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Lu v. Jing Fong Restaurant

September 4, 2007


The opinion of the court was delivered by: Jed S. Rakoff, U.S.D.J.


Plaintiffs, members of the wait staff at defendant Jing Fong Restaurant, Inc.,*fn1 filed this action against Jing Fong Restaurant, Inc. and six individuals associated with the restaurant (collectively, "Jing Fong"*fn2 ) alleging: (i) violations of minimum wage provisions of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 206(a), and the New York Labor Law ("NYLL") § 652; (ii) violations of the overtime provisions of the FLSA and the NYLL; (iii) retention of gratuities in violation of § 196-d of the NYLL; (iv) violations of the uniform reimbursement requirements of the NYLL; (v) retaliation in violation of the NYLL; and (vi) breach of contract. Following motion practice, oral argument, and supplemental briefing, the Court, by Order dated July 27, 2007 granted in part and denied in part Jing Fong's motion for summary judgment. This Opinion gives the reasons for those rulings.*fn3

Summary judgment is appropriate only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether there is a genuine issue of material fact, a court resolves all ambiguities, and draws all inferences, in favor of the non-moving party. See United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). With that in mind, the pertinent facts of record, either undisputed or, where disputed, taken in plaintiffs' favor, are as follows:

Defendant Jing Fong Restaurant, Inc. is the owner of a Chinese banquet hall and restaurant located at 20 Elizabeth Street in Manhattan, New York (the "Restaurant"). At full capacity, the Restaurant can accommodate as many as 800 customers. See First Declaration of Mandy Chan sworn to October 30, 2006 ("M. Chan First Decl.") ¶ 2. Although the Restaurant offers dim sum in the mornings and afternoons and also serves a la carte lunches and dinners, the majority of its revenue is derived from pre-arranged banquets, which are frequently large and extravagant affairs. See Def. 56.1 ¶¶ 6-8; Pltf. 56.1 ¶¶ 6-8.

All of the plaintiffs here, members of the Jing Fong wait staff, were likewise employed by the Restaurant in 1997 when complaints regarding Jing Fong's labor practices, including its compliance with federal and state laws regulating overtime, minimum wages, and the retention of gratuities, were the subject of a special proceeding initiated by the New York State Attorney General in New York Supreme Court, see Def. 56.1 ¶¶ 28-31, 61; Pltf. 56.1 ¶¶ 38-31,51. Such complaints were also the subject of a prior lawsuit before this Court. See Chan et al. v. Jing Fong Restaurant, Inc. et al., 97 Civ. 0388 (S.D.N.Y.)(JSR).

On October 29, 1997, the parties executed a Stipulation of Settlement that resolved both the state and federal actions. The settlement, among other things, required Jing Fong to pay compensation to various employees, to refrain from retaining "gratuities" given to the wait staff, to submit to a period of monitoring by the New York State Attorney General for 32 months, and to post in prominent view of the wait staff the settlement's terms in both English and Chinese. See Def. 56.1 ¶¶ 59-60; Pltf. 56.1 ¶¶ 59-60.

The instant lawsuit claims that, notwithstanding the settlement, Jing Fong continues to violate the law in various ways:

First, plaintiffs challenge Jing Fong's practice of retaining a portion of the "service charge" it assesses its banquet customers, rather than treating the charge as a "gratuity" payable in its entirety to the wait staff. Specifically, it is undisputed that in connection with its banquet business, Jing Fong imposes a 15% "service charge," payable at the time of payment for the banquet, of which a certain percentage (currently 65%) goes to the wait staff, while the remainder (currently 35%) is retained by the Restaurant and accounted for in its gross receipts.*fn4 See Def. 56.1 ¶¶ 85-87; Pltf. 56.1 ¶¶ 85-87.

Plaintiffs contend that Jing Fong's retaining any portion of the service charge violates New York Labor Law § 196-d, which provides in full:

No employer or his agent or an officer or agent of any corporation, or any other person shall demand or accept, directly or indirectly, any part of the gratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee. This provision shall not apply to the checking of hats, coats or other apparel. Nothing in this subdivision shall be construed as affecting the allowances from the minimum wage for gratuities in the amount determined in accordance with the provisions of article nineteen of this chapter nor as affecting practices in connection with banquets and other special functions where a fixed percentage of the patron's bill is added for gratuities which are distributed to employees, nor to the sharing of tips by a waiter with a busboy or similar employee.

N.Y. Lab. Law § 196-d (emphasis supplied). Plaintiffs argue that the service charge qualifies as a "charge purported to be a gratuity" and therefore must be given entirely to the wait staff. Jing Fong responds that the banquet fee is not a gratuity since it is mandatory, is communicated to a customer in advance of the banquet, and covers a variety of services not all of which involve the wait staff (hence the percentage distribution).

In this Court's view, this is not an open question under New York law. Rather, New York courts have repeatedly held that, with respect to mandatory service charges in the restaurant industry, "[s]uch a charge is not in the nature of a voluntary gratuity presented by the customer in recognition of the waiter's service, and therefore need not be distributed to the waiters pursuant to Labor Law § 196-d, notwithstanding that the customer might believe that the charge is meant to be so distributed." See Bynog v. Cipriani Group, Inc., 748 N.Y.S.2d 9, 11, 298 A.D.2d 164, 165 (N.Y. App. Div. 1st Dep't 2002), aff'd on other grounds, 802 N.E.2d 1090, 770 N.Y.S.2d 692 (2003); see also Weinberg v. D-M Rest. Corp., 442 N.Y.S.2d 965, 426 N.E.2d 459,(1981) (observing "'A tip is in law, if not always in fact, a voluntary payment'") (quoting Beaman v. Westward Ho Hotel Co., 89 Ariz. 1, 4-5 (1960)).

Purporting to rely on a recent case in this District, Chan v. Triple 8 Palace, Inc., No. 03 Civ. 6048 (GEL), 2006 U.S. Dist. LEXIS 15780, 2006 WL 851749 (S.D.N.Y. Mar. 30, 2006), and a 1999 opinion letter issued by the New York Department of Labor, see N.Y. Dep't of Labor Opinion Letter (Mar. 26, 1999), attached as Exhibit 2 to the First Declaration of Caryn Lederer, plaintiffs nonetheless argue that the mandatory nature of the fee is not dispositive of the issue and that the relevant inquiry also requires examination of both the impression given to customers and the tax treatment of the fees.

But only a few months ago, this very argument was decisively rejected by the First Department in Samiento v. World Yacht Inc., 833 N.Y.S.2d 2 (N.Y. App. Div. 1st Dep't 2007). In Samineto, restaurant servers claimed their employers had unlawfully retained the entirety of "the service charges/automatic gratuities added to meal and banquet bills in place of the patrons' direct payments to the waitstaff of traditional tips." Id. at 3. On appeal, the First Department not only affirmed ...

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