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FLSA: Mandatory "service charge"
is not a "tip," so can offset wages

Compere v. Nusret Miami (11th Cir 03/18/2022)
Sent to Custom Alerts™ subscribers on 03/21/2022

The 11th Circuit held that a restaurant's mandatory "service charge" is not a "tip" and thus can be used to offset restaurant's wage obligations under the FLSA.

Nusret Miami, LLC, a restaurant in Miami, has added a mandatory 18% "service charge" to customers' bills since its opening.

It collected the money from this charge and redistributed it to "certain employees on a pro rata basis" to cover minimum and overtime wage obligations.

The plaintiffs in this case – a group of employees at Nusret – challenged Nusret's compensation scheme under the FLSA by arguing that Nusret paid them less than the required federal minimum and overtime wages and "forced them to participate in an illegal tip pool with non-tipped employees."

The primary issue in this case was whether Nusret's mandatory 18% "service charge" is a tip under the FLSA. If the charge was found to be a tip, the FLSA would not allow Nusret to use that money to satisfy its minimum and overtime wage obligations.

But if the charge was not found to be a tip, Nusret would be allowed to use it to meet those obligations.
The trial court found that the charge is a "service charge" and granted summary judgment in Nusret's favor. On appeal, the 11th Circuit agreed with the trial's court decision.

The court found that the service charge was not a tip and thus could be used to "offset Nusret's wage obligations under the FLSA."

The FLSA defines neither “tip” nor “service charge.” But as noted in Department of Labor regulations, the critical feature of a “tip” is that “[w]hether a tip is to be given, and its amount, are matters determined solely by the customer.”

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