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Marsh v. J. Alexander's LLC

United States Court of Appeals, Ninth Circuit

September 6, 2017

Alec Marsh, Plaintiff-Appellant,
v.
J. Alexander's LLC, Defendant-Appellee. Crystal Sheehan, Plaintiff-Appellant,
v.
Romulus Incorporated, DBA International House of Pancakes, Defendant-Appellee. Silvia Alarcon, Plaintiff-Appellant,
v.
Arriba Enterprises Incorporated, DBA Arriba Mexican Grill, Defendant-Appellee. Sarosha Hogan; Nicholas Jackson; Skylar Vazquez; Thomas Armstrong; Philip Todd; Maria Hurkmans, Plaintiffs-Appellants,
v.
American Multi-Cinema, Inc., DBA AMC Theatres Esplanade 14, Defendant-Appellee. Nathan Llanos, an individual, Plaintiff-Appellant,
v.
P.F. Chang's China Bistro, Inc., Defendant-Appellee. Kristen Romero, an individual, Plaintiff-Appellant,
v.
P.F. Chang's China Bistro, Inc., Defendant-Appellee. Andrew Fields, an individual, Plaintiff-Appellant,
v.
P.F. Chang's China Bistro, Inc., Defendant-Appellee. Alto Williams, Plaintiff-Appellant,
v.
American Blue Ribbons Holdings LLC, Defendant-Appellee. Stephanie R. Fausnacht, Plaintiff-Appellant,
v.
Lion's Den Management, LLC, DBA Denny's, Defendant-Appellee.

          Argued and Submitted April 20, 2017 San Francisco, California

         Appeal from the United States District Court for the District of Arizona D.C. No. 2:14-cv-01038-SMM, 2:14-cv-00464-SMM, 2:14-cv-00465-SMM, 2:14-cv-00051-SMM, 2:14-cv-00766-SMM, 2:14-cv-00768-SMM, 2:14-cv-00769-SMM, 2:14-cv-01243-SMM, 2:14-cv-01244-SMM, 2:14-cv-00261-SMM, 2:14-cv-00262-SMM, 2:14-cv-00263-SMM, 2:14-cv-01467-SMM, 2:15-cv-01561-SMM Stephen M. McNamee, Senior District Judge, Presiding

          Jahan C. Sagafi (argued), Outten & Golden LLP, San Francisco, California; Clifford P. Bendau II, The Bendau Law Firm, Phoenix, Arizona; Jamie G. Sypulski, Law Office of Jamie Golden Sypulski, Chicago, Illinois; Douglas M. Werman, Werman Salas P.C., Chicago, Illinois; for Plaintiffs-Appellants.

          Paul DeCamp (argued), Jackson Lewis P.C., Reston, Virginia; Stephanie M. Cerasano, Jackson Lewis P.C., Phoenix, Arizona; for Defendant-Appellee P.F. Chang's China Bistro.

          David A. Selden (argued), Julie A. Pace, and Heidi Nunn-Gilman, The Cavanagh Law Firm, Phoenix, Arizona, for Defendant-Appellee Romulus, Inc.

          Robert W. Horton and Mary Leigh Pirtle, Bass Berry & Sims PLC, Nashville, Tennessee; Eric M. Fraser, Osborn Maledon P.A., Phoenix, Arizona; for Defendant-Appellee J. Alexander's LLC.

          Karen L. Karr, Clark Hill PLC, Scottsdale, Arizona, for Defendants-Appellees Arriba Enterprises Inc. and Lion's Den Management LLC.

          Tracy A. Miller, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, Arizona, for Defendant-Appellant American Multi-Cinema Inc.

          Caroline Larsen and Alexandra J. Gill, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, Arizona, for Defendant-Appellee American Blue Ribbon Holdings LLC.

          Sarah K. Marcus (argued), Senior Attorney; Paul L. Frieden, Counsel for Appellate Litigation; Jennifer S. Brand, Associate Solicitor; M. Patricia Smith, Solicitor of Labor; Office of the Solicitor, United States Department of Labor, Washington, D.C., for Amicus Curiae Secretary of Labor.

          Before: Richard A. Paez and Sandra S. Ikuta, Circuit Judges, and David A. Faber, [*] District Judge.

         SUMMARY[**]

         Labor Law

         The panel vacated the district court's final orders and judgments in favor of the defendants in actions brought under the Fair Labor Standards Act by former servers and bartenders who alleged that their employers improperly claimed their tips as a credit toward the required minimum wage.

         Disagreeing with the Eighth Circuit, the panel held that the Department of Labor's interpretation, in its Field Operations Handbook, of 29 C.F.R. § 531.56(e), a regulation addressing application of the FLSA's tip credit provision to the situation in which an employee works for an employer in two different jobs, did not merit controlling deference because the DOL's interpretation was inconsistent with the dual jobs regulation and attempted to create de facto a new regulation. The panel held that no provision with the force of law permitted the DOL to require employers to engage in time tracking and accounting for minutes spent in diverse tasks before claiming a tip credit.

