JOHN A. WOODCOCK, JR., Chief Judge.
The corporate and employment structure of adult entertainment nightclubs is occasionally exotic. The Plaintiffs, emcees who worked at a Defendant-owned nightclub, contend that their tips from dancers, who are independent contractors, should not count for purposes of the Federal Labor Standards Act. Despite determining that the record raises genuine issues of material fact as to whether the corporate parent is a proper defendant, the Court concludes that the money an entertainer gives an emcee constitutes a tip within the meaning of the FLSA and grants summary judgment in favor of the nightclub owner. Finally, with the disposition of the federal statutory claim, the Court declines to maintain supplemental jurisdiction over the state law claims and dismisses them without prejudice.
On October 27, 2010, Ernest E. Johnson, III and Brian S. Prindle initiated "an individual and collective action" on behalf of "all persons who are or have been employed by defendant VCG Holding Corporation... as dis[c] jockeys at any time within [the previous] three years ... through the date of the final disposition of this action." Compl. at 1-2 (Docket # 1). Individually and on behalf of proposed members of the collective action, the Plaintiffs allege that VCG Holding Corporation (VCG) violated the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. (Count I) and individually, they allege violations of Maine's Minimum Wage Act, 26 M.R.S. § 661 et seq. (Count II).
On August 12, 2011, VCG moved for summary judgment and filed a statement of material facts. Def. VCG Holding Corp.'s Mot. for Summ. J. (Docket # 46) (Def.'s Mot.); Def. VCG Holding Corp.'s Statement of Material Facts in Support of its Mot. for Summ. J. (Docket # 47) (DSMF). On September 15, 2011, the Plaintiffs filed their opposition to VCG's motion for summary judgment, responded
On August 12, 2011, the Plaintiffs also moved for partial summary judgment and filed a statement of material facts. Pls.' Mot. for Partial Summ. J. (Docket # 44) (Pls.' Mot.); Pls.' Statement of Material Facts (Docket # 45) (PSMF). On September 16, 2011, VCG filed its opposition to the Plaintiffs' motion for summary judgment, a response to the Plaintiffs' statement of material facts, and a set of additional facts. Def. VCG Holding Corp.'s Opp'n to Pls.' Mot. for Partial Summ. J. (Docket # 52) (Def.'s Opp'n); Def. VCG Holding Corp.'s Opp'n to Pls.' Statement of Material Facts and Statement of Additional Facts (Docket # 53) (DRPSMF; DSAMF). On September 22, 2011, the Plaintiffs moved for leave to consolidate their filings so that their response to VCG's motion for summary judgment would be considered their reply to VCG's response to their motion for summary judgment and their statement of material facts in opposition to VCG's statement of material facts would be considered their reply to VCG's response to their statement of material facts. Expedited Mot. for Leave to File Abbreviated Reply to Def.'s Resp. to Pls.' Mot. for Partial Summ. J. (Docket # 54) (Expedited Mot.). The Court granted the motion on September 23, 2011. Order (Docket # 55).
Ernest E. Johnson, III and Brian S. Prindle were formerly employed as disc jockeys (Emcees) by KenKev II, Inc., d/b/a PT's Showclub Portland (P.T.'s or the Portland Club), an adult entertainment nightclub owned by VCG Holding Corp. in Portland, Maine.
VCG is a Colorado corporation that owns, via stock, membership, or partnership interest, 18 businesses that operate nightclubs providing adult entertainment. DSMF ¶ 3; PRDSMF ¶ 3. VCG was formerly a publicly-traded corporation; however, as of April 18, 2011, it is no longer publicly-traded and is owned by a private entity, Family Dog, LLC, a Colorado limited liability company. Id. Each entity is separately incorporated and maintains proper corporate formalities.
KenKev is a Maine corporation that owns all licenses and permits to operate P.T.'s Showclub — Portland. Id. Mr. Ocello is a director of KenKev. Id. At the time of acquisition, the Portland Club was called Platinum Plus, and KenKev continued to operate the club under that name until June 2009, when the name changed to P.T.'s Showclub. DSMF ¶ 6; PRDSMF ¶ 6. KenKev employs its own staff (i.e. managers, bartenders, bar backs, waitresses, housemothers, emcees, etc.) and enters into lease agreements with the entertainers to perform at the Portland Club. DSMF ¶ 6; PRDSMF ¶ 6. Each club maintains its own employment files, books, records and payroll; however, the corporate office in Denver, Colorado does as well.
Several Maine licenses issued to the Portland Club list Colorado as the address of the club.
Paul Clement was promoted in 2008 by the President of VCG from Supervisor at another PT club to Area Director of the Portland Club.
Along with VCG, the Area Director is responsible for all day-to-day managerial activities, such as hiring and firing, establishing policies and procedures and management of all employees, including persons with job duties similar to the named Plaintiffs at the Portland Club.
The Portland Club uses a Form Book prepared by the corporate office of VCG and provided by Ms. Danner, the Human Resources Director for VCG.
Trainers from the corporate offices in Denver, Colorado conducted sexual harassment training of the Portland Club's employees.
All Portland Club employees are invited to call upon the President of VCG when they feel it is appropriate about employment or other problems.
