NEW YORK — An opinion issued recently from the Eastern District of New York’s Brooklyn Courthouse in the case of Ellis v. Common Wealth Worldwide Chauffeured Transporation of New York, LLC, 2012 U.S. Dist. LEXIS 40288 (E.D.N.Y. Mar. 23, 2012) suggested gratuities paid to chauffeurs did not have to be included in the employee’s regular rate for the purposes of computing overtime under the Fair Labor Standards Act or New York Labor Law, the Wage & Hour Law Update reported March 28.
In Ellis, Judge Dora Irizarry further ruled that “the employer’s policy of automatically deducting 30 minutes from the employee’s pay for lunch, and requiring the employee to report any instances of being unable to take such a lunch break, was lawful.”
In regard to the gratuity issue, the plaintiff alleged that, because the company suggested each customer add a gratuity of 20%, any monies added were not a gratuity under Department of Labor regulations, but rather analogous to a commission which must be incorporated into the regular rate of pay for purposes of computing overtime. The court analyzed the regulations and concluded that, because customers were free to vary from the suggested amount and the employer offered un-rebutted evidence that customers in fact did so, these payments were properly treated as voluntary gratuities, excludable from the regular rate calculation.
In regard to the auto-deduct, the court noted that plaintiff failed to proffer any evidence that he had to work through lunch or that he had notified any managerial employee that he had worked through lunch. Absence of this evidence, in connection with the employee’s signed acknowledgement of a policy requiring him to notify the employer if he did not receive a meal period, was fatal to his claim.
For Boston-based Commonwealth Worldwide owner and CEO Dawson Rutter, the ruling wraps up a two-year legal case that consumed at least $100,000 in legal fees and countless man hours spent preparing for depositions of him and his brother, Scott Rutter, who runs Commonwealth’s New York City-based operations. Rutter told LCT on Wednesday that the ruling spares his company a massive settlement of “seven figures or more” since it sought class action status.
“What this suit does is that it reinforces that a limousine company which properly establishes the right protocols in the way they handle tips for customers and chauffeurs [supports] what is known as the country club exemption,” Rutter said.
The country club exemption refers to the practice of informing customers of their option to pay a recommended gratuity, or adjust it to any amount, Rutter said. This differs from a service charge, which is a mandatory fee added to a bill, such as for a banquet for a large group. The Department of Labor has ruled that service charges must be subject to overtime wage rules since they cannot be negotiated.
“They were trying to stick that to us but we presented a fact sheet that stated that we call our tip recommended,” Rutter said. “The customer has the option at any time to change the tip and can authorize in advance a different percentage. We pass 100% of tip through to chauffeur.”
Commonwealth recommends to its clients a 20% gratuity for chauffeurs. Because of RFP and contract negotiations for corporate clients, Rutter estimates 40% of all chauffeur tips vary from the recommended 20%.
Rutter emphasized that passing all of a gratuity through to the chauffeur is critical to avoiding any gray areas that could lead to lawsuits. His practice reflects the country club exemption in that club patrons frequently use such facilities on a monthly basis, as do clients of limousine companies who use chauffeured services. “The Country Club puts tips on bills for servers, but the member has the option to change that tip. And it must be passed through to the server 100%.”
Most limousine companies do not pass through 100% of the tip to chauffeurs, and that’s where some get into trouble with wage lawsuits, Rutter said. “One of the common practices among limousine companies is that if the gratuity is being paid by a credit card, the company deducts the credit card fee from the tip. If you have a $100 tip, and you take out a 4% credit card fee, that completely nullifies the (country club) exemption. Very few limo companies pass through 100% of the tip that’s billed to the customer. It’s not legal to split tips in the U.S.”
Rutter strongly advises chauffeured transportation companies to do the following: 1) Pay 100% of the tips; 2) Use the correct language on invoices, contracts, payroll records and price lists; and 3) Make sure all advertising states that tips are recommended.
On the subject of meal breaks, Rutter said it is impossible in the daily routines of chauffeured service to determine when people are taking breaks. “We have a document that states that, and chauffeurs must inform management when they are unable to take a break.” In the Ellis case, the chauffeur falsely claimed that he was not allowed to take a meal break, Rutter said.
Commonwealth Worldwide also prevailed in another lawsuit last week where the court determined a chauffeur had not been wrongfully terminated after a criminal background check found a conviction that rendered the chauffeur unqualified. The chauffeur had simply been summoned to the human resources department to discuss the matter, but instead the chauffeur avoided the office and showed up four days later with an attorney claiming he had been fired, Rutter said. The plaintiff further tried to claim that aspects of his case warranted class-action status.
Rutter urges chauffeured transportation companies that face such wage, hour and employment lawsuits to hire the best and most experienced attorneys who understand the nuances of labor and employment law. Commonwealth Worldwide had to retrain two prestigious New York law firms in order to secure the legal guidance needed to prevail.
“Don’t skimp and cheap out on the attorneys who can’t handle employment law,” Rutter said. “Find the most competent people you can.”
Related LCT article: EmpireCLS Prevails In Chauffeur Wage Class Action Lawsuit
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Sources: Wage & Hour Law Update; Martin Romjue, LCT editor