Eleventh Circuit maintains that Miami restaurant’s service charge is not tipping and can be used as an alternative method of compensating servers – Jobs and HR
United States: The Eleventh Circuit maintains that the Miami restaurant’s service charge is not tipping and can be used as an alternative method of compensating servers
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Miami, Florida (March 25, 2022) –In Compere vs. Nusret Miami, LLC, and. al., Case No. 20-12422 (11th Cir. Mar. 21, 2022), a three-judge panel of the United States Court of Appeals for the Eleventh Circuit unanimously upheld a district court ruling according to which famed restaurateur and Lewis Brisbois client Nusret Gökçe (also known as “Salt Bae”) and his Miami steakhouse were in compliance with the Fair Labor Standards Act (FLSA) when they used a fee mandatory 18% service pay to meet restaurant minimum wage and overtime obligations. This first impression case confirms that the mandatory service charge included on a customer’s bill does not do not constitute a “gratuity” or tip under the FLSA and, therefore, the restaurant did not violate the employees’ rights when it used the fees to compensate service staff.
The Court’s decision
The central question in Compère against Nusret Miami was whether the service charge was mandatory and whether customers had the discretion to pay it. The Eleventh Circuit found that when service charges are automatically applied, they are nevertheless correctly classified as such, even when managers occasionally remove them at the request of the customer. The court explained that it was the restaurant – not the customer – who had the ultimate discretion.
The case also highlights a new method of compensation that the court verified as legitimate: paying servers as commission-based salespeople rather than as tip-based employees. The restaurant applied for the FLSA’s “Retail Sales or Service” Section 207(i) exemption, which provides that service charges may be treated as commissions and employees are not entitled to a overtime pay as long as their revenue from service charges is not less than 1.5. times the applicable minimum wage for each hour worked and receive at least 50% of their remuneration in the form of commissions during a representative period.
The Eleventh Circuit’s unanimous panel also overruled the servers’ argument that to meet the definition of a service fee, a venue must include those fees as revenue for the house and pay the appropriate taxes.
This is a watershed moment for hospitality venues under the jurisdiction of the Eleventh Circuit and beyond. Tour employers now have a verified alternative to compensating service personnel beyond the traditional tip credit/tip pool method.
Miami, Fort Lauderdale and Tampa Partner Jonathan Beckerman and his team represented Mr. Gökçe and his restaurant in trial and appellate court. Please contact Mr. Beckerman if you have any questions about this case or the Eleventh Circuit’s decision. Visit our Labor and Employment Practices page to find additional alerts in this area.
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