Mr. Prindle testified that he only saw Michael Ocello at the Portland Club meeting with Mr. Clement on two occasions and he does not know who processed his payroll; he never had any dealings with anyone from Colorado or St. Louis; he does not know the relationship among IEC, VCG, or KenKev; he does not know Marty Danner; he never had dealings with VCG or IEC. DSMF ¶ 13; PRDSMF ¶ 13. Mr. Johnson testified that he only met Mr. Ocello once at the Portland Club and that Mr. Ocello never gave him any instructions on how to do his job. DSMF ¶ 14; PRDSMF ¶ 14.
Although the record indicates that VCG's wholly-owned subsidiary, International Entertainment Consultants (IEC), provides management and administrative services to the VCG-owned clubs and to non-owned affiliated clubs, in such areas as compliance, accounting, tax and payroll, IEC properly maintains separate corporate records and is a solvent company with adequate capitalization.
Mr. Ocello is the President of IEC and Mr. Clement testified that he consulted, as needed, with Mr. Ocello, both as an officer of KenKev and IEC, regarding Club matters.
Marty Danner is employed by IEC and is the Director of Payroll and Human Resources.
Entertainers lease space from the clubs pursuant to a written lease agreement.
Entertainers tip emcees for the services they provide to them.
Plaintiffs agree that all of their responsibilities directly benefit the club customers as well as the entertainers and an emcee's performance affects entertainers' earnings. DSMF ¶ 23; PRDSMF ¶ 23. For example, some entertainers would receive substantial tips on stage because, in part, of the interest that the DJ generated in their particular performances. Id.
The deejay booth at the Portland Club is located in the front of the house, adjacent to the main stage.
Emcees are not required to share their tips and the Portland Club does not retain
In January and February 2008, Mr. Clement said that he held a meeting for all P.T. employees to explain that the employees who received tips were going to be paid a tipped minimum wage and that the Government required them to report 100% of their tips.
Brian Prindle has worked as a DJ in the adult entertainment industry for 15 years. DSMF ¶ 31; PRDSMF ¶ 31. In about 2001, Mr. Prindle began working at Platinum Plus and continued to work there until after P.T.'s acquired the Portland Club. Id. Mr. Prindle is currently emceeing at another adult entertainment nightclub, Ten's, in Massachusetts. DSMF ¶ 32; PRDSMF ¶ 32. Although he performs the same job functions as he performed at P.T.'s, his compensation at Ten's is exclusively dependent upon tips from the entertainers. Id. At Platinum Plus, he received $50 per shift plus tips from the entertainers. DSMF ¶ 33; PRDSMF ¶ 33. Once P.T.'s acquired the Portland Club, he continued to work the same shifts, averaging about 35 hours per week, and the pay structure remained the same for the first six months. Id. Thereafter, his pay structure changed from shift pay to $3.50 hourly and he was now required to report tips to the Portland Club. Id. On average, Mr. Prindle made $300 to $400 in tips per week and including his regular pay made about
Mr. Prindle admits that he received more than $7.25 per hour in wages, including tips, and more than $30 in tips per month. DSMF ¶ 35; PRDSMF ¶ 35. Mr. Prindle cannot answer why he believes that he was paid improperly at the Portland Club.
Ernest Johnson worked at the Portland Club from September 2006 to July 2010. DSMF ¶ 39; PRDSMF ¶ 39. At that time, Adam Currier, a former manager, explained his compensation as including wages in the amount of $3.75 per hour, plus tips from the customers. DSMF ¶ 40; PRDSMF ¶ 40. Mr. Johnson generally received between $300 and $400 a week in tips from entertainers and made between $13.12 to $16.25 per hour, including tips. DSMF ¶ 41; PRDSMF ¶ 41. At no time during his employment did Mr. Johnson believe that his compensation as an emcee was unlawful. DSMF ¶ 42; PRDSMF ¶ 42.
Ernest E. Johnson, III and Brian S. Prindle were formerly employed as disc jockeys (emcees) by KenKev II, Inc., d/b/a PT's Showclub Portland (P.T.'s or the Portland Club), an adult entertainment nightclub owned by VCG Holding Corp. in Portland, Maine.
VCG does not regard the dancers as its employees and does not compensate them for their services as employees. PSMF ¶ 4; DRPSMF ¶ 4. VCG regards the dancers as entertainers for the patrons. PSMF ¶ 8; DRPSMF ¶ 8. Entertainers lease space from the clubs pursuant to a written lease agreement.
Entertainers are not required to tip emcees.
Entertainers tip emcees for the services they provide to them.
The deejay booth at the Portland Club is located in the front of the house, adjacent to the main stage.
Emcees are not required to share their tips and the Portland Club does not retain any portion of the tips. DSAMF ¶ 10; PRDSMF ¶ 25. The Portland Club does not have a mandatory tip pool. DSAMF ¶ 11; PRDSMF ¶ 26. The supervisor of both Plaintiffs has no knowledge about how many tips the Plaintiffs received directly from the customers who came to be entertained at VCG's Club. PSMF ¶ 3; DRPSMF ¶ 3. Plaintiffs admit to signing a Tip Reporting Policy and to understanding that they were required to report all tips to the Portland Club. DSAMF ¶ 12; PRDSMF ¶ 27. Plaintiffs admit that posters setting forth minimum wage and tipped minimum wages are posted throughout the Portland Club in places frequented by employees.
Mr. Clement testified that he held a meeting in January and February of 2008 for all employees at P.T.'s to explain that the employees who received tips were going to be paid a tipped minimum wage and that the Government required them to report 100% of their tips.
