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Prusin v. Canton's Pearls, LLC

United States District Court, D. Maryland

November 6, 2017

KRISTOFER L. PRUSIN, Plaintiff,
v.
CANTON'S PEARLS, LLC, et al., Defendants.

          MEMORANDUM

          James K. Bredar Chief Judge

         Kristofer Prusin ("Plaintiff) filed suit against Canton's Pearls, LLC, and Eric K. Hamilton ("Defendants"), alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §201, et seq., the Maryland Wage and Hour Law ("MWHL"), Md. Code Ann. Labor & Emp't § 3-401, et seq., and the Maryland Wage Payments and Collection Law ("MWPCL"), Md. Code Ann. Labor & Emp't § 3-501, et seq. Now pending before the Court is Plaintiffs Motion for Partial Summary Judgment. (ECF No. 71.) The issues have been briefed (ECF Nos. 71, 77, & 84), and no hearing is required, Local Rule 105.6 (D. Md. 2016). For the reasons explained below, Plaintiffs motion will be GRANTED IN PART and DENIED IN PART.

          I. Background

         Plaintiff previously worked as a server at Canton Dockside, a restaurant and crab house operated by Defendants. He was employed in that position from April 2013 through October 2015. (ECF No. 71, Ex. 1, Prusin Affidavit ¶ 1.) Before working as a server, Plaintiff worked in the kitchen as a cook for approximately two years. (Id.) Defendant Eric Hamilton was the General Manager of Canton Dockside from its opening in 2004 through his resignation in May 2015. (ECF No. 71, Ex. 5 at 10.) He also has a five percent ownership stake in Defendant Canton's Pearls LLC, the corporate entity that controls Canton Dockside. (ECF No. 77, Exs. 17, 18, & 19.) However, Canton Dockside was co-managed by Defendant Hamilton and Timothy Mitchell during most of Plaintiff s tenure.[1] (ECF No. 71, Ex. 5, Hamilton Dep. at 42; id., Ex. 8, Dr. Earl Hamilton Dep. at 10.) Defendant Hamilton and Mitchell, as well as Hamilton's father, Dr. Earl Hamilton, who is the majority owner of Canton's Pearls LLC, each had authority to hire employees. (ECF No. 71, Ex. 5, at 49-50; ECF No. 71, Ex. 4, Mitchell Dep. at 15.) However, Mitchell did not fire employees without approval from Defendant Hamilton or Dr. Hamilton. (ECF No. 71, Ex. 4 at 16.) Additionally, Defendant Hamilton had authority to set and adjust employee compensation, including his own, without approval from Dr. Hamilton. (ECF No. 71. Ex. 8, at 25.)

         Plaintiff was paid an hourly wage of $3.63 plus voluntary tips and mandatory gratuities paid by customers.[2] Plaintiff was not compensated at a different rate for overtime hours. Defendants did not have any written policies addressing server wages, but instead orally informed servers upon hire of their base pay and their obligation to share a percentage of their tips and mandatory gratuities with bussers and bartenders. At the end of each shift, servers were given one-hundred percent of their tips and mandatory gratuities in cash-regardless of whether the customer paid by cash or credit card-less the amount they were required to tip-out to bussers and bartenders.[3] (ECF No. 71, Ex. 4, at 11-14.) Canton Dockside also deducted a credit card processing fee (which varied from credit card to credit card) from servers' tips and mandatory gratuities for all payments made by credit card. (Id. at 13-14.)

         Defendants maintained records of all tips and mandatory gratuities, regardless of whether they were paid by cash or credit card. These records were logged in a Daily System Sales Detail ("DSSD") report every day, which tracked sales information for the restaurant. (ECF No. 77, Ex. E, Ottey Dep. at 22-23.) In addition to tracking food and beverage sales, each DSSD report included line items labeled "Service Charge" and "Charge Tips, " which represented mandatory gratuities and voluntary tips respectively. (ECF No. 77, Ex. F, DSSD Report, ECF No. 71, Ex. 6, Ottey Dep. at 125.) These line items were combined in a category labeled "Total Tips, " which represented the total voluntary tips and mandatory gratuities received in a given day. (ECF No. 77, Ex. G, Ottey Dep. at 125.) The DSSD reports also included a line item labeled "Tips Paid, " which represented the total tips paid out to servers, who in turn dispersed the appropriate amount to bussers and bartenders. (Id.)

