Texas Roadhouse Management Corp. v. Department of Labor

Citation: Not availableDocket: N15C-08-215 CLS

Court: Superior Court of Delaware; March 30, 2017; Delaware; State Appellate Court

Original Court Document: View Document

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The Superior Court of Delaware ruled on March 30, 2017, regarding motions for summary judgment from both Texas Roadhouse and the Delaware Department of Labor (DDOL). Texas Roadhouse sought a ruling that restaurant hosts qualify as direct service employees under 19 Del. C. § 902(d)(2), allowing them to participate in a tip pool and enabling the employer to apply a tip credit towards the state minimum wage. The court granted Texas Roadhouse's motion and denied the DDOL's motion.

The case arose from a complaint filed by Texas Roadhouse on August 27, 2015, after the DDOL alleged that the restaurant misclassified hosts and bus persons as tipped employees, failing to pay them the full minimum wage. The DDOL claimed hosts at Texas Roadhouse were paid only $4.00 per hour and should receive the minimum wage of $7.75 per hour. This led to an action in the Justice of the Peace Court, which ruled in favor of the DDOL, prompting Texas Roadhouse to appeal to the Court of Common Pleas, although this appeal was stayed in favor of the current declaratory judgment action.

The parties stipulated that hosts are front-of-house employees who greet guests, manage wait times, share information about the restaurant, serve bread and butter, provide menus, and take drink orders. The court's opinion ultimately determined that hosts are direct service employees eligible to participate in the tip pool.

Servers are responsible for taking and processing food and drink orders, delivering them to tables, addressing guest requests, clearing tableware, and collecting payments. Server assistants support servers by delivering orders, refilling drinks, and preparing tables for new guests. Hosts assist by refilling beverages and bread, prebussing tables, and occasionally delivering food. From December 17, 2014, to February 24, 2015, hosts were paid $4.00 per hour and participated in a tip pool generated by servers, receiving more than $30 in tips monthly. The total compensation for hosts met or exceeded the state minimum wage of $7.75 per hour, and Texas Roadhouse did not retain any tips meant for employees.

Delaware’s Minimum Wage Rate provision, under 19 Del. C. 902, mandates a minimum wage of $7.75 per hour but allows for a lower wage of $2.23 per hour for employees in roles where tips are customary, provided they earn more than $30 in tips monthly. Tipped employees can voluntarily establish a tip pooling system, limited to 15% of primary gratuities, without employer coercion. Gratuities are defined as voluntary monetary contributions from customers for services rendered. Both parties have filed Motions for Summary Judgment and have agreed on stipulated facts relevant to the case.

DDOL alleges that Texas Roadhouse breached Delaware’s Minimum Wage Rate statute by including restaurant hosts in the tip pool, which allowed the restaurant to apply a tip credit to the hosts' hourly wages under 19 Del. C. 902(b). The key legal question is whether the determination of an employee as a primary direct service employee is a matter for DDOL or the employer. DDOL argues that Texas Roadhouse's tip-sharing system improperly diverts gratuities from servers, violating 19 Del. C. 902(d)(1), and using those gratuities to offset minimum wage for hosts. Conversely, Texas Roadhouse asserts that the sole issue is whether hosts qualify as "direct service employees" under 19 Del. C. 902, thus justifying their inclusion in the tip pool and the application of a tip credit.

The Court outlines the standard for summary judgment, stating that it can be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. The initial burden lies with the moving party, after which the onus shifts to the non-moving party to identify material disputes. The Court must interpret 19 Del. C. 902, aiming to discern legislative intent and applying the plain meaning of unambiguous language. If ambiguity exists, additional sources may be consulted.

The Court disagrees with the Justice of the Peace Court's ruling, which relied on customer perceptions regarding tipping. The Court notes that evidence showed hosts received over $30 per month in tips, meeting the statute’s requirements. Furthermore, the statute does not empower customers to dictate tipping standards; it clearly states that an employer can apply a tip credit if an employee regularly receives more than $30 a month in tips or gratuities.

