"Interaction With Customers" Key to Employees' Eligibility for Minimum Wage Tip Credit, 5th Cir. Rules

Author: Michael Cardman, XpertHR Legal Editor

September 4, 2015

A new appeals court ruling offers guidance for employers in Louisiana, Mississippi and Texas about how to determine which employees are eligible for the minimum wage tip credit.

The Fair Labor Standards Act (FLSA) allows an employer to count up to $5.12 per hour in tips received by an "employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips" as a credit toward the minimum wage.

Employees who directly receive tips, like waiters, bartenders or valets, generally are eligible. Those who do not, like cooks or dishwashers, generally are not.

The issue becomes a little more murky when tips are not specifically designated for a certain employee - such as when diners in a restaurant leave a tip on the table with the understanding that it may be shared among all the staff who served them, including wait staff, bartenders and bus boys.

In Montano v. Montrose Rest. Assocs., 2015 U.S. App. LEXIS 15233 (5th Cir. Aug. 28, 2015), two waiters sued their employer, a fine-dining restaurant in Houston named Tony's. Because they had to share their tips not only with bus boys and bartenders but also with an employee known as the "coffeeman," the waiters argued that the tip-pooling arrangement was invalid and thus all employees who participated were owed the full minimum wage of $7.25 per hour.

The waiters claimed the coffeeman was not "tipped" because his primary responsibility was to make coffee in the kitchen and he came in to the dining room only once a week.

A district court ruled in favor of the restaurant, saying that "For a worker to be eligible for tip sharing, his work must be important for direct diner service..."

But the 5th Circuit Court of Appeals said a different standard should be applied. Citing a ruling from the 6th Circuit and guidance from the US Department of Labor, it held that, "in determining whether an employee customarily and regularly receives tips, a court - or a factfinder - must consider the extent of an employee's customer interaction. This rule is faithful to the goal of the inquiry: determining the customer's intent. A customer is more likely to tip someone with whom he has contact, or at least sees assisting in the service."

Based on this standard, the 5th Circuit found that the coffeeman did not customarily and regularly receive tips and ruled in favor of the plaintiffs.