         Defendants' accountant used the DSSD reports to produce aggregated Profit & Loss ("P&L") statements for each year. (ECF No. 71, Ex. 6, at 116-121.) The yearly P&L statements included a line item labeled "Total Sales, " which matched the amount Defendants reported as their "[g]ross receipts or sales" on their Form 1065 used to report partnership income to the Internal Revenue Service. (Id. at 118.) Included within the total sales on the P&L statements was a category labeled "Tip Clearing." (ECF No. 77, Ex. G, at 123.) The "Tip Clearing" category on the P&L statements represented only the portion of voluntary tips and mandatory gratuities that were retained by the restaurant to cover credit card processing fees. (ECF No. 71, Ex. 6, Ottey Corp. Designee Dep. at 134; ECF No. 77, Ex. G, at 128-30.) Defendants did not otherwise record voluntary tips and mandatory gratuities in either the income or expense side of their P&L statements. (ECF No. 77, Ex. G, at 127-31.)

         II. Standard for Summary Judgment

         A party seeking summary judgment must show "that there is no genuine dispute as to any material fact" and that he is "entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The burden is on the moving party to demonstrate the absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). If a party carries this burden, then the court will award summary judgment unless the opposing party can identify specific facts, beyond the allegations or denials in the pleadings, that show a genuine issue for trial. Fed.R.Civ.P. 56(e)(2). If sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing the motion, then a genuine dispute of material fact is presented and summary judgment should be denied. See Anderson v. Liberty Lobby, Inc., Ml U.S. 242, 248 (1986). The existence of only a "scintilla of evidence" is not enough to defeat a motion for summary judgment. Id. at 251. To carry these respective burdens, each party must support its assertions by citing specific evidence from the record. Fed.R.Civ.P. 56(c)(1)(A). The court will assess the merits of the motion, and any responses, viewing all facts and reasonable inferences in the light most favorable to the party opposing the motion. Scott v. Harris, 550 U.S. 372, 378 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir. 2008).

         III. Analysis

         On March 3, 2016, Plaintiff filed this lawsuit alleging that Defendants violated the FLSA, the MWHL, and the MWPCL by failing to pay him minimum wage and overtime pay. Plaintiff filed a motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56 seeking judgment as a matter of law that Defendants failed to pay Plaintiff minimum and overtime wages as required by the FLS A and MWHL. Specifically, Plaintiff contends that:

1. Defendants are not eligible to claim a "tip credit" under 29 U.S.C. § 203(m) because they failed to provide adequate notice to Plaintiff prior to taking the credit; and
2. Defendants cannot rely on the mandatory gratuities retained by Plaintiff to satisfy their minimum and overtime wage obligations because the mandatory gratuities did not become part of Canton Dockside's gross receipts and therefore do not qualify as service charges under the FLSA.

         Plaintiff seeks $19, 165.06 in unpaid minimum wage and overtime compensation, plus an equal amount in liquidated damages. Additionally, Plaintiff contends that Eric Hamilton qualifies as an employer under the FLSA as a matter of law and therefore is jointly and severally liable along with Canton's Pearls LLC for any violations of the FLSA and MWHL.

         A. Counts I & IV: FLSA and MWHL Minimum Wage Violations

         Plaintiffs claim in Counts I and IV is that Defendants failed to pay him the minimum wage required by the FLSA and MWHL. 29 U.S.C. §§ 206(a), 215(a)(2); Md. Code Ann., Labor & Emp't, § 3-413. In response, Defendants contend that they satisfied their minimum wage obligations because they were entitled to take a "tip credit" under the FLSA and MWHL. 29 U.S.C. § 203(m); Md. Code Ann., Labor & Emp't § 3-419(a)(1)(ii); Gionfriddo v. Jason link, LLC, 769 F.Supp.2d 880, 893 (D. Md. 2011). Alternatively, Defendants contend that even if they were not entitled to claim a tip credit, the mandatory gratuities received by Plaintiff may be used to offset their minimum-wage liability.

