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Attorneys’ fees in FLSA case could put Baltimore bar owner out of business

Rockville attorney Howard Hoffman calls the tip-pooling ban a 'trap for the unwary' and says the judge's ruling muddies the waters for other bar owners.

Pooling tips with bartenders at his two South Baltimore taverns might well put Jason Zink out of business.

No, the recession has not made those shared gratuities too few to sustain him, and no, it’s not because the Don’t Know and No Idea taverns hold themselves out to be gathering places for Boston Red Sox or Penn State football fans on game day.

Rather, Zink, a 38-year-old Baltimore native who opened the Federal Hill watering holes in 2005 and 2007, is on the brink because it turns out federal labor law prohibits a bar or restaurant owner from participating in a tip pool with his employees.

U.S. District Judge Richard D. Bennett laid down the law last month in the first decision of its kind anywhere in this federal appellate circuit.

So, now Zink and every other owner who has tended bar knows that’s a no-no. It may be too late for Zink — he could be facing a big judgment and has hired bankruptcy counsel — but what about all the other small-time bar owners who put their dollars in the bucket and take their share at the end of the night?

Zink and others say tip-pooling is common practice and that the impact of Bennett’s ruling will be far and wide. He can rattle off the names of a half-dozen bars just in South Baltimore where the owner also tends bar.

“I wanted to fight it for the other bar owners,” Zink said of his expensive tour in federal court. “I don’t want the same thing happening to them.”

Visits to bars around Baltimore this month revealed many owners and bartenders had not heard of Judge Bennett’s ruling and did not know the law on the subject. Several denied any owner-involved tip-pooling occurred at their establishments, while those who acknowledged that it had happened weren’t keen to identify themselves for fear of inviting wage litigation.

“I would say nobody’s aware of [the prohibition],” said a longtime local bartender, who admitted the owner of his bar sometimes participates in a tip pool while they tend together. “And I would say that nobody that does it has an option.”

One corner-bar owner in East Baltimore who has participated in tip pools was “shocked” to hear of Bennett’s decision and called its implications “terrifying.”

“It’s not something you think of because you’re not taking their money,” that bar owner said.

Tip pools exist so that bartenders who are away from customers while they restock the shelves or get more ice won’t miss out on their share of gratuities during that time. In other words, they encourage teamwork and better overall customer service.

“That’s not taking money from them. That’s giving them money,” the East Baltimore owner said. “I don’t understand it at all.”

Damages yet to be determined

Under the Fair Labor Standards Act, proprietors can pay their bartenders or waiters less than minimum wage on the assumption that the employees will make up the difference in tips. However, owners cannot benefit from that “tip credit” and also share in the tips earned, at least in part, by those employees.

The question in Zink’s case was whether the prohibition applied when the owner was, essentially, working as a bartender.

The litigation began when Zink fired Tara Gionfriddo. She thought she was the victim of sexual discrimination and went to Philip Zipin, a Silver Spring employment lawyer who also has sued strip clubs on behalf of dancers.

When Gionfriddo told Zipin about the tip-pooling practices at Zink’s bars, Zipin pursued it as a collective action. (While the specific issue had not been tested in Maryland or elsewhere in the 4th Circuit, similar cases have been filed by restaurant workers in Manhattan’s Chinatown against their managers.)

According to Zipin, his three tip-pooling plaintiffs — former bartenders Gionfriddo, Eric Gilbert and Aaron Zetzer — are together owed almost $10,000, with another $35,000 owed to two additional workers whose cases have been severed or dismissed.

Then there are the plaintiffs’ attorneys’ fees, which could exceed the damages. Zink said he believes they will exceed $100,000.

“When you’re foolish and you break the law and you get caught, you get nailed,” Zipin said, saying that Zink made $26,000 from the tip pool over the two or three years in question. “It’s just a question of how much more it’s going to cost him.”

