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Nail v. Shipp

United States District Court, S.D. Alabama, Southern Division

August 6, 2019

APRIL R. NAIL, et al., Plaintiffs,
ROBERT M. SHIPP, et al., Defendants.



         This matter is before the Court on Plaintiffs' motion for partial summary judgment (Doc. 155), Defendants' Response (Doc. 158), and Plaintiffs' Reply (Doc. 159).

         I. Findings of Fact[1]

         This is a collective action under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (FLSA)[2] based on activities at an Orange Beach, Alabama restaurant. (Doc. 1). Named Plaintiffs Jordin Ballard, Richard Boyett, Mark L. Hopper, and April R. Nail (collectively with the opt-in plaintiffs) allege that Defendants Robert "Matt" Shipp, Regina Shipp, and Sportsman Fish House, LLC (d/b/a Shipp's Harbour Grill) violated their FLSA rights while they were employed at the restaurant. (Id.)[3] In part, Plaintiffs assert the Defendants claimed an improper tip credit and failed to reimburse them for uniforms, violating FLSA minimum wage compensation obligations. (Id.)

         The federally mandated minimum wage is $7.25/hour. 29 U.S.C. § 206(a)(1)(C). At the restaurant, the Defendants paid plaintiffs (employed as servers) a direct cash wage of $2.13/hour and claimed a tip credit of $5.12/hour. (Doc. 156-1 (Dep. M.Shipp at 70)). The restaurant also employed a tip-out system, i.e., at the end of each shift, servers ran a paper report showing their gross sales and 3% of the gross sales was deducted from their tips . (Doc. 156-1 (Dep. M.Shipp at 48)). Defendants required -- as a condition of employment -- that servers place 3% of their gross sales in a tip pool for distribution to other employees; 1% to bussers, 1% to food runners, and 1% to bartenders. (Doc. 156-1 (Dep. M.Shipp at 33, 70-71, 196); Doc. 156-4 (Defs' Interrog. Resp #1)). During training, employees were told about the tip-out process (Doc. 156-1 (Dep. M.Shipp at 173-174); Doc. 156-2 (Dep. R.Shipp at 223-225)), and employees "learned the tip sharing system nightly by doing." (Doc. 156-4 (Defs' Interrog. Resp. #1, 7)). General Manager Richard Thomas (Thomas) administered the tip-out system. (Doc. 156-1 (Dep. M.Shipp at 77)).

         Additionally, the Defendants required employees to wear uniforms consisting of a logo t-shirt and an apron. (Doc. 156-1 (Dep. M.Shipp at 262)). Servers were required to buy the aprons as part of the uniform. (Doc. 156-1 (Dep. M.Shipp at 245, 262); Doc. 156-4 (Defs' Interrog. Resp. #5, 7, 12)). Regarding shirts, until 2017 Defendants only provided one (1) shirt to tipped employees free of charge. (Doc. 156-4 (Defs' Interrog. Resp. ##5, 10); Doc. 156-2 (Dep. R.Shipp at 228)). Defendants charged the tipped employees $10/shirt to purchase additional shirts. (Id.) Following a second Department of Labor (DOL) investigation of the restaurant in 2017 -- during which the DOL investigator told Matt Shipp the restaurant was required to provide two (2) free shirts to tipped employees as most worked two (2) double shifts/week and one (1) shirt was insufficient -- Defendants began providing two (2) free shirts. (Doc. 156-1 (Dep. M.Shipp 59); Doc. 156-5 (DOL Report); Doc. 156-4 (Defs' Interrog. Resp. ##5)).

         II. Standard of Review

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Rule 56(c) provides as follows:

(c) Procedures
(1) Supporting Factual Positions. A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:
(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.
(2) Objection That a Fact Is Not Supported by Admissible Evidence. A party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence.
(3) Materials Not Cited. The court need consider only the cited materials, but it may consider other materials in the record.
(4) Affidavits or Declarations. An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.

Fed.R.Civ.P. Rule 56(c).

         The party seeking summary judgment bears the “initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). If the nonmoving party fails to make “a sufficient showing on an essential element of her case with respect to which she has the burden of proof, ” the moving party is entitled to summary judgment. Celotex, 477 U.S. at 323. “In reviewing whether the nonmoving party has met its burden, the court must stop short of weighing the evidence and making credibility determinations of the truth of the matter. Instead, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 998-999 (11th Cir. 1992).