VCG included in its calculation of the minimum wage owed the Plaintiffs the alleged "tips" received by them as emcees from the entertainers. PSMF ¶ 5; DRPSMF ¶ 5.
Brian Prindle has worked as an emcee in the adult entertainment industry for 15 years. DSAMF ¶ 16; PRDSMF ¶ 31. In about 2001, Mr. Prindle began working at Platinum Plus and continued to work there until after P.T.'s acquired the Portland Club. Id. Mr. Prindle is currently emceeing at another adult entertainment nightclub, Ten's, in Massachusetts. DSAMF ¶ 17; PRDSMF ¶ 32. Although he performs the same job functions as he performed at P.T.'s, his compensation at Ten's is exclusively dependent upon tips from the entertainers. Id. At Platinum Plus, he received $50 per shift plus tips from the entertainers. DSAMF ¶ 18; PRDSMF ¶ 33. Once P.T.'s acquired the Portland Club, he continued to work the same shifts, averaging about 35 hours per week, and the pay structure remained the same for the first six months. Id. Thereafter, his pay structure changed from shift pay to $3.50 hourly and he was now required to report tips to the Portland Club. Id.; PSMF ¶ 13; DRPSMF ¶ 13. On average, Mr. Prindle made $300 to $400 in tips per week and made about $12.07 per hour including his regular pay. DSAMF ¶ 19; PRDSMF ¶ 34.
Mr. Prindle admits that he received more than $7.25 per hour in wages, including tips, and more than $30 in tips per month. DSAMF ¶ 20; PRDSMF ¶ 35. Mr. Prindle cannot answer why he believes that he was paid improperly at the Portland Club.
Ernest Johnson worked at the Portland Club from September 2006 to July 2010. DSAMF ¶ 24; PRDSMF ¶ 39. At that time, Adam Currier, a former manager, explained his compensation as including wages in the amount of $3.75 per hour, plus tips from the customers. PSMF ¶ 12; DRPSMF ¶ 12; DSAMF ¶ 25; PRDSMF ¶ 40. Mr. Johnson generally received between $300 and $400 a week in tips from entertainers and made between $13.12 and $16.25 per hour, including tips. DSAMF ¶ 26; PRDSMF ¶ 41. At no time during his employment, did Mr. Johnson believe that his compensation as an emcee was unlawful. DSAMF ¶ 27; PRDSMF ¶ 42.
VCG asserts that it is entitled to summary judgment because (1) VCG is not a proper Defendant and (2) the money given to the emcees by the entertainers is properly considered tips under the FLSA and Maine law. Def.'s Mot. at 1.
In its motion, VCG contends that under its corporate structure, it is not as a matter of law the employer of either of the Plaintiffs. Id. at 8-11. Noting that there are three potential corporate entities, VCG, IEC and KenKev, it says that KenKev, a Maine corporation, was the Plaintiffs' sole employer. Id. at 11. It contends that VCG is a mere holding company, which exists just to own interests in the companies that own the clubs, and that it has no employees at all. Id. at 10. VCG maintains that IEC, VCG's wholly-owned subsidiary, only provides management and administrative services to the clubs, including KenKev, and is not the Plaintiffs' employer. Id. at 11. By contrast, it argues that KenKev is the Maine corporation that employed these Maine residents at this Maine business, that KenKev was the entity that issued the Plaintiffs' W-2s, that obtained all necessary licenses and permits, that employed others at the club, including the manager, bartenders, barbacks, waitresses, housemothers, and the emcees, and that the Area Director hired and fired the employees and performed the day-to-day management of the Portland Club. Id. at 10.
With these facts, VCG says that it is entitled to judgment as a matter of law that it was not the Plaintiffs' employer. VCG concedes that the FLSA contemplates there may be simultaneous employers who are responsible for FLSA compliance. Id. at 8. However, it argues that there is "a strong presumption that a parent corporation is not the employer of its subsidiary's employees." Id. (quoting Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 778 (5th Cir.1997)).
VCG points out that, when interpreting § 203(d) of the FLSA, the First Circuit adopted an "economic reality" test. Id. at 9. It says that under that test, joint employment status may be found where (1) the entity has operational control over the enterprise which the nominal employer is a part of, or (2) the entity has substantial control of the terms and conditions of the work of the employee. Id. VCG stresses
It claims that the Plaintiffs "rely
On this issue, VCG contends that the money the emcees receive from the entertainers constitutes tips and, as they receive more than $30.00 per month from the entertainers, the emcees fit within the FLSA definition of "tipped employee." Id. at 11-15. Assuming the emcees' tips are included, VCG argues that their employer is entitled to take a "tip credit" under the FLSA. Id. at 12-13. VCG contends that whether the entertainers are considered the customers of the emcees or are analogized as club employees, their tips to the emcees should count. Id. at 16-17. Finally, VCG asserts that the emcees fit within the concept of a mandatory tip pool where servers tipped out to a maîtred'. Id. at 17.
VCG contends that Maine law provides for a tip credit against minimum wage. Id. at 18 (citing 26 M.R.S. § 664 subd. 2). VCG argues that because the Plaintiffs conceded that they were paid at least one-half of the minimum wage required by law and that with the tips, they were paid in excess of full minimum wage, VCG is entitled to summary judgment on the state law claim. Id.
