Oregon Restaurant & Lodging Ass’n. v. Perez

If a court holds that a statute does not prohibit certain conduct, that does not disallow an agency from rulemaking regarding that conduct.

In 2011, the Department of Labor (DOL) promulgated a rule (the 2011 rule) that expanded the tip pool regulations in the Fair Labor Standards Act of 1938 (FLSA) § 203(m) to all employers. One year before the 2011 rule was promulgated, the Ninth Circuit decided Cumbie v. Woody Woo, Inc., which held that because § 203(m) is silent regarding how the tip pool regulations apply to employers who do not utilize the tip credit method, those non-tip credit employers can set up tip pools comprised of both customarily and non-customarily tipped employees. Prior to Cumbie, a tip pool was only valid if it was made up of employees who were “customarily and regularly” tipped. Both employer-appellees in this case did not utilize the tip credit method, instead they paid their employees at least the federal minimum wage and then required them to participate in a tip pool regardless of whether the employee was a customarily or non-customarily tipped employee. After promulgation the 2011 rule, § 203(m)’s requirement that tip pools be composed exclusively of customarily-tipped employees now applied to all employers, including the appellees. The plaintiffs filed suit in the United States District Court of Oregon and motioned for summary judgment claiming the 2011 rule was in direct contradiction to the Cumbie case and, in applying the Chevron analysis, the 2011 rule was contrary to Congress’ clear intent. Nevada-plaintiff, Joseph Cesarz, filed a similar suit in the United States District Court of Nevada. Both the district courts granted their plaintiff’s motions. The two cases have been consolidated on appeal for disposition. The Ninth Circuit reversed both cases and remanded for further proceedings in accordance with the holding that the DOL may regulate the tip pooling practices of employers who do not take a tip credit. The panel decided that § 203(m)’s silence regarding employers who do not take a tip credit left room for the DOL to promulgate the 2011 rule and the DOL’s interpretation was reasonable. REVERSED and REMANDED.