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Bar Tip Pool Including Security Guards Is Permissible Under FLSA, Court Rules

Wednesday, August 14, 2013
By Kevin P. McGowan

A tip-pool arrangement at Coyote Ugly saloons that forces female bartenders to share tips with male security guards does not violate the Fair Labor Standards Act because the security guards have sufficient contact with customers to be deemed employees in an occupation that “customarily and regularly receives tips,” the U.S. District Court for the Middle District of Tennessee ruled Aug. 8 (Stewart v. CUS Nashville, LLC, M.D. Tenn., No. 11-342, 8/8/13).

Following a bench trial, the court rejected the bartenders' claims that Coyote Ugly's tip-pool arrangement, used at the employer's seven company-owned saloons nationwide, violates the FLSA. The bartenders complained that although they are compensated under FLSA's tip-credit rules, they had to share tips with security guards who receive the minimum wage or more. The bartenders also alleged Coyote Ugly violated the FLSA by including the heads of security at each bar in the tip-pooling arrangement.

The court, however, said trial testimony indicating Coyote Ugly expects its security personnel regularly to interact with customers, by acting as hosts and encouraging female customers to dance on the bar, for example, means the security guards fit within FLSA's definition of employees eligible for tips.

“While it is undisputed that the Coyotes [the dancing female bartenders] are primarily what draws customers to the saloons, the record evidence nevertheless shows that, as a group, security guards at company-owned saloons have more than de minimis interaction with customers,” Judge Aleta A. Trauger wrote. “Accordingly, they are tipped employees eligible to participate in the tip pool with bartenders and barbacks.” 

Heads of Security Not 'Employers.'

As for the bartenders' claim that Coyote Ugly's tip pool is unlawful because security managers share in the pool, the court said that under a totality of the circumstances test, the heads of security are not “employers” within the meaning of the FLSA.

“It is true that heads of security serve as a liaison between the security staff and management and lead by example while working alongside their fellow security guards,” the court said. “However, given the weight of the evidence in the record, it cannot reasonably be said that heads of security exercise substantial control over the terms and conditions of other security staff at company-owned saloons.”

The heads of security have no power to “independently hire, fire, or discipline employees” and their setting of schedules for security staff must be approved by management, the court said. The bartender plaintiffs cited no evidence that the security heads maintain employment records or determine the rate or method of pay for security guards, the court added.

“[A]t most, heads of security are 'low-level supervisors who cannot be considered employers under the FLSA,' ” Trauger wrote. 

Nashville Plaintiffs Prevail on Pay Claims

However, a separate class of bartenders working in the Nashville Coyote Ugly prevailed on their claims that the company violated the FLSA by altering time records and not paying bartenders for all hours worked.

The record supports the plaintiffs' claims they were required to come in before their scheduled shifts and leave later than their scheduled departure times for mandatory set-up and closing activities, the court said.

Although Coyote Ugly said it is company policy not to have employees work off the clock, the court said the evidence shows Nashville management “frequently altered the plaintiffs' time records so that the plaintiffs did not receive credit for hours actually worked.”

“At the very least, such conduct demonstrates a reckless disregard for the [FLSA],” Trauger wrote.

The court therefore awarded 11 plaintiffs back pay and liquidated damages based on their documented unpaid hours ranging from $1.06 to $221, finding Coyote Ugly liable for a willful violation of the act. 

Two Classes of Plaintiffs Sued

Coyote Ugly is a concept bar that features female bartenders who also are entertainers who dance in groups or solo on the tops of bars, the court recounted. The employer requires bartenders to audition prior to being hired and to attend dancing lessons at least once a month, the court said. The bartenders contended the time spent training and at dance lessons was unpaid.

Among other tasks, the male security guards acted as “barkers” outside the saloons to entice potential customers and greeted all customers entering the bars, the court said. The security guards wore T-shirts with the Coyote Ugly logo in front and the initials “BMF” on the back, which stand either for “big mother f***er” or “bad mother f***er,” according to the court. The security guards were expected to flirt with female customers, encourage them to dance on the bar, and help the female customers who opted to dance get up and down from the bar, the court said.

Although the female bartenders, referred to as Coyotes, are the bars' main attraction, customers also asked the security guards about their T-shirts, offered money to buy the shirts, and had their photos taken with the security guards, the court said.

The security guards, as well as the bartenders, encouraged customers to buy “body shots,” alcoholic drinks consumed off the stomachs of the bartenders, the court said.

The security guards also perform typical security duties, including denying entry to apparently inebriated potential customers and dealing with unruly customers. They also walk bartenders to their cars at the end of their shifts. But even in performing these more traditional duties, the security guards are “expected and encouraged to be funny, engaging, and charismatic,” according to evidence presented at trial.

Started in New York about 20 years ago, Coyote Ugly now has seven company-owned saloons located across the country, including a location in Nashville. In addition, there are other bars in the United States and Europe that operate independently under the Coyote Ugly name, the court said.

The FLSA suit involves only the company-owned locations and two sets of plaintiffs, the court said. A “nationwide class” was made up of bartenders, barbacks, and waitresses who are former or current employees at all company-owned locations who were required to contribute their tips to a tip pool that included bartenders. A separate class consisted of current and former employees at the Nashville Coyote Ugly who alleged they performed uncompensated off-the-clock and overtime work.