The Plaintiffs claim that they were employed by VCG Holding Corporation. Pls.' Opp'n at 1. They say that the evidence shows that VCG, not IEC, carried on administrative functions for the Portland Club. Id. They allege that VCG maintained payroll and human resource records for the Portland Club in Denver, Colorado, that Marlene (Marty) Danner had been the Director of Payroll and Human Resources for all the clubs, that the Maine retail license lists Denver as the address for the Portland Club, that VCG claimed it had approximately 925 employees in its 10-K, which it filed with the Securities and Exchange Commission, and that VCG admits it was the subject of two United States DOL audits concerning whether its employees were paid in accordance with the FLSA. Id. at 1-2. The Plaintiffs say that VCG has admitted "employer-like functions."
The Plaintiffs point out that employment under the FLSA is defined with "striking breadth." Id. at 7 (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992)). Furthermore, they refer to Baystate Alternative
The Plaintiffs contend that the "weakness of the defendant's case regarding the tip credit is shown in its attempt to argue that the dancers who perform at the Club are in fact the `customers' of the DJs." Id. at 8. The Plaintiffs argue that VCG's argument amounts to its own unsupported legal theory. Id. at 8-9. They dismiss VCG's attempts to differentiate between federal and Maine law by saying that the Maine courts have used federal law to interpret similar state statutes. Id. at 9. Furthermore, they say that the record evidence in this case raises a factual question as to whether the minimum tip is entirely voluntary as the FLSA requires. Id. Finally, they reiterate that DOL regulations do apply to and are binding on VCG. Id. at 10.
In its reply, VCG turns the Plaintiffs' argument, emphasizing that it is the Plaintiffs who cite "
Not surprisingly, VCG disagrees that its position on tipped employees is a "pure invention." Id. at 4. Instead, VCG insists that it is the Plaintiffs who are inventing law out of whole cloth and it restates its earlier contentions about the non-employment status of the entertainers and the importance of the emcees. Id. at 5-6.
The Plaintiffs first contend that VCG is not entitled as a matter of law to a tip credit for monies they received directly from club patrons. Pl.'s Mot. at 2. They say that the tips from customers are too sporadic and insubstantial to satisfy the statutory test for "tipped employees." Id. at 3. They argue that neither of the Plaintiffs received any direct tips on a regular basis and, in any event, the total tips of such did not exceed $30 per month. Id. The Plaintiffs support their position by citing 29 U.S.C. § 203(m), which defines a "tipped employee" as one who "customarily and regularly" receives more than $30 a month in tips. Id. Although they concede that the minimum wage Maine statute does not contain an express provision that tips must come from a customer, the Plaintiffs maintain that this requirement "may be fairly implied" as the statutory intent. Id. at 4. They point out that the Maine Supreme Judicial Court has looked to analogous federal statutes in interpreting
The Plaintiffs then move to their main point. They contend that the Portland Club is "not entitled to a tip credit for the monies received by the plaintiff dis[c] jockeys from the dancers." Id. at 5. They point out that the entertainers are not Club employees, but are independent contractors, and are not paid wages. Id. To count as tips, the Plaintiffs say, the source must either be from the customers or from a valid tip pool. Id. The Plaintiffs assert that there can be no valid tip pool with the dancers because the entertainers are not employees. Id. To fit within the protection of the statute, the Plaintiffs maintain that VCG must comply with the statutory definitions and even if VCG could prove that the emcees "somehow end up with an amount equal to the minimum wage," it does not count. Id. at 5-6. They support this overall point by referring to federal statutory, regulatory, and case law. Id. at 6-9. They claim that the same result obtains under Maine law. Id. at 10.
VCG rejects the Plaintiffs' contention that the emcees are not "tipped employees" within the meaning of the FLSA. Def.'s Opp'n at 7-9. VCG explains that because the entertainers tip the emcees freely, voluntarily, and in no set amount for services the emcees perform for them, the entertainers become for purposes of the FLSA the customers of the emcees. Id. at 10-11. VCG also observes that the emcees also directly benefit the patrons from whom they receive tips. Id. at 11. VCG dismisses the significance of the DOL's Field Operations Handbook and Opinion FLSA 2005-30 as "not binding." Id. As the Plaintiffs concede that they made in tips between $300 and $400 per week during an average 35 hour workweek from the entertainers, VCG concludes the emcees must be considered "tipped employees" under the FLSA. Id. at 12.
VCG offers an alternative theory. It says that because 29 U.S.C. § 203(m) allows tip-pooling, the Court could "analogize the entertainers to Club employees." Id. It says such an analysis would "fit squarely within the well-recognized notion of a tip pool." Id. It compares emcees to hosts in a restaurant, who have been found to have sufficient contact with customers to participate in a valid tip pool. Id.
Finally, VCG presses its view that it is entitled to summary judgment on the state law claims because the Maine statute does not require that the employee receive tips from customers. Id. at 13-15. VCG says that the facts do not support the Plaintiffs' theory and that the FLSA preempts the state law claim in any event. Id. at 14-15.
Instead of filing a separate reply, the Plaintiffs adopted their response to VCG's motion for summary judgment as their reply, which the Court has already summarized. Expedited Mot. at 1-2.