         III. Discussion[4]

         Plaintiffs move for partial summary judgment on: 1) the personal liability of the individual Shipp defendants as FLSA employers; 2) Defendants' failure to satisfy Section 203(m)'s prerequisites before claiming a tip credit; 3) Defendants' improper shifting of business expenses for uniforms to employees; 4) the willfulness of Defendants' FLSA violations; and 5) Defendants' failure to provide evidence in support of their 9th, 10th, 12th and 13th affirmative defenses.

         A. Defendants as FLSA Employers

         Defendants "agree they are 'Employers' as defined by the Act and are therefore subject to liability." (Doc. 158 at 2). Thus, "there is no dispute that Robert Shipp and Regina Shipp each own 50% of Sportsman Fish House, LLC d/b/a Shipps Harbour Grill and that they maintained operational control of the enterprise at all times relevant to this litigation….Defendants…concede they are employers as defined by the Act." (Id. at 3). As such, Plaintiffs' motion is GRANTED as to the claim that Robert Shipp and Regina Shipp are individually liable under FLSA.

         B. Tip Credit - Section 203(m)

         Plaintiffs contend that the Defendants' improperly claimed a tip credit to satisfy their minimum wage payment obligations. As grounds, Plaintiffs assert that the Defendants failed to inform them of Section 203(m)'s requirements, and that an employer cannot take a tip credit for an employee "unless such employee has been informed by the employer of the provisions of this subsection.” 29 U.S.C. § 203(m).

         The FLSA requires employers to pay employees the $7.25/hour federal minimum wage. 29 U.S.C. § 206(a)(1)(C). "Employers can meet this obligation through a base wage or by a tip credit equal to the difference between the base wage and the statutorily required minimum wage." Dalley v. CG RYC, LLC, 2018 WL 7629048, *2 (S.D. Fla. Aug. 31, 2018).[5] Pursuant to the FLSA, minimum wage employees who receive more than $30/month in tips are defined as tipped employees within the minimum wage system (i.e., tipped minimum wage employees), and may be paid via a tip credit process tied to the federal minimum wage rate. The maximum tip credit against minimum wage is $5.12/hour and the minimum cash wage is $2.13/hour (to total the federal minimum wage rate of $7.25/hour).[6] As discussed in Gutierrez v. Galiano Enterp. of Miami, Corp., 2019 WL 2410072, *5 (S.D. Fla. Jun. 7, 2019):

….if the employee is a “tipped employee, ” [29 U.S.C. § 203(m)]authorizes an employer to pay the employee (1) an hourly wage of $2.13 plus (2) an additional amount in tips that brings the total wage up to the federal minimum wage of $7.25 an hour. 29 U.S.C. § 203(m). An employer who uses an employee's hourly tips to reach the minimum hourly wage due the employee is said to take a “tip credit.” This means that a tip credit is the difference between the minimum wage and the amount paid to a tipped employee. See Crate v. Q's Rest. Grp. LLC, 2014 WL 10556347, at *2 (M.D. Fla. May 2, 2014). It essentially allows an employer of a tipped employee to pay a reduced minimum wage if the difference between the current minimum wage rate and the reduced rate that the employer pays is covered with the employee's actual tips. See 29 U.S.C. § 203(m).

See also e.g., Malivuk v. Ameripark, LLC, 694 Fed.Appx. 705, 706-707 (11th Cir. 2017) (same); P&k Rest. Ent., LLC v. Jackson, 758 Fed.Appx. 844, 847-848 (11th Cir. 2019).

         However, for an employer to be able to claim the tip credit, the employer must establish that the tipped employee was informed about the tip credit. As stated in Pellon v. Business Rep. Int., Inc., 528 F.Supp.2d 1306, 1309-1310 (S.D. Fla. 2007), aff'd 291 Fed.Appx. 310 (11th Cir. 2008) (per curiam) (emphasis added):

…The difference between the amount an employee must be paid under the minimum wage law and the amount directly paid to a tipped employee is commonly referred to as a “tip credit.” See 29 U.S.C. § 203(m); 29 C.F.R. § 531.51. The tip credit is not an exemption; instead, it is set forth in the definition of the required minimum wage. The following requirements must be met to satisfy Section 203(m): (1) the tip credit must be claimed for qualified tipped employees; (2) the employees must receive proper notice of Section 203(m); and (3) all tips received by the employees must be retained by them.

         Section 203(m)(2)(A) further provides that:

(2)(A) 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--(i) 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 (ii) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in clause (i) 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. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be ...

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