The district court in Tennessee held a three-day bench trial in April 2013 on the FLSA claims of both classes. Two individual plaintiffs also filed FLSA claims alleging Coyote Ugly retaliated against them for their participation in the legal dispute over compensation. 

Sufficient Interaction With Customers Found

Bartenders at the company-owned saloons earn the minimum wage tip rate applicable to the particular state in which they work, the court recounted. The rest of the bartenders' compensation consists of the tips they take home after participating in a mandatory tip pool with barbacks and security guards.

Barbacks, the employees who assist bartenders by keeping the bar stocked and cleaned, receive 10 percent of the pool's proceeds while security guards receive 5 percent. On slower nights when there is no barback on duty, security guards receive 10 percent of the tip pool, the court said. Coyote Ugly pays barbacks at a rate higher than the tipped rate earned by bartenders while security guards are paid $9 or $10 an hour before receiving their share of the tips. Bartenders sharing in the pool always receive at least 85 percent of their tips, the court said.

The plaintiffs in the nationwide class did not contest the barbacks' participation in the tip pool but instead argued the security guards' participation rendered the tip pool unlawful under the FLSA. Coyote Ugly in turn argued the tip pool satisfies FLSA requirements because security guards are tipped employees who are not a part of management.

In particular, Coyote Ugly contended the security guards sufficiently interact with customers to be deemed employees who “customarily and regularly receive tips” under the Sixth Circuit precedent of Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 4 WH Cases2d 1729 (6th Cir. 1998).

The plaintiffs agreed Kilgore provides the applicable standard but contended the Coyote Ugly security guards failed to sufficiently interact with customers to be considered “tipped employees.”

The Sixth Circuit in Kilgore upheld as valid a tip pool that included restaurant hosts as well as servers, notwithstanding the servers' argument that the hosts had only brief customer contact. The appeals court found that while hosts were not “the primary customer contact,” they had “more than de minimis interaction with customers.” The hosts could be distinguished from restaurant employees, such as cooks or dishwashers, who had no customer interaction at all, the Sixth Circuit reasoned.

Applying the Kilgore standard, the district court said the Coyote Ugly security guards similarly have more than minimal interaction with customers.

“There is ample evidence in the record to demonstrate that security guards employed at company-owned Coyote Ugly saloons sufficiently interact with customers so as to constitute employees who 'customarily and regularly receive tips' under Kilgore,” the court said. “While it is undisputed that their primary duty is to protect the Coyotes and customers, security guards are expected to, and do in fact, play a prominent role in enhancing the customer experience at company-owned saloons.”

Since the security guards can reasonably be characterized as tipped employees under the FLSA, the company did not violate the act by its policy of requiring bartenders to participate with the security guards in a tip pool arrangement, the court decided. 

Company Must Pay for Uncompensated Time

But Coyote Ugly did violate the FLSA rights of the 11 bartenders comprising the Nashville class who produced evidence they regularly worked 30 to 45 minutes before their official start time and after the official end of their shifts but were not compensated for those times, the court decided.

The Nashville plaintiffs also produced evidence that even though they clocked in when they arrived at work and clocked out when they left, managers would edit the time records to indicate the bartenders had worked eight hours, even if they actually had worked as much as two hours in addition, the court said.

Substantial evidence also supports the conclusion Coyote Ugly violated the FLSA by allowing managers to alter time records in order to avoid paying overtime to bartenders, the court decided. The company therefore committed a willful violation of the FLSA, extending the limitations period from two to three years, the court said.

Plaintiffs Meggan Conti and Misty Blu Stewart also alleged they were not paid for dance practices they actually attended and that Stewart was not paid for four training shifts and a photo shoot for the 2010 Coyote Ugly swimsuit calendar, the court said.

But the court said the evidence at trial “did not create a clear picture” as to whether Conti and Stewart failed to receive compensation for dance practices. Rather, trial testimony “raised the distinct possibility” the time spent at dance practices was recorded and paid under a different category in the company's pay system, the court said.

Similarly, the court decided neither Stewart nor plaintiff Sarah Stone can prevail on FLSA retaliation claims. Stewart cannot show an alleged derogatory blog post by company president Liliana Lovell “caused any significant disruption to her current employment,” the court said. Stone, who argued constructive discharge, lacks proof Coyote Ugly deliberately created intolerable working conditions calculated to make her resign, the court said.

Jordan M. Sluder and Stephen W. Grace of Grace and Rudy in Nashville, Tenn., and Randall W. Burton in Nashville represented the plaintiffs. Anne C. Martin and Marshall T. Cook of Bone, McAllister & Norton in Nashville and Hendersonville, Tenn., represented CUS Nashville, LLC, the Coyote Ugly Saloon Development Corp., and Liliana Lovell, the company president and majority owner. 

Text of the opinion is available at http://www.bloomberglaw.com/public/document/Stewart_v_CUS_Nashville_LLC_et_al_Docket_No_311cv00342_MD_Tenn_Ap/1.

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