Generally, summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). The initial burden is on the moving party to show that there exists an absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets this initial burden, then the non-moving party must set forth
A fact is "material" if it "has the potential to change the outcome of the suit under the governing law if the dispute over it is resolved favorably to the nonmovant." McCarthy v. Nw. Airlines, Inc., 56 F.3d 313, 315 (1st Cir.1995); accord Buchanan v. Maine, 469 F.3d 158, 166 (1st Cir.2006); Seaboard Sur. Co. v. Town of Greenfield, 370 F.3d 215, 218-19 (1st Cir. 2004). An issue is genuine where "a reasonable jury could resolve the point in favor of the nonmoving party." Tropigas de Puerto Rico, Inc. v. Certain Underwriters at Lloyd's of London., 637 F.3d 53, 56 (1st Cir.2011) (quoting McCarthy, 56 F.3d at 315). While the Court "views the facts and draws all reasonable inferences in favor of the nonmoving party," Ophthalmic Surgeons, Ltd. v. Paychex, Inc., 632 F.3d 31, 35 (1st Cir.2011), it "afford[s] no evidentiary weight to `conclusory allegations, empty rhetoric, unsupported speculation, or evidence which, in the aggregate, is less than significantly probative,'" Tropigas de Puerto Rico, Inc., 637 F.3d at 56 (quoting Rogan v. City of Boston, 267 F.3d 24, 27 (1st Cir.2001)); accord Sutliffe v. Epping Sch. Dist., 584 F.3d 314, 325 (1st Cir.2009).
"The FLSA requires that employers pay to covered employees a minimum hourly wage." Donovan v. Agnew, 712 F.2d 1509 (1st Cir.1983) (citing 29 U.S.C. § 206). Enacted pursuant to Congress's constitutional authority to regulate interstate commerce, the purpose of the FLSA is "to eliminate from industries engaged in commerce or in the production of goods for commerce the existence of labor conditions detrimental to the maintenance of the minimum standard of living necessary for the health, efficiency and general well-being of workers in such industries and production in order to prevent disruption of such commerce." Bowie v. Gonzalez, 117 F.2d 11, 16 (1st Cir.1941). The statute "is remedial in nature and should be liberally construed." Id.
Accordingly, the traditional common law definition of employer does not apply to the FLSA.
The FLSA's unusually broad definition of employer "includes any person acting directly or indirectly in the interest of an employer in relation to an employee," 29 U.S.C. § 203(d), and has "been interpreted expansively," Donovan, 712 F.2d at 1510. Following the Supreme Court's lead, the First Circuit adopted an "economic reality" test in FLSA cases that "prevails over technical common law concepts of agency," id. (citing Goldberg v. Whitaker, 366 U.S. 28, 33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961)), allowing for "multiple `employers' who are simultaneously liable for compliance with the FLSA," Chao v. Hotel Oasis, Inc., 493 F.3d 26, 33-34 (1st Cir.2007). This test adopts "the non-common law view ... that `employees are those who as a matter of economic reality are dependent upon the business to which they render service.'" Speen v. Crown Clothing Corp., 102 F.3d 625, 632 (1st Cir.1996) (quoting Bartels v. Birmingham, 332 U.S. 126, 130, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947)).
The breadth and rarity of the FLSA definition of employer is demonstrated by the First Circuit's refusal to extend the FLSA definition to other remedial statutes, such as the ERISA and the Age Discrimination in Employment Act, Speen, 102 F.3d at 632, the Americans with Disabilities Act, Dykes v. DePuy, Inc., 140 F.3d 31, 38 (1st Cir.1998), and Title VII of the Civil Rights Act, Alberty-Velez v. Corporacion de P.R. para la Difusion Publica, 361 F.3d 1, 6-7 (1st Cir.2004).
The Court turns first to the question of whether VCG was an "employer" of the Plaintiffs under the FLSA's definition. VCG contends that its corporate organization is neatly divided by function: VCG acts as the holding company, IEC as a human resources and administrative consultant, and KenKev as the employer. There is nothing facially improper about such a corporate organization, but whether these functional divisions are carried out in practice is another matter. In the summary judgment context, the question is whether the Plaintiffs have raised a genuine issue of material fact about whether VCG's practices blur these corporate function lines.
The parties do not dispute that the Plaintiffs were employed by KenKev, the Maine corporation that issued their W-2s. However, that KenKev was one employer is not determinative because "[t]here may be multiple `employers' who are simultaneously liable for compliance with the FLSA." Chao, 493 F.3d at 34; Donovan, 712 F.2d at 1510-11. "[T]he FLSA requires the Court to look past the legal veneer of corporate independence, and to inquire into who runs [the defendant's] nightclub as a matter of economic reality." Doe v. Cin-Lan, Inc., 4:08-cv-12719, 2009 WL 2568516, at *13, 2009 U.S. Dist. LEXIS 72979, at *36-37 (E.D.Mich. Aug. 18, 2009). Thus, the question remains whether VCG and IEC also employed the Plaintiffs within the FLSA's definition.
Turning first to personnel, Mr. Ocello is the President of VCG and IEC and a Director of KenKev, Ms. Danner is the Human Resources Director for VCG and IEC, and Mr. Clement is an employee of KenKev but was promoted to the position of Area Director by Mr. Ocello. Because Mr. Ocello wore several hats among these three companies, there is a genuine issue of material fact as to which hat he was wearing for different duties. See Reich v. Circle C. Investments, Inc., 998 F.2d 324, 329 (5th Cir.1993) (describing a consultant for an adult nightclub as the "driving force" behind the corporation). Furthermore, although VCG insists that it has no employees, the record contains evidence to the contrary. Ms. Danner's own emails describe her position as "Director of Human Resources and Payroll" for "VCG Holding Corp."