Section 902 lacks language indicating that it is the customer's role to determine if an employee regularly receives tips. The court and the parties acknowledged that tips are discretionary, meaning the customer only decides whether to give a tip. Customer perception may influence the identification of the "primary direct service employee," defined in Section 902(c)(3) as the individual providing the main service to a customer, who is seen as the gratuity recipient. The court incorrectly emphasized the absence of evidence regarding the hostess position as a primary service provider eligible for tip pooling. Although the statute suggests that the primary direct service employee is the main service provider, employees do not need to hold this designation to participate in a tip pool. Section 902(d)(2) allows employers to establish a tip-sharing system among multiple direct service employees, not exceeding 15% of the primary employee's gratuities. Thus, a host can be included in a tip pool without being the primary service provider, as long as they provide personal service to the customer.

The court also emphasizes the importance of examining Delaware's Minimum Wage statute's legislative history and relevant Attorney General Opinions. The statute was first established on March 30, 1965, and amended on June 28, 1968, to clarify wage requirements for employees in occupations where gratuities are customary. The amendment removed the previous Section 902(b) and mandated that employers pay a specified minimum wage, allowing gratuities to count as wages up to 50% of the minimum rate, for employees earning over $20 in tips monthly.

On December 13, 1972, Mr. Franklin B. Drumheller from the Department of Labor sought an opinion from the Attorney General regarding two issues: whether payments from waiters to busboys were considered "gratuities" under Delaware’s Minimum Wage Law (19 Del. C. 901) and if busboys and busgirls qualified as "tipped employees." The Attorney General’s Office, via David K. Brewster, affirmed both questions. It defined payments from waiters to busboys as gratuities and classified busboys and busgirls as tipped employees if they earned over $20 monthly in tips. The opinion acknowledged a conflict in the definition of "gratuities," which typically required direct payments from customers, but concluded that indirect payments through tip splitting were reasonable and understood by patrons.

In 1983, the Delaware General Assembly amended the law, lowering the tip credit limit from 50% to 33 1/3% and establishing that gratuities indicated on receipts are the employee's property, with employers restricted from retaining them except as legally allowed. The definition of "tipped employees" remained linked to the $20 monthly threshold for tips. In 1986, the Department of Labor requested clarity on mandatory tip-sharing, leading to an opinion stating that 19 Del. C. 902(c) prohibited mandatory tip-sharing, despite its common practice. An amendment on July 3, 1986, revised Section 902 again to allow gratuities to count as wages up to 33 1/3% of the minimum wage, and adjusted the definition of gratuities to include both direct and indirect monetary contributions from customers for services rendered, raising the threshold for tipped employees to $30 per month.

The amendment introduced Section 902(d), allowing employees to create a gratuity sharing or pooling system among direct service employees, with employers permitted to mandate such systems not exceeding 15% of a primary employee’s gratuities. This legislative change followed a February 1986 Attorney General Opinion and established a new framework for employer-mandated tip-splitting. On July 20, 1989, Section 902(a) was entirely removed, and Section 902(b) updated the tip credit percentage to align with federal standards.

Delaware’s Minimum Wage Rate statute aligns closely with the Federal Labor Standards Act (FLSA). Under 29 U.S.C. 203(m), employers can pay less than the minimum wage to “tipped employees,” defined as those earning over $30 in tips monthly. Delaware's law mirrors this definition, allowing tips from a pool to count towards the $30 threshold. The Wajcman court emphasized that the determination of whether an employee is “customarily and regularly” tipped hinges on their level of customer service interaction, with the employer responsible for proving eligibility for tip pooling.

In Kilgore, a similar case, plaintiffs alleged that Outback Steakhouse improperly applied a tip credit to hosts included in a tip pool. The court ruled against the plaintiffs, affirming that hosts met the FLSA requirement of regular customer interaction and thus could be classified as tipped employees, even if they were not the primary customer contact.

