Business Owners Beware: Tips are for Employees Only – Gionfriddo v. Jason Zink, LLC. (D MD 2011)

In Gionfriddo v. Jason Zink, LLC., the District Court for the District of Maryland became the latest in a chorus of courts in business litigation to warn business owners/operators that the Fair Labor Standards Act (FLSA) – and often state law – prohibits them from participating in employee tip pools.

Plaintiffs are three former bartenders at two Baltimore bar and restaurants owned by Defendant Jason Zink: the Don’t Know Tavern and the No Idea Tavern. Mr. Zink also works as a manager and bartender at both establishments. The bartenders at both taverns, including Mr. Zink, participate in a tip pool, through which tips received are contributed to a collective pool and then divided among the bartenders each week based on the number of hours worked. Since Mr. Zink does not draw a salary from the businesses, the court noted that the tip pool “appears to be his primary mode of compensation from his tavern businesses.”

Plaintiffs sued, alleging that because Zink owns the businesses, he’s precluded under both the FLSA and the Maryland Wage and Hour Law from receiving tips from the tip pool. The FLSA establishes a federal minimum hourly wage ($7.25) for employees. “Tipped employees” – those working in positions where they “customarily and regularly” receive more than $30 a month in tips – are exempted from the minimum wage requirement. These employees may be paid $2.13 per hour, so long as their tips make up the difference. The difference between the amount paid to tipped employees and the $7.25 minimum wage is called the employer’s “tip credit.” The FLSA permits tipped employees to participate in a tip pool, as long as each employee customarily receives more than $30 per month in tips. Furthermore, the employer cannot take a tip credit where the tip pool involves employees who don’t usually receive tips.

Both parties filed motions for summary judgment, asserting that there is no dispute over material facts in the case and that each is entitled to judgment in its favor as a matter of law. The court ruled in favor of Plaintiffs, finding that Defendant is not permitted to participate in the tip pool because, as employer, he doesn’t typically receive tips. “Congress, in crafting the tip credit provision…of the FLSA did not create a middle ground allowing an employer both to take the tip credit and share employees’ tips,” the court ruled, quoting the Southern District of New York’s decision in Chung v. New River Palace Restaurant, Inc. For the same reasons, the court concluded that Defendant also violated the MWHL by participating in the tip pool.

Every year, billions of dollars are gained and lost in the litigation of business disputes throughout the country. The business litigation lawyers at Lubin Austermuehle provide legal services to business owners and business professionals throughout Chicagoland area including Cook, DuPage, Lake, Kane, McHenry and Will Counties and in the Mid-West region including, Indiana, Wisconsin and Iowa. We represent clients in a wide variety of claims, from breach of contract to consumer fraud defense
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