         The panel held that the plaintiffs could not state a claim by alleging that discrete "related" tasks or duties, which were performed intermittently over the course of the day and were intermingled with their duties directed at generating tips, comprised a dual job when aggregated together over the course of a workweek. The plaintiffs also could not state a claim by alleging the performance of "unrelated" duties that were similarly dispersed and generally assigned.

         The panel vacated the district court's final orders and judgments and remanded to allow the plaintiffs an opportunity to propose new amended complaints in light of the panel's opinion.

         Concurring and dissenting, Judge Paez wrote that he would follow the Eighth Circuit and defer to the DOL's interpretation of the regulation, 29 C.F.R. § 531.56(e). Judge Paez wrote that the DOL's guidance was entitled to deference because it interpreted the DOL's own ambiguous regulation and was neither plainly inconsistent with that regulation nor erroneous. Judge Paez would vacate and remand for further proceedings on whether the defendants violated the FLSA by paying their employees well below minimum wage for untipped work.

          OPINION

          IKUTA, Circuit Judge.

         The Fair Labor Standards Act of 1938 (FLSA) generally requires employers to pay a cash wage of $7.25 per hour to their employees. 29 U.S.C. § 206(a)(1)(c). But where an "employee engage[s] in an occupation in which he customarily and regularly receives more than $30 a month in tips, " id. § 203(t), his employer may pay a reduced cash wage and claim the employee's tips as a credit towards the $7.25 per hour minimum, id. § 203(m). The plaintiffs in these consolidated appeals are former servers and bartenders who allege that their employers improperly claimed this credit, thereby failing to pay the required minimum wage. In support of their theory of the case, the employees rely on a regulation, 29 C.F.R. § 531.56(e), as most recently interpreted by the Department of Labor (DOL).[1] See Department of Labor Wage and Hour Division, Field Operations Handbook § 30d00(f) (2016). The district court held that the DOL's interpretation of the regulation is not entitled to deference and concluded that the employees failed to state claims for minimum wage violations. We largely agree with the district court's analysis of the deference question, but we vacate and remand to allow the plaintiffs an opportunity to propose amended pleadings in light of our holding.

         I

         From November 2012 through April 2013, Alec Marsh worked as a server for J. Alexander's, a restaurant in Phoenix, Arizona.[2] In May 2014, he filed a one-count complaint alleging that J. Alexander's violated the FLSA's minimum wage provision by failing to pay him an appropriate wage. See 29 U.S.C. § 206(a)(1)(c).

         To understand Marsh's legal theory, one must first understand the FLSA's scheme for guaranteeing a minimum wage to employees, like Marsh, who routinely earn tips. Although all employers must pay their employees a minimum wage of at least $7.25 per hour, id., the FLSA creates a special rule for how an employer can compensate a "[t]ipped employee, " which is defined as "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips, " id. § 203(t). The applicable statute provides:

In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee's employer shall be an amount equal to-
(1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and
(2)an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.
The additional amount on account of tips may not exceed the value of the tips actually received by an employee.

Id. § 203(m).[3] The practical effect of this provision is that an employer must pay a tipped employee a cash wage of $2.13, and can make up the difference between $2.13 and the federal minimum wage by taking a credit for the employee's tips (known as a "tip credit").[4] Cumbie v. Woody Woo, Inc., 596 F.3d 577, 580 (9th Cir. 2010). If the $2.13 cash wage plus the tips the employee actually received are insufficient to meet the $7.25 per hour minimum wage, then the employer must increase the cash wage to meet the minimum wage requirement. Id. As a result, tipped employees always earn at least the federal minimum wage.

         The FLSA's tip credit provision, 29 U.S.C. § 203(m), is not the only pertinent part of this regulatory regime. Through regulations interpreting § 203(t), the DOL has addressed the application of the tip credit provision to the situation in which an employee works for an employer in two different jobs. This "dual jobs" regulation provides:

Dual jobs. In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man. Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.