         1. The Tip Credit Provision

         "The FLSA requires covered employers to pay 'nonexempt employees' a minimum wage for each hour worked, 29 U.S.C. § 206(a), but allows employers to pay less than the minimum wage to employees who receive tips, 29 U.S.C. § 203(m)." Dorsey v. TGT Consulting, LLC, 888 F.Supp.2d 670, 680 (D. Md. 2012). "Tipped employees ... are required to receive at least the minimum wage, but their employers are permitted to pay a direct wage of $2.13 per hour and then take a 'tip credit' to meet the $7.25 per hour minimum wage requirement." Gionfriddo, 769 F.Supp.2d at 893. The tip credit, in essence, allows employers to credit employees' tips against the employer's minimum wage obligations. See id.

         In order to obtain the benefit of this credit, however, employers must satisfy two fundamental requirements. Section 203(m) provides that an employer may not take a tip credit with regard to an employee's wages unless (1) "such employee has been informed by the employer of the provisions of this subsection" and (2) "all tips received by such employee have been retained by the employee." 29 U.S.C. § 203(m); accord Dorsey, 888 F.Supp.2d at 680- 81. These two requirements are '"strictly construed, ' and 'must be satisfied even if the employee received tips at least equivalent to the minimum wage.'"[4] Dorsey, 888 F.Supp.2d at 681 (quoting Copantitla v. Fiskardo Estiatorio, Inc., 788 F.Supp.2d 253, 287 (S.D.N.Y. 2011)).

What the Congress has said, in effect, to restaurant employers is that, if you precisely follow the language of 3(m) and fully inform your employees of it, you may obtain a 50 percent credit from the receipt of tips toward your obligation to pay the minimum wage. The corollary seems obvious and unavoidable: if the employer does not follow the command of the statute, he gets no credit.

Richard v. Marriott Corp., 549 F.2d 303, 305 (4th Cir. 1977).

         The employer "bear[s] the burden of showing that [it] satisfied the FLSA's notice requirement by, for example, providing employees with a copy of § 203(m) and informing them that their tips will be used as a credit against the minimum wage as permitted by law." Inclan v. N.Y. Hosp. Grp., Inc., 95 F.Supp.3d 490, 497 (S.D.N.Y. 2015) (alterations in original). "Although an employer need not 'explain' the tip credit to an employee, Courts have widely interpreted section 203(m) to require at a minimum that an employer inform its employees of its intention to treat tips as satisfying part of the employer's minimum wage obligations." Bernal v. Vankar Enters., Inc., 579 F.Supp.2d 804, 809 (W.D. Tex. 2008) (collecting cases). It is not sufficient that employees "be aware of the tip credit provisions." Pedigo v. Austin Rumba, Inc., 722 F.Supp.2d 714, 724 (W.D. Tex. 2010). "Rather, section 203(m) affirmatively requires employers to inform employees of the provisions contained in section 203(m)." Id. Accordingly, because it is the employer's burden to prove it complied with the tip credit notice requirement, the employer must "adduce definite, competent evidence showing that waiters were informed of the tip credit." Perez v. Lorraine Enterprises, Inc., 769 F.3d 23, 30 (1st Cir. 2014).[5]

         The MWHL, like the FLSA, requires that an employer provide notice to an employee before claiming a tip credit as to the employee's wages. Further, the language of the MWHL notice provision is nearly identical to that of the FLSA. Compare 29 U.S.C. § 203(m) ("[The tip credit provision of the FLSA] shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection."), with Md. Code Ann., Labor & Emp't § 3-419(a)(1)(ii) ("This section applies to each employee who has been informed by the employer about the provisions of this section."). Thus, the analysis of Defendants' entitlement to claim the tip credit is the same under the FLSA and MWHL.

