Standards Act (FLSA) of 1938 requires employers to “pay
[their] employees . . . wages [of] . . . not less than . . . $7.25 an hour.” § 206(a)(1)(C).
But when it comes to “tipped employee[s],” an employer can take advantage of the
FLSA’s tip-credit provision: it can pay those employees a cash wage of as little as
$2.13 an hour, and then use a portion of the employees’ tips to make up the
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difference between that hourly cash wage and the federal minimum wage. Id.
§ 203(m); Fast, 638 F.3d at 876.
Yet § 203(m)’s tip-credit provision is not without its limits. As Romero points
out, the Department of Labor (DOL) has “recognize[d] that an employee may hold
more than one job for the same employer, one which generates tips and one which
does not, and that the employee is entitled to the full minimum wage rate while
performing the job that does not generate tips.” Fast, 638 F.3d at 875 (citing 29
C.F.R. § 531.56(e)). Moreover, § 30d00(e) of the applicable version of the DOL’s
Field Operations Handbook (FOH) “provides that if a tipped employee spends a
substantial amount of time (defined as more than 20 percent) performing related but
nontipped work, . . . then the employer may not take the tip credit for the amount of
time the employee spends performing those duties.”3 Id.
Romero alleges that the defendants employed her in two occupations: one that
generated tips and one that didn’t. She also alleges that she spent more than 20
percent of her workweek performing “related but nontipped work.” Id. Thus, citing
29 C.F.R. § 531.56(e) and § 30d00(e) of the applicable version of the FOH, she
concludes that the defendants weren’t entitled to take the tip credit for (1) those hours
she spent “performing the job that [didn’t] generate tips” and (2) those hours she
spent “performing related but nontipped work.” Id. Instead, she insists, she was
“entitled . . . to the overall minimum wage” for those hours. App. 11.
3
Both Romero and the defendants treat the 1988 version of the FOH as the
applicable version. See also Fast, 638 F.3d at 877-78 (relying on 1988 version of
FOH).
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But the district court explicitly declined to address either of these arguments.
Instead, the court adopted the defendants’ alternate theory: that Romero’s claim fails
as a matter of law because she doesn’t allege “she was . . . paid less than the federal
minimum wage of $7.25 an hour when including [all] her tips and counting all her
hours worked in any one workweek.” Id. at 76.
Citing Klinghoffer, the district court concluded that “whether [a plaintiff] is
able to state an FLSA minimum wage violation depends on her total pay earned for
the workweek divided by the total number of hours worked in that same week.” Id. at
77. See Klinghoffer, 285 F.2d at 490 (explaining that employer satisfies § 206(a) as
long as “total wage paid to [employee] during any given week,” when “divided by
the total time [employee] worked that week,” yields a “resulting average hourly
wage” that meets or exceeds federal minimum). And because Romero doesn’t dispute
that she “earn[ed] more than the minimum wage every week she worked at the
restaurant,” the district court dismissed her claim. App. 79.
On appeal, Romero argues that the court’s reliance on Klinghoffer is
misplaced. Reviewing the district court’s decision to dismiss de novo, see Moore v.
Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006), we agree.
The district court’s Klinghoffer analysis conflates two distinct concepts:
(1) the tips that Romero “earn[ed],” see App. 79, and (2) the “wages” that the
defendants “pa[id],” see § 206(a). True, the former is relevant to the minimum-wage
inquiry to the extent that § 203(m) allows an employer to “us[e]” some of an
employee’s tips as wages. Trejo v. Ryman Hosp. Props., Inc., 795 F.3d 442, 447 (4th
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Cir. 2015). But only the latter is actually dispositive of such a claim. See
§ 206(a)(1)(C) (requiring “[e]very employer [to] pay [its] employees . . . wages [of]
. . . not less than . . . $7.25 an hour” (emphases added)).
And this distinction between tips earned and wages paid simply wasn’t at issue
in Klinghoffer; there, the plaintiff never disputed that every cent the employees
earned for the work they performed constituted “wages” their employers “pa[id]”
them for purposes of § 206(a). 285 F.2d at 490. Moreover, as Romero points out, this
issue couldn’t have arisen in Klinghoffer; the Second Circuit decided that case years
before Congress amended the FLSA to include § 203(m)’s tip-credit provision. See
Or. Rest. & Lodging Ass’n v. Perez, 816 F.3d 1080, 1083 (9th Cir. 2016).