29 C.F.R. § 531.56(e).

         The dual jobs regulation is also not the regime's end; the DOL has promulgated internal agency guidance that places a specific interpretive gloss on the regulation. The DOL's most recent interpretation, which the DOL made public in 2016, is set out in its Wage and Hour Division's Field Operations Handbook (FOH). The FOH states:

(1) When an individual is employed in a tipped occupation and a non-tipped occupation, for example, as a server and janitor (dual jobs), the tip credit is available only for the hours spent in the tipped occupation, provided such employee customarily and regularly receives more than $30.00 a month in tips. See 29 CFR 531.56(e).
(2)29 CFR 531.56(e) permits the employer to take a tip credit for time spent in duties related to the tipped occupation of an employee, even though such duties are not by themselves directed toward producing tips, provided such related duties are incidental to the regular duties of the tipped employee and are generally assigned to the tipped employee. For example, duties related to the tipped occupation may include a server who does preparatory or closing activities, rolls silverware and fills salt and pepper shakers while the restaurant is open, cleans and sets tables, makes coffee, and occasionally washes dishes or glasses.
(3) However, where the facts indicate that tipped employees spend a substantial amount of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties. All related duties count toward the 20 percent tolerance.
(4) Likewise, an employer may not take a tip credit for the time that a tipped employee spends on work that is not related to the tipped occupation. For example, maintenance work (e.g., cleaning bathrooms and washing windows) are not related to the tipped occupation of a server; such jobs are non-tipped occupations. In this case, the employee is effectively employed in dual jobs.

FOH § 30d00(f) (2016).[5]

         Marsh alleges that as a J. Alexander's employee, he "customarily and regularly" received more than $30 a month in tips.[6] As part of his job as a server, Marsh had a range of duties in addition to serving customers. For instance, Marsh brewed tea during every opening shift and as needed, which took about ten minutes to complete each time, for a total of forty minutes over the course of any given workweek. He also brewed coffee for each customer who ordered it, which took about five minutes to complete each time, and added up to approximately eighty minutes of any given workweek. Marsh also cut, arranged, and stocked lemons and limes during every opening shift and throughout his shifts, each session taking approximately five minutes, for a total of forty minutes in any given workweek. Marsh cleaned the soft drink dispensers and their nozzles, replaced soft drink syrups, and stocked ice. Each task took about five minutes to complete, and over the course of a workweek these tasks respectively took twenty, ten, and forty minutes. J. Alexander's also assigned Marsh cleaning duties, such as wiping tables (five to twenty minutes each time, for a total of one hour and forty minutes over the course of a week), taking out trash (ten minutes each time, for a total of twenty minutes over the course of a week), scrubbing walls when the restaurant was slow (one hour over the course of the week), sweeping floors (about ten minutes each time, for a total of forty minutes over the course of a week), and cleaning restrooms (ten minutes each time, for a total of thirty minutes over the course of a week).[7]

         J. Alexander's took a tip credit for the entire time Marsh spent at work, including the time he spent on duties that were not directly connected with generating tips. Because these "related duties" took up more than 20 percent of Marsh's working hours, Marsh's first complaint relied on the DOL's interpretation of the dual jobs regulation, 29 C.F.R. § 531.56(e), to allege that J. Alexander's improperly took a tip credit for the time Marsh spent on the "related duties" described in his complaint.

         Marsh's complaint was one of several filed in the district court alleging the same theory of FLSA liability, so the cases were consolidated before a single judge. A few months after consolidation, Marsh moved for leave to file a proposed amended complaint alleging in a second count that the cleaning duties described in his complaint were "unrelated" to his occupation and that J. Alexander's was categorically not allowed to take a tip credit for any of the time spent on those duties. Therefore, consistent with the FOH § 30d00(f), Marsh alleged that he should have been paid a cash wage of $7.25 per hour for his time spent on the related and unrelated duties that were not directed towards generating tips. Because J. Alexander's had paid Marsh a cash wage of less than $7.25 per hour for the time spent on those duties, Marsh argued that he was entitled to compensation for the difference between the full minimum wage and the cash wage he was paid for the time spent on tasks that did not generate tips.

         J. Alexander's opposed Marsh's motion to amend the complaint and moved to dismiss the original complaint. The district court ruled on the motions in March 2015 and made two key holdings. Most important, the district court held that Marsh's complaint did not allege that he was working dual jobs, as defined in the dual jobs regulation. It rejected Marsh's reliance on the DOL's interpretation of the regulation because the regulation was unambiguous, and the DOL's interpretations of the regulation did not merit deference. Alternatively, the district court also held that "no minimum wage violation occurs so long as the employer's total wage paid to an employee in any given workweek divided by the total hours worked in the workweek equal or exceeds the minimum wage rate." Because the complaint failed to allege that Marsh's average hourly wage (including tips) across any given workweek was below the federal minimum wage, Marsh failed to state a claim. Given this reasoning, the district court granted J. Alexander's motion to dismiss and denied as futile Marsh's motion for leave to amend.

         This timely appeal followed.[8] We have jurisdiction under 28 U.S.C. § 1291. We review each final order in these appeals and the questions of statutory and regulatory interpretation de novo. See Christopher v. SmithKline Beecham Corp., 635 F.3d 383, 389 (9th Cir. 2011), aff'd, 567 U.S. 142 (2012); Nolan v. Heald Coll., 551 F.3d 1148, 1153 (9th Cir. 2009) (summary judgment); Honey v. Distelrath, 195 F.3d 531, 533 (9th ...


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