Regarding the employment policies and control of the Portland Club, the record reflects that Ms. Danner was involved in the details of the Portland Club's operations. She supplied a Form Book that the Portland Club used and handled the payroll for the Portland Club employees. The corporate accountants for the Portland Club work in Denver and the corporate office writes checks and pays bills for the Portland operation. Conference calls among all Area Directors and Mr. Ocello happen regularly and concern personnel matters. The Portland Club employees receive training from corporate employees and, on at least one occasion, from the employee of another club. The Portland Club employees were invited to call on Mr. Ocello, the President of VCG, about employment or other problems when they felt it was appropriate. The entertainers at the Portland Club lease space on a form lease that is applicable to VCG clubs generally. Finally, in its 2009 annual report, VCG reported that it and its subsidiaries employed 925 employees, of which 135 were full-time management employees.
Applying these factors to the record in this case, it appears that there are genuine issues of material fact on the "employer" issue that preclude summary judgment for VCG as to that issue. There is a genuine issue, for example, as to whether Mr. Ocello, who as President of VCG hired Mr. Clement, could also have fired him in that same capacity. Similarly, there is a factual question as to whether Mr. Clement, whose title was Area Director, was acting for VCG, IEC, KenKev, or all three, when he hired, fired, and controlled the work schedules for Portland Club employees and established their rate and method of payment. Finally, it is undisputed that the employment records for Portland Club employees were maintained both in Portland and in Denver, but genuine issue as to whether Ms. Danner, who was responsible for those employment records as Director of Human Resources, was acting as Director of Human Resources and Payroll for VCG Holding Corp. — as her email indicated — or as Director for IEC only in overseeing those records — as VCG insists.
In the Court's view, the available facts create several genuine issues of material fact as to whether parent company VCG should be considered the Plaintiffs' employer under the FLSA definition. VCG's motion for summary judgment as to its corporate status as parent and not employer must fail.
The parties have filed motions forming opposite sides of the same coin. The Plaintiffs' motion for partial summary judgment is premised on the argument that the entertainers' tips to the emcees may not count as tips under the FLSA and that, when the entertainers' tips are eliminated from calculation, the emcees were underpaid under the FLSA. VCG's motion for summary judgment is premised on the argument that the entertainers' tips to the emcees do count as tips under the FLSA and, when the entertainers' tips are included in the calculus, the emcees were properly compensated under the FLSA. Furthermore, the factual differences pressed separately by the parties, viewed in the light most favorable to the nonmovant, do not create meaningful distinctions. Accordingly, on this issue, the Court addresses both motions at the same time.
The FLSA requires that employers pay employees a minimum hourly wage, 29 U.S.C. §§ 201 et seq. For tipped employees, however, the law allows employers to pay a reduced minimum wage provided they fulfill the requirements for taking a "tip credit," which is the difference between the amount an employee must be paid under minimum wage law and the amount directly paid to a tipped employee. 29 U.S.C. § 203(m). The FLSA contains specific provisions on whether and how employers are allowed to treat tips when
29 U.S.C. § 203(t). For a "tipped employee," the law permits an employer to take a wage credit for tips under certain conditions. 29 U.S.C. § 203(m). The DOL has promulgated the following definition of "tips":
29 C.F.R. § 531.52. The employer bears the burden of demonstrating that it is entitled to claim the FLSA's "tip credit." See, e.g., Fast v. Applebee's Int'l, Inc., 638 F.3d 872, 882 (8th Cir.2011) (affirming that employer bears burden to prove tip credit or other exemptions under FLSA); Barcellona v. Tiffany English Pub, Inc., 597 F.2d 464, 467 (5th Cir.1979); Ash v. Sambodromo, LLC, 676 F.Supp.2d 1360, 1367 (S.D.Fla.2009); Bernal v. Vankar Enters., Inc., 579 F.Supp.2d 804, 808 (W.D.Tex. 2008).
To properly characterize the entertainers' tips to the emcees, it is first necessary to properly characterize the entertainers. If the entertainers are employees, the tips may be shared with emcees provided the requirements for a "tip pool" are met. See 29 U.S.C. § 203(m); 29 C.F.R. § 531.54. If the entertainers are independent contractors, the money from the entertainers to the emcees constitutes a tip. See 29 C.F.R. § 531.52. In this unusual case, the parties agree that the entertainers are not employees.
For purposes of ruling on this motion only, the Court accepts the agreement of the parties that the entertainers are not employees and are instead independent contractors under the FLSA. The Court intimates no view as to the status of entertainers, if squarely raised.
The Court turns to the crux of this case: whether VCG is entitled to take a tip credit for tips that the entertainers, who are independent contractors, give the emcees, who are employees.
The Plaintiffs concede that the FLSA allows tip pools. Pls.' Mot. at 7-8 (citing 29 C.F.R. § 531.54). The typical example, expressly described in the regulation, is a restaurant where servers and bussers share tips from patrons. See 29 C.F.R. § 531.54. But the Plaintiffs contend that a tip pool requires that the tips be shared among employees and does not allow tips among independent contractors and employees. They point to an Opinion Letter from the Wage and Hour Division of the DOL, which refused to allow an employer to take a credit for a 15% gratuity that was "transferred directly to the chauffer" because the gratuity was imposed and therefore not a tip. U.S. Dep't of Labor, Emp't Standards Admin., Wage and Hour Div., Opinion Letter, 2005 DOLWH LEXIS 38, at *1 (Sept. 2, 2005).