Here, on the other hand, the entire upshot of Romero’s argument is that the
defendants impermissibly treated a portion of her tips as “wages” for purposes of
§ 206(a) by taking § 203(m)’s tip credit for hours that, according to Romero, weren’t
tip-credit eligible under 29 C.F.R. § 531.56(e) and § 30d00(e) of the applicable FOH.
In other words, we can assume that the district court correctly derived from
Klinghoffer the general rule that an employer satisfies § 206(a) so long as, after “the
total wage paid to each [employee] during any given week is divided by the total time
[that employee] worked that week, the resulting average hourly wage” meets or
exceeds $7.25 an hour. 285 F.2d at 490. But even then, the district court couldn’t
apply that general rule to Romero’s claim without first determining what “total
wage” the defendants actually “paid” her. Id. And the district court couldn’t make
that determination without evaluating whether, as Romero alleges, the defendants
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took § 203(m)’s tip credit for hours that weren’t tip-credit eligible. Cf. Fast, 638 F.3d
at 874-75, 876-81 (acknowledging that parties agreed “the plaintiffs received in
employer cash payments and tips a sum at least equal to the required minimum wage
per hour for all hours worked,” but nevertheless proceeding to analyze effect of 29
C.F.R. § 531.56(e) and § 30d00(e) of applicable FOH on plaintiffs’ minimum-wage
claim).
The defendants suggest that by drawing a line between what an employer pays
in wages and what an employee receives in tips, we miss the forest for the trees.
After all, the purpose of the FLSA is to ensure that every covered worker receives
“[a] fair day’s pay for a fair day’s work.” Barrentine v. Ark.-Best Freight Sys., Inc.,
450 U.S. 728, 739 (1981) (quoting Overnight Motor Transp. Co. v. Missel, 316 U.S.
572, 578 (1942)). And according to the defendants, that “purpose is filled” when “an
employee like Romero receives pay . . . above the minimum wage,” Aplee. Br. 14,
even if that pay happens to take the form of tips rather than wages. So even assuming
they wrongfully took the tip credit for one or more hours, the defendants insist,
Romero’s complaint still doesn’t state a claim under § 206(a).
But if the defendants’ interpretation of § 206(a) is correct, then an employer
can pay a tipped employee nothing at all, so long as that employee’s weekly tips—
when divided by the number of hours he or she worked—average at least $7.25 an
hour. We find this reading of § 206(a) impossible to square with § 203(m)’s plain
language: the latter explicitly requires employers to pay their tipped employees
something, regardless of how much those employees receive in tips. See § 203(m)(1)
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(“[T]he cash wage paid such employee . . . shall be not less than [$2.13 an hour.]”);
see also Schaefer v. Walker Bros. Enters., 829 F.3d 551, 553 (7th Cir. 2016) (noting
that FLSA “require[s] some cash payment from the employer . . . no matter how
much a worker receives in tips”); cf. Doty v. Elias, 733 F.2d 720, 722, 724 (10th Cir.
1984) (rejecting, under previous version of § 203(m), defendant’s argument that “an
employer who allows employees to keep their tips complies with [§ 206(a)] so long
as the employees make at least as much in tips as they would if they received only
the minimum hourly wage”; such interpretation would “do[] violence to the language
of § 203(m) and . . . render much of that section superfluous”).
Accordingly, we reject the defendants’ argument—and the district court’s
conclusion—that “if [a] tipped employee makes enough [in tips] to meet the
minimum wage,” then the employer has necessarily complied with § 206(a). App. 79.
Instead, we hold that to the extent an employee’s tips are relevant in determining
whether an employer has satisfied its minimum-wage obligations under § 206(a), the
threshold question is whether the employer can treat those tips as wages under
§ 203(m). And because the district court declined to answer that threshold question
here, we reverse and remand to give the district court an opportunity to do so in the
first instance. See Pac. Frontier v. Pleasant Grove City, 414 F.3d 1221, 1238 (10th
Cir. 2005) (“Where an issue has been raised, but not ruled on, proper judicial
administration generally favors remand for the district court to examine the issue
initially.”); see also Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino &
Resort, 629 F.3d 1173, 1181 (10th Cir. 2010) (“Because the district court wrongly
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concluded that [defendants] were not subordinate economic entities entitled to tribal
sovereign immunity, and consequently did not reach the issue of whether
[defendants] waived their immunity from suit . . . , we remand for the district court to
address that question in the first instance.”).
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