Bench Memos

Law & the Courts

Past the Tipping Point

Over the public dissenting votes of ten of its judges, the Ninth Circuit today issued an order declining to grant rehearing en banc of a divided panel decision in Oregon Restaurant & Lodging Ass’n v. Perez. That order includes a forceful dissent by Judge Diarmuid O’Scannlain, which the other nine dissenters joined.

This case provides a powerful illustration of how liberal judges and bureaucrats will engage in tag-team tactics to override unwelcome precedent and to invent legal obligations that assist favored constituencies. Here’s a concise overview:

1. The Fair Labor Standards Act (FLSA) permits an employer to use an employee’s tips to fulfill part of its hourly minimum-wage obligation to the tipped employee. An employer who takes this “tip credit” must allow tipped employees to retain all the tips they receive, except that the employer may require tipped employees to pool tips among themselves (but may not require them to include in the pool employees who do not “customarily and regularly receive tips”).

In other words, a restaurant owner who pays something less than the minimum wage to waiters could have the “tip credit” make up the difference, and the owner could either allow the waiters to keep all of their tips or require them to pool their tips with each other but could not require them to share tips with the kitchen staff.

2. In 2010, in Cumbie v. Woody Woo, Inc., a Ninth Circuit panel, in a unanimous opinion by Judge O’Scannlain, ruled that a restaurant that pays waiters the full minimum wage can require the waiters to participate in a tip pool that redistributes some of their tips to the kitchen staff. The court ruled that under its plain language FLSA s restriction on requiring pooling of tips with non-tipped employees applies only to employers who take a tip credit to satisfy their minimum-wage obligations.

3. Notwithstanding Cumbie’s holding on the plain language of FLSA, the Department of Labor issued a regulation in 2011 purporting to bar employers from requiring tip pools to include non-tipped employees, whether or not the employers were taking a tip credit to meet their minimum-wage obligations to tipped employees.

4. In the divided panel decision in Oregon Restaurant, notorious longtime liberal activist Harry Pregerson (a Carter appointee) ruled in his majority opinion that the Labor Department regulation was entitled to deference under the Chevron doctrine. Pregerson opined that FLSA “is silent regarding the tip pooling practices of employers who do not take a tip credit” and that Cumbie did not hold otherwise.” To my surprise, John B. Owens, an Obama appointee who has been perceived as something of a moderate, joined Pregerson’s opinion. Judge N. Randy Smith’s dissent begins:

Colleagues, even if you don’t like circuit precedent, you must follow it. Afterwards, you call the case en banc. You cannot create your own contrary precedent.

5. Here’s the opening paragraph of Judge O’Scannlain’s dissent from the denial of rehearing en banc:

Our court today rejects the most elemental teaching of administrative law: agencies exercise whatever powers they possess because—and only because—such powers have been delegated to them by Congress. Flouting that first principle, the panel majority equates a statute’s “silence” with an agency’s invitation to regulate, thereby reaching the startling conclusion that the Department of Labor can prohibit any workplace practice Congress has not “unambiguously and categorically protected” through positive law. The dissenting opinion had it right; the panel majority’s extravagant theory is more than the Constitution will bear. And it is more than our own precedents will allow. Because the panel majority reads our precedents out of existence, and opens not one, but two circuit splits in the process, I respectfully dissent from our refusal to rehear these consolidated cases en banc.

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