Wai Man Tom v. Hospitality Ventures LLC, No. 18-2509 (4th Cir. 2020)Annotate this Case
In this Fair Labor Standards Act (FLSA) case, employees claim that tips and automatic gratuities cannot be considered in determining whether the restaurant met its FLSA obligations because they were paid through an unlawful tip pool. The employees alleged that the restaurant included in its tip pool employees who did not meet certain criteria in violation of the FLSA.
The Fourth Circuit agreed with the district court that the automatic gratuities were not tips, but concluded that the district court erred in its application of the 7(i) exemption in 29 U.S.C. 207(i). In this case, the district court incorrectly held that the section 7(i) exemption satisfied both the restaurant's minimum-wage and overtime obligations. Rather, the exemption applies only to overtime obligations. Furthermore, the district court erred in declining to include tips when determining whether the automatic gratuities constituted more than half of the employees' compensation for a representative period. Accordingly, the court affirmed in part, vacated in part, and remanded for the district court to consider the 7(i) exemption. To the extent that, on remand, the restaurant's tip pool remains relevant to its FLSA obligations, the court concluded that there are genuine issues of material fact as to whether all of its participants customarily and regularly receive tips and, thus, whether the tip pool was lawful. Finally, the court affirmed the district court's judgment as to the retaliation claim.