         Here, Defendants fail to point to any evidence in support of their claim that they provided Plaintiff notification of the tip credit. Defendants rely entirely on their display of "labor law posters" in the restaurant during Plaintiffs employment and one offhand comment by Defendant Hamilton during his deposition testimony. The Court first turns to the posters. Assuming arguendo that the posters were displayed during the relevant period, and that displaying a poster with language that tracks the tip credit provisions of the FLSA and MWHL is alone sufficient to satisfy the statutory notice requirement, [6] Defendants have still failed to present a genuine issue of material fact. Defendants contend merely that they received a "labor law poster" from Paychex once a year, which they posted in an area that was "conspicuous to all employees, including servers." (ECF No. 77 at 5.) However, Defendants have not identified any relevant language (or for that matter any language at all) on these posters that would satisfy the tip credit notice requirement. When asked whether he had "ever stopped and actually read" the poster, Defendant Hamilton responded, "I would probably have to say no." (ECF No. 77, Ex. A, Def Hamilton Dep. at 215.) Similarly, all Mitchell could remember about the poster is that "[i]t talks about like if you are pregnant and go on maternity leave and that kind of stuff. It is pretty big." (Id., Ex. B, Mitchell Corp. Designee Dep., at 48.) And although Defendants attached a picture of the poster to their motion, it is taken from a distance that makes it completely illegible, thereby depriving the Court of any opportunity to independently review the poster and determine whether it includes language that could satisfy the notice requirement. Without more the Court is left to guess at what the poster did or did not say about "labor law."

         Defendants also suggest that Defendant Hamilton orally informed Plaintiff of the tip credit notice requirements when he trained Plaintiff to work as a server. Again, Defendants fail to identify specific facts in the record sufficient to give rise to a genuine dispute. Defendant Hamilton testified that when Plaintiff moved from the kitchen to serving tables he told Plaintiff "he would be going from whatever he was making as cook down to here (indicating), but that tips and service charge[s] and everything would cover, and he would be making more money, which was absolutely the case." (ECF No. 77, Ex. A, at 136-37.) Conspicuously absent from this statement, and indeed all of Defendants' deposition testimony, is any suggestion that Defendants "inform[ed] Plaintiff "of the provisions contained in section 203(m)" Pedigo, 722 F.Supp.2d at 724, or of their "intention to treat tips as satisfying part of [their] minimum wage obligations, " Bernal, 579 F.Supp.2d at 809. To the contrary, Mitchell, who co-managed Canton Dockside for the entirety of Plaintiff s employment and who, according to Defendant Hamilton, was responsible for "doing everything with regards to pay, " repeatedly testified that he had never informed an employee of any of the tip credit notice requirements.

Q: Have you ever sat down and told a tipped employee anything about the tip credit. . . ?
A: No.
Q: Have you ever told a tipped employee that they are entitled to retain all of their tips except pursuant to a valid tip pool arrangement?
A: No.
Q: Have you ever instructed a front of the house manager to tell tipped employees that they are entitled to retain all of their tips except pursuant to a valid tip pool arrangement?
A: No.
Q: [D]id you ever tell tipped employees the exact amount of the tip credit under Federal and/or State Law?
A: No.
Q: Did you ever instruct any managers to tell any tipped employees about the exact amount of the tip credit under Federal and/or State Law?
A: No.
Q: Did Eric Hamilton ever instruct you to advise tipped employees of the amount of the tip credit being taken under Federal and/or State Law?
A: No."

(ECF No. 71, Ex. 3, Mitchell Corp. Designee Dep., at 42, 44-45.)

         In short, even viewing the facts in the light most favorable to Defendants, the nonmoving party, the Court concludes that no reasonable jury could find that Defendants informed Plaintiff of the FLSA's tip credit provisions. Given that the MWHL is the state parallel of the FLSA, the Court likewise concludes that Defendants also failed to satisfy the MWHL's tip credit notice requirements. Accordingly, Defendants are not entitled to claim a tip credit as a matter of law.

         2. Service Charges

         Alternatively, Defendants contend that the mandatory gratuities received by Plaintiff qualify as service charges-not tips-under the FLSA. This distinction is important. If the mandatory gratuities are service charges Defendants are entitled to offset the full amount of the charge against their minimum wage liability and need not show that they complied with the tip credit notice provisions. If they are tips, however, Defendants may not use any portion of them to satisfy their minimum wage obligations because, as explained supra, Defendants did not satisfy the tip-credit notice requirements.

         According to DOL regulations implementing the FLSA, a "tip" is "a sum presented by a customer as a gift or gratuity in recognition of some service performed for him." 29 C.F.R. § 531.52. By contrast, a "service charge" is a "compulsory charge for service . . . imposed on a customer by an employer's establishment." 29 C.F.R. § 531.55(a). The DOL's regulations provide that "service charges and other similar sums which become part of the employer's gross receipts are not tips for the purposes of the Act. Where such sums are distributed by the employer to its employees, ...


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