Ninth Circuit Upholds Tip Pooling Under FLSA

The Fair Labor Standards Act does not prohibit employers from allocating tips under a tip pool, if the employer does not apply a "tip credit" to satisfy the minimum wage obligation.
The Fair Labor Standards Act permits payment of a sub-minimum wage to tipped workers, so long as the base subminimum wage plus tips exceeds the normal minimum wage.
The plaintiffs claimed that the employer's allocation of pooled tips violated the Fair Labor Standards Act. They raised a number of arguments regarding the validity of the tip pooling arrangement, under which 55-70% of tips were distributed to kitchen and dishwashing staff. But the court said the FLSA does not prohibit tip allocations where the employee earns full minimum wage before tips. When an employer does pay subminimum wage and relies on tips to fill the gap, however, there are restrictions on tip pooling under FLSA (29 U.S.C. s. 203(m)). But those did not apply in this instance.
California law, however, does not permit the subminimum wage. Neither does Oregon law, which is where this case arose. Therefore, employers complying with state law minimum wages will not have to worry about the FLSA when constructing tip pools.

The case is Cumbie v. Woody Woo, Inc. and the opinion is here.

U.S. Supreme Court Breathes Life Into Removal Statute

Employers usually prefer federal court over California state court. Federal court practice includes a unanimous jury, tough rules that drive plaintiff attorneys nuts, judges that seem to grant summary judgment more readily, and other perceived benefits.

Federal courts don't routinely hear state law claims unless they are tied to a federal claim, or unless the plaintiff and defendant are "diverse" citizens. But federal courts often prefer not to litigate relatively simple state-law based claims. So, they have limited jurisdiction to hear those matters based on "diversity" of the parties' citizenship.

The Supreme Court stepped in to clarify how to determine a corporation's citizenship for diversity jurisdiction. The case arose in California. Melinda Friend and other sued Hertz for wage and hour violations. Hertz sought to remove the case on the ground that Friend was a California Citizen, and Hertz was a citizen of New Jersey. The lower federal courts determined that Hertz was the equivalent of a California citizen, because it had substantial activities in California.

On review, the Supreme Court rejected the analysis. The Court concluded:
“principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should normally be the place where the corporation maintains its head-quarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).
So, that's a much more straightforward analysis, which will result in the limitation of corporations' citizenship to its state of incorporation and the state where the officers/ senior management primarily do business. As a result, employers with lots of operations in different states will be able to remove cases to federal court based on diversity of citizenship jurisdiction.

The case is Friend v. Hertz Corporation and the opinion is here.

No Attorney's Fees for Minimal Recovery in FEHA Case

The California Supreme Court held that trial courts may deny attorney's fees to prevailing plaintiffs in discrimination cases brought under the Fair Employment and Housing Act, if the plaintiff recovers less than the $25,000 jurisdictional minimum for superior court. The plaintiff recovered about $11,000 and tried to recover over $800,000 in attorney's fees. Code of Civil Procedure Section 1033 authorizes trial courts to deny recovery of costs and fees when the jurisdictional minimum is unmet. The Supreme Court held that Section 1033 applies in FEHA cases. The court also held that the trial court properly considered that the plaintiff grossly inflated his request for attorney's fees. The case is Chavez v. Los Angeles and the opinion is here.

No Short Limitations Periods for Wage Claims

The Court of Appeal held an employer could not include in an employment agreement applicable to wage and hour claims. The court also held that the plaintiff was entitled to judgment as a matter of law against the defendant's administrative exemption. The case involved recruiting managers. The opinion is Pellegrino v. Robert Half International and the opinion is here.

DFEH to Issue Procedural Regulations

The California Department of Fair Employment and Housing has proposed a series of procedural regulations regarding, among other things, how charges are processed. The proposal codifies the DFEH's case-handling procedures, which have not been included in the agency's regulations up to now. The draft proposal is here. There will be hearings and a comment period before they are revised and ultimately promulgated.

Kin Care Case

The California Supreme Court decided that unlimited sick leave is not subject to California's "kin care" law. We blogged about this case (the court of appeal's opinion), McCarther v. Pacific Telesis, here.

To remind you - the company had an unlimited paid sick leave policy. You could take up to five days of paid sick time off. Once five days were up, you had to work a half day, and then you could start taking another five days of paid sick time off again. Yes, there is a union contract.

Labor Code section 233 requires employers to permit employees to use up to 1/2 of sick leave to care for a covered relation. So, the plaintiff in this case argued that she was entitled to use 1/2 of unlimited...

The Supreme Court, disagreeing with the court of appeal, decided that this unlimited sick pay policy was not "sick leave" under Labor Code section 233. Therefore, there was no kin care obligation - and no obligation to permit employees to use up to 1/2 the annual sick pay benefit.

The Supreme Court therefore ducked whether the company could apply its attendance control policy to the use of sick leave to care for a relative, when the employer applied the policy to time off for one's own sickness. The court of appeal had said that the employer was within its rights to apply the same conditions to kin care as to sick leave for one's own illness.

Not a lot of employers have unlimited sick leave. So, this case won't have a LOT of applicability. But for employers interested in the court's ruling, it is here.


Court of Appeal Upholds Arbitration Agreement

I know, I've been remiss in my blogging. Blame it on Jennifer Shaw's new baby. She can't read yet.

So, the Court of Appeal in Dotson v. Amgen (opinion here) held that Amgen's arbitration agreement was lawful. Specifically, a limitation of one deposition per side unless the arbitrator ordered more based on need was lawful. The Court also noted that a provision reserving all interpretation issues to the arbitrator save unconscionability was ok. The Court also held that a provision permitting appellate review in a separate court action to set aside an award was lawful.

The model arbitation agreements can be amended again.