Whether Car Wash's Tip-Pooling Practice Violated FLSA Is Jury Question, Court Rules

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By Lisa Nagele

Sept. 23 — A car wash attendant in New York isn't entitled to summary judgment on his claim that his employer improperly benefited from the Fair Labor Standards Act tip credit because it is unclear whether three supervisors impermissibly shared in the tip pool, a federal judge ruled Sept. 19.

Judge Raymond J. Dearie of the U.S. District Court for the Eastern District of New York denied partial summary judgment for Leonzo Constanza Alvarado and said he must go to trial on his claim. Five Towns Car Wash Inc. produced evidence that its supervisors weren't precluded from receiving tips because they lacked the “degree of authority and control” necessary to meet the definition of “employer” under the FLSA, Dearie said.

Although the supervisors performed some managerial tasks, they may not have had ultimate decision-making authority, the judge said. Furthermore, a jury could conclude that the supervisors were employees who “customarily and regularly receive tips” because they interacted with customers while performing their duties, he said.

Alvarado also claimed the company violated the FLSA by failing to inform him that a tip credit would be applied to his wages. Employers may pay tipped employees as little as $2.13 an hour if the employee makes enough in tips to reach the $7.25 minimum wage, but employers must provide advance notice to employees. Because of conflicting testimony, the court found it couldn't “determine with certainty” that the car wash failed to provide Alvarado with proper notice.

Dispute Over Managerial Duties

An employer can't include tips in its FLSA minimum wage obligation “if the employer shares in the tips or if an employee who does not customarily receive tips participates in the tip pool,” the court said.

Alvarado claimed the company's tip-pooling practice violated the FLSA because three supervisors who acted as “employers” impermissibly shared tips. But the court found a genuine dispute about whether the supervisors met the definition of employer.

Although one supervisor was paid on a salary basis, this alone isn't enough to “establish his status as an employer,” the court said.

If Alvarado showed the supervisors “had durable power to hire and fire,” the court said, it may have found they acted as employers. But the company claimed its owner made final hiring and firing decisions with limited input from supervisors, the court said.

Therefore, a reasonable jury could find the supervisors didn't “act with the degree of authority and control required to impute their sharing in tips” to the company, the court found.

Furthermore, the supervisors regularly participated in washing, vacuuming, detailing and driving customer cars, the court said. Thus, a jury could also conclude they had more than “de minimis” interaction with customers and therefore were employees who “customarily and regularly receive tips,” it found.

A reasonable jury could find the supervisors didn't “act with the degree of authority and control required to impute their sharing in tips” to the company, the court found.

Notice of Tip Credit

The FLSA also requires an employer to inform workers when it applies a tip credit to their wages, the court said.

Here, the company claimed it provided wage statements to employees and displayed posters in the workplace, the court said. Five Towns also argued that it told workers they would receive a dollar less than minimum wage and that the tip credit would account for the difference.

Alvarado presented evidence to refute the company's claims, but that established the dispute instead of resolving it, the court held.

Helen F. Dalton & Associates P.C. represented Alvarado. Milman Labuda Law Group PLLC represented Five Towns Car Wash.

To contact the reporter on this story: Lisa Nagele in Washington at lnagele@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the opinion is available at http://www.bloomberglaw.com/public/document/Alvarado_v_Five_Town_Car_Wash_Inc_et_al_Docket_No_113cv01672_EDNY.