Salt Bae's Sprinkle Of First Impression: Eleventh Circuit Holds Mandatory Service Charges Are Not "Tips" And May Be Used To Satisfy FLSA Wage Requirements

• Published date: 01 April 2022
• Subject Matter: Employment and HR, Tax, Employee Benefits & Compensation, Income Tax
• Law Firm: Littler Mendelson
• Author: Mr Miguel A. Morel and Alan Persaud

On March 18, 2022, the U.S. Court of Appeals for the Eleventh Circuit¹ upheld a district court's decision² that an 18% service fee charged at the upscale Miami steakhouse of celebrity chef Nusret G'kçe was not a "tip" and was properly used by the restaurant to satisfy its minimum wage obligations under the Fair Labor Standards Act (FLSA), and to satisfy the requirements of the Section 207(i) FLSA exemption, which relieves retail and service establishments from the obligation to pay overtime to commission-based employees under certain circumstances.³

While neither service charges nor tips are defined by the FLSA, the Department of Labor (DOL) regulations define a tip as an amount presented by a customer as a form of gratuity in recognition of a service performed for the customer.⁴

The Lawsuit and The District Court's Decision

In Compere v. Nusret Miami, LLC, a group of service employees filed a collective action involving FLSA minimum wage and overtime claims⁵ against celebrity chef Nusret G'kçe-also known as "Salt Bae"-and the entity that operates the Nusr-Et Steakhouse, an upscale restaurant in Miami, Florida.

On May 31, 2020, the U.S. District Court for the Southern District of Florida granted the defendants summary judgment as to all claims. The district court agreed with Nusret that the 18% fee that was automatically imposed on the bills of restaurant patrons was mandatory and not "discretionary" as suggested by the plaintiffs. The 18% service fee could not be negotiated or changed by any customer and customers were made aware of the 18% service fee via the restaurant's menus.

The district court rejected the plaintiffs' argument that the service charge was a tip because managers could occasionally remove the service charge as untenable. The district court noted that it is the voluntary nature of a sum directed towards a specific employee that is the crucial element of a tip. Thus, the 18% fee was not "discretionary," as customers did not pay the service charge directly to the plaintiffs, could not negotiate the amount of the service charge, and did not have a say with regards to who ultimately received the service charge.

Since the charge was not a tip, the district court held that the restaurant could use the charge to meet its minimum wage obligations under the FLSA and establish the requirements of the Section 207(i) FLSA exemption, which exempts certain retail and service establishments from having to pay overtime wages if the following...