Circuit Split on the 80/20 rule for tips

In September 2017, the Ninth Circuit split with the Eighth Circuit on whether to defer to a handbook promulgated by the Department of Labor interpreting one of its regulations. 

In particular, the FLSA requires employers to pay a cash wage of $7.25 per hour to their employees, 29 U.S.C. § 206(a)(1)(c), except where an “employee engage[s] in an occupation in which he customarily and regularly receives more than $30 a month in tips,” id. § 203(t), his or her employer may pay a reduced cash wage and claim the employee’s tips as a credit towards the $7.25 per hour minimum, id. § 203(m). 

As part of the Department of Labor’s interpretation of the statutory phrase “more than $30 a month in tips,” the DOL promulgated the “dual jobs” regulation, which maintains that an employee can be “employed in a dual job.”. 29 C.F.R. § 531.56(e). Under the regulation, if the employee is engaged in one occupation in which “he customarily and regularly receives at least $30 a month in tips,” and is also engaged in a second occupation in which the employee does not receive the required amount of tips, then the employer can take a tip credit only for the first occupation.

To further clarify enforcement, the Department of Labor provided guidelines in its Field Operations Handbook to interpret the regulation.  The Handbook states that side work, even though related to the tip work, may not occupy more than 20 percent of the employee’s workweek.  If it does, the employee must earn minimum wage for that work.

In September, the Ninth Circuit held that it would not defer to the Handbook because the regulation was unambiguous. Marsh v. J. Alexander’s, No. 15-15791 (9th Cir. Sept. 6, 2017).

This created a circuit split with the Eighth Circuit, which had applied Auer deference to uphold this handbook rule in a similar case. See Fast v. Applebee’s Int’l, Inc., 638 F.3d 872, 879 (8th Cir. 2011).

Oral argument in the Ninth Circuit's case can be viewed here.

It looks like at least one unknown judge wants to argue that the case should be reheard en banc because an order was entered for responses to the petition for rehearing en banc.  Since there is no intra-circuit split, a rehearing en banc is unlikely although one can make the argument that this is a decision of national importance.

More likely is that one or more judges will issue opinions concurring or dissenting from the denial en banc in order to tee it up for what would be eventually Supreme Court review on the circuit split.


Second Circuit Delivers Limited Victory to Defendant Under Illinois Biometric Information Privacy Act and Spokeo

"On November 21, 2017, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a case under Illinois’s Biometric Information Privacy Act (“BIPA”), finding that none of the alleged violations created a material risk of harm, so there was no federal subject-matter jurisdiction under the Supreme Court’s 2016 Spokeo decision. Vigil v. Take-Two Interactive, 2017 WL 5592589 (2nd Cir. Nov. 21, 2017). Although the decision was an unpublished and non-precedential summary order, the affirmed dismissal will help defendants utilize a Spokeo argument to attack BIPA cases filed in federal court. The decision’s impact in state court (where Spokeo is not binding) is less clear, but should help defendants there as well . . . . "

Second Circuit Delivers Limited Victory to Defendant Under Illinois Biometric Information Privacy Act and Spokeo

Decision here

Additional article here that states

 "We’ve seen a flurry of lawsuits based on the Illinois statute relied on by plaintiffs here. The Shutterfly lawsuit linked below was brought by a non-user and survived a motion to dismiss. (It looks like it’s in the middle of discovery.) This case was brought by a user and is a much tougher one to make. It’s tough to argue subterfuge as to the process of the face-scan itself."

A New, Relaxed Standard For Class Cert. In Securities Cases

"Last week, the Second Circuit issued a must-read opinion for securities class action lawyers. In Waggoner et al. v. Barclays PLC, No. 16 Civ. 1912 (2d Cir. Nov. 6, 2017), the Second Circuit held that plaintiffs do not need to present direct evidence of market efficiency (i.e., an event study) in order for a court to certify a class of investors alleging securities fraud under federal law.[1] Indirect evidence may be enough to demonstrate an efficient market."