The United States Department of Labor Field Operations Handbook identifies occupations where employees typically receive tips, including waitstaff, counter personnel, bellhops, bussers, and service bartenders. It also references specific roles such as sushi chefs, barbacks, and sommeliers, who, due to their customer interactions and service roles, are similarly categorized. Conversely, individuals such as janitors, chefs, dishwashers, and prep cooks are excluded from mandatory tip pools.

The Superior Court is tasked with determining if Texas Roadhouse hosts qualify as direct service employees under Delaware’s Minimum Wage statute, an issue previously unaddressed in the state. The Court first assesses if the statute is ambiguous, which occurs if it allows for multiple reasonable interpretations or leads to unreasonable outcomes. A clear legislative intent negates the need for interpretation. In this context, the statute allows for mandatory tip sharing, established in 1986, indicating tips are the property of the primary direct service employee unless multiple employees are involved, in which case tip sharing can be mandated.

Texas Roadhouse argues that hosts should be included in tip pools as direct service employees, supported by the statute and a 1972 Attorney General’s Opinion. The definitions of gratuities in the statute suggest that tips can be received directly or indirectly by employees for services rendered, which the Court agrees supports the tip sharing system. The 1972 Opinion indicates that it is understood by patrons that tips given to waitstaff may be shared with support staff, aligning with the amended definition of gratuities in 1986.

The Court views the opinion as persuasive authority, outlining the Attorney General's Office policies and offering guidance on tip-sharing within the context of Delaware law. The statute permits direct service employees to receive tips indirectly through tip sharing, and the Delaware Department of Labor (DDOL) does not contest the employee-initiated tip sharing system, despite the employer's ability to apply a tip credit. DDOL claims that Texas Roadhouse exploits a loophole in the statute by mandating hosts' participation in the tip pool, which the Court finds compliant with Delaware's minimum wage laws.

The parties agreed that Texas Roadhouse and its managers do not benefit from gratuities and that the tip pool does not exceed 15% of servers' tips. DDOL argues against the tip pool's legality, asserting that tips are solely the property of the primary direct service employee under Delaware law. However, the statute allows for tip pooling when multiple direct service employees serve the same customer, and it is within the employer's discretion to establish such a system.

DDOL raises concerns about hosts not customarily receiving tips and the potential for the employer to determine who is included in the tip pool. The Court acknowledges these concerns but emphasizes that Delaware law restricts tip sharing to direct service employees who provide personal service to the same customer. This approach differs from the Fair Labor Standards Act (FLSA), which does not differentiate between types of service employees. The U.S. Department of Labor's Handbook does not exclude hosts from mandatory tip pools, and a related case determined hosts could be considered tipped employees under federal standards.

Ultimately, the Court finds DDOL's arguments unpersuasive and focuses on whether Texas Roadhouse hosts qualify as "direct service employees." Although the term is not defined in Delaware law, a primary direct service employee is one who mainly serves a customer and receives the gratuity. The Court concludes that hosts at Delaware Texas Roadhouse locations perform sufficient personal services to meet the criteria for direct service employees.

Hosts at Texas Roadhouse restaurants serve as the initial point of contact for guests, guiding them to their tables and sharing the restaurant's story if they are first-time visitors. Hosts also inform guests about featured steak cuts, serve bread, and provide menus. While servers primarily handle food and drink orders and payment collection, hosts assist by clearing tableware and delivering food when needed. The court determined that hosts qualify as direct service employees under 19 Del. C. 902 and should be included in the mandatory tip pool, emphasizing that it is the Department's responsibility to clarify regulations regarding tip pool eligibility. Consequently, the court granted the Plaintiffs' Motion for Summary Judgment and denied the Defendant's Motion for Summary Judgment. The ruling was issued by Judge Calvin L. Scott, Jr.