Bar Employees Short-Changed by Tip Credit Practices

Johnny Bernal worked at a series of Texas bars (collectively “Bars”) where, as a server, he received tips from customers that were placed in a tip pool and distributed among employees, including managers. Bernal’s stated hourly rate of pay was less than federal minimum wage, and did not receive time and a half pay for overtime.

Bernal brought suit against the Bars, on behalf of himself and others similarly situated, alleging violations of the Fair Labor Standards Act. The FLSA requires that employees be paid a statutory minimum hourly wage, and be paid at least 1.5 times their regular rate for weekly hours worked in excess of forty. However, some employers are permitted to pay employees less than the minimum wage if the employees receives tips that, when added to their hourly wage, amount to more than the statutory minimum. This practice, known as taking a “tip credit,” is only permitted if the employer has informed the employees of the tip credit provisions and if the employees retain all tips.

Bernal contended that the Bars were disqualified from taking the tip credits and moved for partial summary judgment. Bernal argued that the Bars violated their minimum wage obligations by failing to inform employees of the tip credit provisions, by requiring employees to cover cash register shortages and unpaid tabs, and by requiring employees to participate in tip pools which distributed tips to managers and janitors.

The Bars asserted that employees were aware of the tip credit process because it was an industry standard. The Court found that argument unpersuasive and noted that employers have an affirmative obligation to inform employees of the intention to treat tips as partial satisfaction of minimum wage requirements. The Court held that the Bars had failed to appropriately inform employees of the tip credit provisions and they were therefore disqualified from taking the tip credit.

The Court also held that the Bars’ requirement that employees reimburse cash register shortages and unpaid tabs also disqualified them from the credit. The Court thus granted Bernal’s motion for summary judgment that the Bars failed to comply with minimum wage requirements under the FLSA.

The Court next addressed whether the Bars further violated the FLSA by failing to pay appropriate overtime wages. Because the Bars failed to rebut Bernal’s evidence on the issue, the Court held that the Bars did fail to pay appropriate overtime wages and granted summary judgment in favor of Bernal on that issue as well.

To the extent that language in the Bars’ response could have been construed as a motion for summary judgment or a motion to decertify the class, the Court denied those motions. The Court indicated that a hearing would be held to determine damages.