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Eleventh Circuit Holds Miami Restaurant’s Service Charges Are Not Tips and Can Be Used as Alternative Method to Compensate Waitstaff

Miami, Fla. (March 25, 2022) - In Compere v. Nusret Miami, LLC, et. al., Case No. 20-12422 (11th Cir. March 21, 2022), a three-judge panel from the United States Court of Appeals for the Eleventh Circuit unanimously upheld a district court decision that celebrity 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 an 18% mandatory service charge to fulfill the restaurants minimum wage and overtime obligations. This case of first impression confirms that obligatory service charges included on a customer’s bill do not constitute a “gratuity” or tip under the FLSA, and, thus, the restaurant did not violate the employees’ rights when the restaurant utilized the charges to compensate service staff.

The Court’s Decision

The central issue in Compere v. Nusret Miami was whether the service charges were mandatory and if guests had discretion to pay them. The Eleventh Circuit found that, when service charges are automatically applied, they are nonetheless properly categorized as such, even when managers occasionally removed them at the customer’s request. The court rationalized that it was the restaurant—not the customer—that had ultimate discretion.

The case also highlights a novel pay method that the court verified as legitimate: compensating waitstaff as commissioned salespeople as opposed to tipped employees. The restaurant applied the FLSA’s Section 207(i) “Retail Sales or Service” exemption, which provides that service charges may be treated as commissions, and employees are not entitled to overtime compensation so long as their earnings from service charges are no less than 1.5 times the applicable minimum wage for every hour worked and they receive at least 50% of their compensation via commissions during a representative period.

The unanimous Eleventh Circuit panel also nullified the waitstaffs argument that, to meet the definition of a service charge, a venue must include those fees as revenue to the house and pay appropriate taxes.

Takeaway

This is a watershed moment for hospitality venues within the jurisdiction of the Eleventh Circuit and beyond. Employers within the circuit now have a verified alternative to compensating service staff 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 before the 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 & Employment Practice page to find additional alerts in this area.

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