A New, Relaxed Standard For Class Cert. In Securities Cases

The Second Circuit and Social Justice

The article concludes:  "In this Article, we attempted to illustrate a variety of issues through which the Second Circuit has advanced social justice. This diversity, reflective of the rich legal and social communities in which the Second Circuit sits, is in itself a strength. But the deeper significance of the Second Circuit’s jurisprudence is its nuance and sensitivity to fundamental power inequality, illustrated by the case law discussed herein. In 1951, Chief Judge Learned Hand captured the Second Circuit’s tradition with brevity and eloquence: “If we are to keep our democracy, there must be one commandment: Thou shalt not ration justice.”311 We look forward to the circuit continuing to break new ground as it dispenses justice in its considered and thoughtful fashion."


Before a jury found him not guilty, "Dufort spent nearly five years incarcerated at Rikers Island Prison Complex in New York City awaiting trial."  The Second Circuit writes in a footnote:  "We hope that shockingly long pretrial detentions like this will one soon be a thing of the past.  The recent report of the independent commission that recommended closing Rikers Island gives us reason for optimism."  The report cited by the Second Circuit states:

"Going forward, the idea of community justice must become standard operating practice—investing in New York City neighborhoods damaged by past practice and creating stronger links between criminal justice agencies and the people they exist to serve. Going forward, every decision and interaction— whether on the street, in the courthouse, or behind the walls of our jails—must seek to advance the fundamental values of dignity and respect. And going forward, we must close the jail complex on Rikers Island. Period."

Dismissal of Implant Contraception MDL Upheld by Second Circuit

In 2013, 1,300 women across the country sued Bayer Healthcare Pharmaceuticals, Inc., Bayer Pharma AG and Bayer OY ("Bayer").  The women alleged that they were injured after the contraception Mirena was implanted and perforated their uteruses causing injuries.

In March 2016, the District Court issued an opinion excluding all three of the plaintiffs’ expert witnesses. The district judge found their testimony was unreliable and stated that they “worked backwards to hypothesize a mechanism by which it might occur.”

The standard of review  is highly deferential:  courts look for an abuse of discretion or manifest error.  Applying this standard, the Second Circuit affirmed in a summary opinion.

Sexual Orientation Discrimination Under Title VII

Earlier this year, the Seventh Circuit held under “[t]he logic of the Supreme Court’s decisions, as well as the common-sense reality that it is actually impossible to discriminate on the basis of sexual orientation without discriminating on the basis of sex,” Title VII prohibits discrimination based on sexual orientation.  Hively v. Ivy Tech Cmty. Coll., 853 F.3d 339, 350-51 (7th Cir. 2017) (en banc). 

The Second Circuit is currently considering the same issue en banc in Zarda v. Altitude Express.

But the case that may eventually end up before the Supreme Court is Evans v. Georgia Regional Hospital out of the Eleventh Circuit.  SCOTUSblog has the petition for cert here (link).  The Eleventh Circuit held that petitioner could not “state[] a claim under Title VII by alleging that she endured workplace discrimination because of her sexual orientation.” Pet. App. 11a. The majority noted that circuit precedent from 1979 dictated that “[d]ischarge for homosexuality is not prohibited by Title VII.” Id. 11a (quoting Blum v. Gulf Oil Corp., 597 F.2d 936, 938 (5th Cir. 1979)).

Given the circuit split, it would seem likely that the Supreme Court consider this case.

DOJ Reverses Stance On Workplace Protections

 Jeff Sessions issued a memo stating that Title VII of the Civil Rights Act does not protect individuals against discrimination on the basis of “gender identity per se, including discrimination against transgender individuals.”

In 2014, then-Attorney General Eric Holder took the position that the word “sex” in the statute “extends to claims of discrimination based on an individual’s gender identity, including transgender status.

TCPA Consent Not Revocable if Part of Contract

Given that the Second Circuit only hears around one case a year en banc, it is not suprising that the Second Circuit denied the petition in Reyes, Jr. v. Lincoln Automotive Financial Services, No. 16-2104,  But it does show how groundbreaking the opinion in this TCPA case is that Law360 covered the denial.

