United States District Court, D. Maryland
KRISTOFER L. PRUSIN, Plaintiff,
CANTON'S PEARLS, LLC, et al., Defendants.
K. Bredar Chief Judge
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.
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. (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.)
was paid an hourly wage of $3.63 plus voluntary tips and
mandatory gratuities paid by customers. 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. (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.)
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
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.)
Standard for Summary Judgment
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).
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.
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
Counts I & IV: FLSA and MWHL Minimum Wage
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
The Tip Credit Provision
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.
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.'" 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
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).
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.
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,  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
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. . . ?
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?
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?
Q: [D]id you ever tell tipped employees the exact amount of
the tip credit under Federal and/or State Law?
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?
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?
(ECF No. 71, Ex. 3, Mitchell Corp. Designee Dep., at 42,
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
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
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, ...