The Tenth Circuit Court of Appeals has closed the door on tip claims under a provision of the Fair Labor Standards Act (“FLSA”) and a Department of Labor (“DOL”) regulation for employees paid more than minimum wage. In Marlow v. The New Food Guy, Inc., 861 F.3d 1157 (2017), the court held that an employer did not violate the tip-credit restrictions when it retained tips paid by customers because its employees were compensated at a set wage greater than minimum wage.
The New Food Guy, Inc., is a Colorado company that does business as Relish Catering (“Relish”). Relish hired Marlow to provide catering services. Relish paid Marlow $12 per hour regularly and $18 per hour for overtime work. At the end of each catering event, Relish accepted tips from customers paying their final bills, but Relish did not supplement Marlow’s hourly wage with any share of the gratuities. Marlow filed suit against Relish claiming Relish violated the minimum wage provisions of the FLSA. Marlow argued that she was entitled to a portion of all tips received at the catering events she worked. The district court granted Relish’s motion for judgment on the pleadings, and Marlow moved for reconsideration–citing a DOL regulation that prohibits employers from retaining employee tips. The district court denied Marlow’s motion.
On appeal, Marlow advanced two arguments for reversal: (1) Relish violated the FLSA’s tip-credit restrictions when it retained the tips; and (2) Relish violated the DOL regulation prohibiting employers from retaining tips. Marlow argued that section 203(m) of the FLSA applied and required Relish to give a share of the tips to Marlow. Section 203(m) is known as the tip-credit provision; it allows employers to pay tipped employees a reduced wage of $2.13 as long as the employees receive enough tips to reach the federal minimum wage of $7.25. Under the tip-credit provision, employees are entitled to keep tips received in excess of minimum wage. The Tenth Circuit held that the tip-credit provision did not apply because Relish chose not to pay the reduced wage permitted under 203(m). As the court stated, “[w]hen the employer does not take the tip credit, it must do only what all employers must do—pay the full minimum wage.” The court found that Marlow’s $12 per hour easily satisfied this requirement.
Next, Marlow argued that a DOL regulation required Relish to pay her a portion of the tips. The DOL regulation states, “[t]ips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) the FLSA.” The court recognized that Congress empowered the DOL to promulgate necessary rules, regulations and orders to fill ambiguities or gaps in the FLSA. However, it held that there was no ambiguity or gap to fill with regard to section 203(m) and, as a result, the DOL had no authority to regulate the tip-credit provision.
The Tenth Circuit’s decision is in direct conflict with the Ninth Circuit’s decision in Oregon Restaurant & Lodging Ass’n v. Perez, 843 F.3d 355 (2016). In Perez, the Ninth Circuit upheld the DOL’s regulation because silence in the statute was a gap that the DOL was authorized to fill. A petition for writ of certiorari is currently pending before the United States Supreme Court. Until the circuit split is resolved, employers in the Tenth Circuit may retain tips from employees without violating the FLSA as long as they pay their employees at least minimum wage.