Coverage of the original decision:

2nd Circuit Says TCPA Consent Not Revocable if Part of Contract

Second Circuit Grants Trump's Stay in Pair of DACA Suits

"The federal government was awarded an emergency stay in discovery proceedings by the U.S. Court of Appeals for the Second Circuit Friday, as it prepares to file a writ of mandamus in a pair of suits over President Donald Trump’s decision, announced last month in an executive order, to end the Deferred Action for Childhood Arrivals program last month."

Second Circuit Grants Trump's Stay in Pair of DACA Suits

Bankruptcy Law Is More Ambiguous Than We Thought

Matt Levine writes about the Second Circuit's decision in In re MPM Silicones, LLC:

"The bankruptcy court and district court responded, effectively, no, come on, we live in a society here. Obviously everyone intended the secured notes to be senior to the subordinated notes; that is the whole point of those words, and of capital structure generally. But on appeal, the Second Circuit took the question more seriously, held that the answer was ambiguous ("Rather, we conclude that the Fourth Proviso renders the definition of Senior Indebtedness ambiguous as to whether it includes the Second-Lien Notes" -- a lovely sentence to show to any young person who is considering whether to go to law school), but ultimately agreed that, as the other courts had held, the junior debt was in fact junior to the senior debt."

Bankruptcy Law Is More Ambiguous Than We Thought

Fees in the Eastern District of New York

This is an interesting appeal from the award of attorneys' fees in a Fair Labor Standards Act (FLSA).  The parties settled in an agreement that provided that, in exchange for general release and compliance with its terms and conditions, Sushi Maru Express will pay $52,324.25 to Seong Soo Ham, and $32,676.75 to Eun Yong Lee. The parties agreed that attorneys' fees and costs would be determined separately.

The magistrate judge surveyed the Eastern District of New York ("E.D.N.Y.") and determined that the rates requested by the primary attorneys "exceeded the hourly rates normally approved in this district for comparable professionals in federal wage cases." The magistrate judge found that partners and experienced attorneys are typically awarded between $300 and $400 per hour, and junior associates between $100 and $150 per hour in wage cases.

The case reached a settlement within ten months and featured no motion practice and limited discovery. Plaintiffs' attorneys stated that they expended over 449 hours of work. The magistrate judge held that these hours expended are unreasonable, and the district court agreed.

Here is the Report and Recommendation (opens in new window).  

The attorneys filed an appeal to the Second Circuit.


Res ipsa loquitur

Manhattan by Sail, Inc., et al. v. Charis Tagle states in explicit dicta that "Res ipsa loquitur is not limited to accidents that could occur only because of negligence. For res ipsa loquitur to apply, a claimant must show that the event is of a type that ordinarily does not occur in the absence of negligence."  Footnote 2 reads:   "If our judgment were based solely on the district court’s incorrect application of the res ipsa doctrine, we would have directed the district court to reconsider whether Biggs was negligent, giving Tagle the benefit of res ipsa loquitur. Because our judgment is that Tagle has proved negligence regardless of the applicability of res ipsa loquitur, we have reached a different judgment—that the district court must rule in favor of Tagle as to Biggins’s negligence as the cause of her injury. Accordingly, our discussion of the standards for res ipsa loquitur is dictum and not a holding of this case."

You can download the oral argument here (MP3).

Argued:  October 24, 2016    
Decided: October 5, 2017
Opinion by Judge Pierre N. Leval

Why do FLSA cases cost employers so much?

"An employer’s liability under the FLSA can be high even in the most average of cases. There are a number of reasons why. First, FLSA cases – almost invariably – involve multiple employees and/or plaintiffs. If one employee says that she has had to work through meal breaks, then you can bet that several more probably have too. Second, FLSA cases often cover extended periods of time. Typically, employees don’t complain that they have worked through lunch once; they complain that they have worked through lunch on a weekly basis for a number of years. Third, unpaid meal break time will be paid at the employees’ overtime rate if it came during a week in which the employees had already worked 40 hours or more.  Fourth, employees are typically awarded “liquidated damages” in FLSA cases equal to the amount of unpaid wages. In other words, employees receive twice what they say they were owed.  Fifth, punitive damages can be awarded at the discretion of the court. And, sixth, employers are commonly required to reimburse employees for the legal fees and costs that they incur in bringing FLSA suit."