Bennett’s March ruling dealt only with the question of whether the law applied to Zink. Trial on the question of the employees’ damages is scheduled to begin May 31, and will address whether Zink knew his actions violated the law or recklessly disregarded the possibility that they would.

In the meantime, Zink’s East Baltimore colleague said, other people are learning about the decision over time but mostly just keeping quiet.

“Everyone sits around with their mouth shut,” the corner-bar owner said. “I feel bad for Jason. It could’ve been any one of us.”

Others in the business, such as the owners of Claddaugh Pub on Canton Square and Little Havana’s across the Inner Harbor on Key Highway, say they don’t do it. Michael Clarke, who owns Claddaugh, said the proprietors of bigger, busier bars have too many other things to manage and keep track of to also tend bar.

‘Gotcha’ litigation

But Zink’s lawyer, Howard Hoffman of Rockville, said the case is “gotcha litigation at its finest” and that Zink and his ilk are “caught between a rock and a hard place.”

They tend to be younger entrepreneurs without much money who are just trying to get a bar off the ground, he said; they provide good employment opportunities for neighborhood people or students but don’t end up making that much profit.

“If you don’t have a tip pool, you have morale issues,” said Hoffman, suggesting that bartenders might not pitch in with chores that aren’t “tip-productive.”

Bar owners like Zink have to work somewhere, he added.

“It would be silly for him to find a job somewhere else,” Hoffman said. “What is he supposed to do?”

One option is to pay bartenders minimum wage, $7.25 per hour, which is what Zink says he does now when he works alongside an employee.

Zipin suggests Zink just take his own tips.

“How complicated would that be? It wouldn’t be complicated. It’d be easy.” Zipin said. “That’s the part that baffles me.”

“I’d love to take my own tips,” Zink said. “It’s just easier to do a tip pool.”

Still not sure

While Judge Bennett clearly found the law applied to Zink, Hoffman said the ruling also cracked open a window for other owners.

“In some close circumstances,” Bennett wrote, “this Court believes that it may be, at least theoretically, possible to be an employer under the FLSA and at the same time share in a tip pool.”

Hoffman said that statement “muddies everything.” He’d like to appeal the case to the 4th U.S. Circuit Court of Appeals but he’s not sure Zink can afford it. Either way, there will likely be another test case.

“We do not think that this issue is going to go away because it is a trap for the unwary,” he said.

Zink’s fellow bar-owner in East Baltimore asked a friend who’s in law school to explain the finer points of the law after hearing about Zink’s troubles — and still isn’t sure whether it applies.

“I’m not a lawyer,” that owner said. “I’m a freaking bartender! … Could these people really come in and sue every small bar in Baltimore?”

Zipin said he has no intention of doing that, especially as he has received no calls from prospective tip-pooling clients since Bennett’s decision.

U.S. Sen. Barbara Mikulski’s office is aware of the issue but is holding off on taking any action until Zink’s case is over.

A spokesman for Maryland’s Department of Labor, Licensing and Regulation said the agency doesn’t have the manpower to proactively enforce Bennett’s decision, but will investigate any complaint of a violation.

“[I]f there are bartenders out there whose employers are taking a cut of their tips, we encourage them to alert our Division of Labor and Industry and talk with the folks in the wage and hour branch and allow an investigation to take forth,” said Mike Raia, the spokesman.

Regardless of the legalities, Zipin said all of this could have been and can be avoided by simply treating employees respectfully. If they feel like they are being well-compensated, they won’t come to a lawyer.

“People are not going to come see me unless they feel like they’ve been treated poorly,” Zipin said.

The one “longtime local bartender” who admitted splitting tips with his bar’s owner would seem to be a case in point. He said he was fine with sharing, even though he now knows it’s technically illegal.

“If they work for it, sure,” he said.

However, he seemed less contented about who really makes the money when bartenders take their employers to court.

“In the end, the only ones who win in this is the lawyers,” he said.