VCG sees it differently. It insists that the emcees receive their tips from customers, but that the customers are the entertainers. VCG emphasizes that the entertainers depend upon the services provided by the emcees to set the overall mood of the club, to energize the crowd with lively dance music (particularly when the dancers are on stage), to generate excitement when announcing individual entertainers, and generally to create a party and tipping atmosphere within the club. VCG says that the entertainers recognize the value they receive from the emcees and freely and voluntarily give tips to the emcees in exchange for the services the emcees provide. VCG maintains that, unlike the chauffeur in the DOL opinion letter, the tips to emcees from entertainers are entirely voluntary. As a fallback position, VCG urges the Court to analogize the
To meet the definition of "tip," the regulatory prerequisites are "strictly construed, and must be satisfied even if the employee received tips at least equivalent to the minimum wage." Chung v. New Silver Palace Rest., 246 F.Supp.2d 220, 229 (S.D.N.Y.2002); Martin v. Tango's Rest., Inc., 969 F.2d 1319, 1323 (1st Cir. 1992) (noting that while "[i]t may at first seem odd to award back pay against an employer, doubled by liquidated damages, where the employee has actually received and retained base wages and tips that together amply satisfy the minimum wage requirements," nevertheless "Congress has in section 3(m) expressly required notice as a condition of the tip credit and the courts have enforced that requirement").
The regulatory definition of "tip can be broken down into several components. The first requirement under § 531.52 is that the tip must be "presented by a customer." 29 C.F.R. § 531.52.
Here, VCG makes the innovative argument that the dancers are customers of the emcees. This way of viewing the emcee-entertainer relationship is counterintuitive. Typically, a tipping customer, such as a restaurant patron or hotel guest, is a stranger to the internal workings of the business and has no economic stake in its success. Furthermore, within a business, even when workers share tips, they do not commonly view each other as customers. But here, an entertainer is hardly an economic stranger to a club. As the Morse court noted, "[e]xotic dancers are obviously essential to the success of a topless nightclub." 2010 WL 2346334, at *6, 2010 U.S. Dist. LEXIS 55636, at *17 (quoting Harrell, 992 F.Supp. at 1352).
The language in the regulation does not provide a clear answer; although the regulation requires that a tip come from a "customer," the regulations do not define the term. Nor does standard usage resolve the issue. The dictionary definition of "customer" has two subtly distinct meanings: 1) "one who purchases some commodity or service" or 2) "one who patronizes or uses the services (as of a library, restaurant, or theater)." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY at 559 (2002 ed.). The first definition is narrow and arguably would not encompass VCG's view of the entertainer-emcee relationship; the second definition is broader and could encompass VCG's position that the dancers voluntarily tipped the emcees in appreciation for the services they provided.
Although the parties have made unusually self-assured yet contrary pronouncements, they have offered no case law in either the adult entertainment industry or, by analogy, in other fields where a court has addressed tips passed from independent contractors to employees within the same business.
The policies underlying the FLSA do not resolve the question. The adoption of an employment test of "striking breadth" in FLSA cases strongly suggests a congressional intent to capture more workers within the FLSA definition of employment. See Darden, 503 U.S. at 326, 112 S.Ct. 1344. But here, as the parties have presented the issue; the question is not how to classify the workers, but rather how to classify the tips. From the Court's perspective, there are no obvious reasons why an employer, who has legally structured its business with both independent contractors and employees, could not allow the independent contractors to tip the employees if the employees are rendering the independent contractors a valued service. Although the statute is remedial, the Court is chary about making a policy judgment in the guise of interpretation, especially where the Plaintiffs are not claiming they were underpaid but only that the payments do not count for FLSA purposes. Absent greater clarity, the Court is not prepared to rule that independent contractors within a business cannot tip employees for purposes of the FLSA.
Finally, the Court stresses that the facts in this case do not suggest that VCG, for purposes of this case, has fabricated the services the emcees provide the entertainers. The Plaintiffs and VCG agree that entertainers rely on emcees to promote them, to set the overall mood of the clubs, to rotate them throughout the clubs, to introduce them as they take stage, to select and play energizing music, to control the lights, and generally to galvanize the crowd. They also agree that an emcee's performance affects the entertainer's tips. Thus, the record the parties developed in this case demonstrates that the entertainers have good reason to voluntarily tip the emcees.
In short, absent a clearer statutory or regulatory directive or evidence that the remedial purpose of the law is being violated, the Court is not inclined to impose a judicial restraint on the way an employer may structure its business.