How the Second Circuit overrules its decisions

Prior to 1891, there were no courts of appeals in the federal system.  In the decades following the Civil War, however, Congress increased federal jurisdiction and litigation began to overload the federal courts. 

In 1891, Congress created courts of appeals between the trial courts and the Supreme Court with the Evarts Act, an act named after its primary sponsor Senator William Evarts of New York.  The Act created nine new courts, originally known as the “United States circuit courts of appeals.”  (The name was changed to its current form in 1948.  Today, for example, the Second Circuit is officially “The Court of Appeals for the Second Circuit”).

The Evarts Act provided that the new appellate courts “shall consist of three judges.”  Consistent with this tradition, and now pursuant to 28 U.S.C. § 46(c), the appellate courts continue to hear cases with three-judge panels.[1] 

Each panel of the court is considered to be the court of appeals, and a decision of a three-judge panel carries the full weight of the court.  Every federal appellate court has held that a three-judge panel is bound by the opinions of prior panels until the decision is overruled either by the Supreme Court or that court sitting en banc.[2]  “En banc” is a hearing in which all the active judges of the court participate.  In Textile Mills Securities Corp. v. Conmissioner, the Supreme Court held that a court of appeals has the inherent power to sit en banc.[3] 

In addition, in 1978, Congress passed the Omnibus Judgeship Act, and authorized federal circuit courts consisting of more than fifteen judges to delegate en banc authority to a division of the full court, referred to “limited en banc court.”  Only Ninth Circuit has exercised this option formally, where an en banc court consists of eleven judges.

Unlike other circuits, however, the Second Circuit, however, has a “tradition of hearing virtually no cases” en banc.”[4]  Because of this fact, lawyers should be aware of the two primary ways that the Second Circuit will decide that one of its prior decisions should be reconsidered. 

“[I]f there has been an intervening Supreme Court decision that casts doubt on our controlling precedent, one panel of this Court may overrule a prior decision of another panel even if the intervening decision does “not address the precise issue decided by the panel.”  The second is a frequently referred to as “mini en banc.”

In broad terms, mini-en banc review works as follows: A three-judge panel tentatively decides that a precedent should be overruled. One of the judges on the panel writes a draft opinion on behalf of the panel overruling the precedent. The draft opinion is then circulated to all of the Second Circuit’s active judges, together with a note stating that the panel proposes to overrule a precedent. The panel then proceeds with overruling the precedent, presumably on the assumption that en banc review, while technically necessary, would have been a waste of time and resources in light of the views expressed by the active judges in response to the draft opinion.

Steven M. Witzel & Samuel P. Groner, Mini-En Banc Review In the Second Circuit, January 7, 2016, New York Law Journal.

[1] See Western Pac. R.R. Corp. v. Western Pac. R.R., 345 U.S. 247, 254 (1953).  The three-judge panel goes back to the Judiciary Act of 1869, ch. 22, § 2, 16 Stat. 44, 44, which provided a circuit would be composed of two Supreme Court justices and one district court judge from the district in which the case was pending.  See Roscoe Pound, Organization of Courts 103–04 (1940).

[2] The term “in banc” appeared in earlier versions of Federal Rule of Appellate Procedure 35. See FED. R. APP. P. 35 (1967).

[3] 314 U.S. 326 (1941). See generally Note, The Power of a Circuit Court of Appeals to Sit

En Banc, 55 Harv. L. Rev. 663 (1942). 

[4] See Ricci v. DeStefano, 530 F.3d 88, 92 (2d Cir. 2008) (Jacobs, C.J., dissenting from the denial of rehearing en banc); see also id. at 89-90 (Katzmann, J., concurring in the denial of rehearing en banc) (“Throughout our history, we have proceeded to a full hearing en banc only in rare and exceptional circumstances.”); see also Wilfred Feinberg, Unique Customs and Practices of the Second Circuit, 14 Hofstra L. Rev. 297, 311 (1986)