The regulatory definition of "tip" contains a number of other requirements: 1) a "gift or gratuity"; 2) in recognition of "some service"; 3) "performed for [the customer]"; 4) "determined solely by the customer"; and 5) who retains "the right to determine who shall be the recipient of the gratuity." 29 C.F.R. § 531.52. Here, the parties seem to agree that, if the regulation otherwise applies, the payments from the entertainers to the emcees qualify as tips. For example, there is no evidence in this record that the money given to the emcees by the entertainers was anything other than voluntary. See ABC/ York-Estes Corp., 1997 WL 264379, at *4-6, 1997 U.S. Dist. LEXIS 6874, at *15-20 (discussing the difference between a tip and a service charge for exotic dancers). The Plaintiffs' and VCG's versions of the facts confirm that the entertainers determined whether and how much to give the emcees and that the emcees performed a service to the entertainers. The Court accepts these versions for purposes of the motions and concludes that the tipping arrangement between entertainers and emcees otherwise meets the requirements
Given the parties' agreement that the entertainers are independent contractors, the Court concludes that the amounts of money the dancers gave to the emcees constitute tips under the FLSA and that VCG is therefore entitled to a credit for those payments.
VCG argues that the Plaintiffs' state law claim should fail for the same reasons as their federal claim.
The Plaintiffs' state law claims are before this Court pursuant to the Court's supplemental jurisdiction. 28 U.S.C. § 1367. Where a district court has dismissed all claims over which it has original jurisdiction, it may decline to exercise supplemental jurisdiction over the remaining state law claims. 28 U.S.C. § 1367(c)(3). The First Circuit generally assumes that once all federal claims are resolved, the state claims should be dismissed. See, e.g., Batterman v. Leahy, 544 F.3d 370, 376 (1st Cir.2008) ("if the federal claims were disposed of on the papers, the district court would likely decline to exercise pendent jurisdiction over the statelaw claims"). Accordingly, the Court dismisses, without prejudice, the Plaintiffs' state law claims in Claim Two of the Plaintiffs' Complaint.
The Court GRANTS Defendant VCG Holding Corporation's Motion for Summary Judgment as to Claim One of the Complaint and DISMISSES WITHOUT PREJUDICE Claim Two of the Complaint (Docket # 46); the Court DENIES Plaintiffs' Motion for Partial Summary Judgment (Docket # 44).; the Court DISMISSES as moot the Plaintiffs' appeal of the Magistrate Judge Decision (Docket # 59). The Court ORDERS the Clerk to enter
SO ORDERED.
DSMF Attach. 3, Clement Dep. 7:17-20 (Clement Dep.). In view of this exchange, the Plaintiffs' statement that Mr. Clement used "we" when referring to VCG is indisputable. The Court refuses to accept VCG's qualified response and deems the statement admitted.
Next, the Plaintiffs denied this paragraph but their denial is not directed to the first statement, which is corroborated by the citation to Mr. Clement's deposition. PRDSMF ¶ 11. The Court included the first statement.
Clement Dep. 48:7-12. However, in the very next paragraph, VCG admitted that the corporate office writes checks and pays bills for the Portland operation and the transcript reflects that Mr. Clement sends bills to and receives checks from Ms. Bradley and Ms. Smith. Accordingly, the Court included the full paragraph 56.
The Plaintiffs interposed a general denial to VCG's paragraph 16. The Local Rule requires that the non-movant "support each denial ... by a record citation." D. ME. LOC. R. 56(c). To the extent the Plaintiffs failed to support their general denial with a record citation, the Court deemed the statements admitted. In this paragraph, the Plaintiffs properly denied the assertion that "Mr. Clement did not deal with anyone from VCG" and the Court has not included that statement.
The Plaintiffs interposed a general denial to VCG's paragraph 18. The Local Rule requires that the non-movant "support each denial ... by a record citation." D. ME. LOC. R. 56(c). To the extent the Plaintiffs failed to support their general denial with a record citation, the Court deemed the statements admitted. In this paragraph, the Plaintiffs properly denied the assertions: "Therefore, Plaintiffs do not dispute that the entertainers are not employed by the [C]lub. Notably, however, Plaintiffs refuse to consider them customers. They simply leave unanswered how the entertainers' tips should be treated under the FLSA." DSMF ¶ 18. These assertions are argumentative, not statements of fact. The Court has not included them.
The Plaintiffs interposed a general denial to VCG's paragraph 18. The Local Rule requires that the non-movant "support each denial ... by a record citation." D. ME. LOC. R. 56(c). To the extent the Plaintiffs failed to support their general denial with a record citation, the Court deemed the statements admitted.
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992) (quoting Cmty. For Creative Non-Violence v. Reid, 490 U.S. 730, 751, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989) (footnotes omitted)); see also Speen v. Crown Clothing Corp., 102 F.3d 625, 631 (1st Cir.1996).
To be sure, there is contrary authority. See Deja Vu-Lynnwood, Inc. v. United States, 21 Fed.Appx. 691 (9th Cir.2001) (concluding that the IRS's position that dancers were employees was unreasonable); Marlar, Inc. v. United States, 151 F.3d 962 (9th Cir.1998); Déjà Vu Entm't Enters. of Minn., Inc. v. United States, 1 F.Supp.2d 964 (D.Minn. 1998); Taylor Blvd. Theatre, Inc. v. United States, No. 3:97-CV-63-H, 1998 WL 375291, 1998 U.S. Dist. LEXIS 9355 (W.D.Ky. May 13, 1998). However, most of these cases are tax cases, where "the classification turns on the common law test of an `employee,'" instead of the FLSA's definitions. Marlar, 151 F.3d at 967. As one district court noted, the FLSA cases are "decided under an entirely different legal standard." Taylor Blvd. Theatre, 1998 WL 375291, at *4 n. 4, 1998 U.S. Dist. LEXIS 9355, at *13 n. 4 (citing Priba, 890 F.Supp. at 592).
