Supreme Court, New York County, October 11, 2023

Jackson Lewis, P.C. (Jeffrey Brecher and Elyse Patterson of counsel) for defendants.

Lee Litigation Group, PLLC (C.K. Lee of counsel) for plaintiff.

In July 2022, plaintiff Adrian Little commenced this class action against defendants Hartz Hotel Services, Inc., Tribeca Grand Hotel, Inc., doing business as the Roxy Hotel, Soho Grand Hotel, Constantino Milano, and 320 West Broadway Diner Corp., doing business as Soho Diner. Plaintiff, a former employee at the Roxy Hotel and Soho Grand Hotel, alleges that the defendants operate as part of a single integrated enterprise and that their tip and wage policies violate several New York Labor Law provisions. In this motion sequence, defendants move pre-answer to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7). Plaintiff opposes. For the following reasons, defendants' motion is granted in part.

The Roxy Hotel employed plaintiff as a server in its restaurant on 6th Avenue from September 2017 through October 2017; thereafter, from November 2019 through January 2020, plaintiff was employed as a server at the Soho Grand Hotel's restaurant on West Broadway. Plaintiff alleges that, during his employment, defendants' tip and wage policies violated provisions of title 12 of the New York Codes, Rules and Regulations, which governs compensation for service work, and article 6 of the New York Labor Law. Under 12 NYCRR 146-1.3, an employer may pay service workers at a rate that is lower than the basic minimum hourly rate (a practice known as taking a "tip credit") so long as its workers receive a tip-inclusive wage that is equal to or greater than the minimum hourly rate and only after providing notice of the amount of credit taken prior to the start of employment. (See 12 NYCRR 146-1.3 [a]; 146-2.2 [a].) Meanwhile, where an employee does both tipped and non-tipped work on a given shift, section 146-2.9 prohibits their employer from claiming a tip credit where the non-tipped work is either (a) for two or more hours or (b) for more than 20% of their shift (whichever is less). (12 NYCRR 146-2.9.) Here, plaintiff alleges that the tip-inclusive wage he received at the Roxy Hotel and Soho Grand Hotel did not meet or exceed the minimum wage (NY St Cts Elec Filing [NYSCEF] Doc No. 20, amended complaint ¶¶ 30, 44) and that he was required to work more than 20% of his shift performing non-tipped activities,{**81 Misc 3d at 846} including setting up the restaurant's tables and furniture, cleaning the tables before opening, polishing silver and glassware, rolling up napkins, preparing bowls of fruit for guests, and, at the end of a shift, closing the restaurant. (Id. ¶ 35.)

Under New York Labor Law § 195 (1), employers are required to provide their employees (at the time of their hiring) notice of, among other things, the rate of pay, whether paid per hour, a salary, or commission, etc., and any allowances claimed as part of the minimum wage, including any tip allowances; similarly, under section 195 (3), employers are required to furnish employees with a wage statement with every payment of wages, listing the rate of pay and any allowances taken. (Labor Law § 195 [1], [3].) Plaintiff avers that defendants failed to provide him with a notice of their claimed tip credits before he started work in September 2017 and November 2019 and that they never provided wage statements. (NYSCEF Doc No. 20 ¶¶ 33, 34, 46, 47.) Lastly, plaintiff alleges that, in violation of New York Labor Law § 196-d, defendants allowed its managers, including one named Arten (last name unknown), to pocket tips belonging to tipped employees. (Id. ¶ 31.)

Plaintiff commenced this action on behalf of "all non-exempt employees (including but not limited to cooks, food preparers, dishwashers, porters, waiters, bussers, food runners, dishwashers, bartenders, barbacks, and room-service attendants) employed by Defendants on or after the date that is six (6) years before the filing of the Complaint in this case."

In this motion sequence, defendants have moved to dismiss, pre-answer, pursuant to CPLR 3211 (a) (1) and (7).

On a motion to dismiss under CPLR 3211 (a) (1), courts may grant such relief only where the "documentary evidence" is of such nature and quality—"unambiguous, authentic, and undeniable"—that it utterly refutes plaintiff's factual allegation, thereby conclusively establishing a defense as a matter of law. (See Phillips v Taco Bell Corp., 152 AD3d 806, 806-807 [2d Dept 2017]; VXI Lux Holdco S.A.R.L. v SIC Holdings, LLC, 171 AD3d 189, 193 [1st [*3]Dept 2019] ["A paper will qualify as 'documentary evidence' . . . if . . . (1) it is 'unambiguous'; (2) it is of 'undisputed authenticity'; and (3) its contents are 'essentially undeniable' "].) The First Department explained that the documentary evidence must "definitely dispose of the {**81 Misc 3d at 847}plaintiff's claim." (Art & Fashion Group Corp. v Cyclops Prod., Inc., 120 AD3d 436, 438 [1st Dept 2014].)

On a motion to dismiss for failure to state a cause of action under CPLR 3211 (a) (7), courts afford the pleadings a liberal construction, accept the facts as alleged in the complaint as true, and give the plaintiff the benefit of every possible favorable inference. (Leon v Martinez, 84 NY2d 83, 87 [1994]; JF Capital Advisors, LLC v Lightstone Group, LLC, 25 NY3d 759, 764 [2015].) A court's inquiry is limited to assessing the legal sufficiency of the plaintiff's pleadings—that is, whether or not the facts set forth by the plaintiff sufficiently apprise the court and the defendants of the transactions and/or occurrences that make up the material elements of a cause of action. (See CPLR 3013.) Accordingly, the court's only function is to determine whether the facts as alleged fit within a cognizable legal theory. (JF Capital Advisors, 25 NY3d at 764.)

CPLR 901 (b)—Statutory Penalties

CPLR 901 (b) provides, "Unless a statute creating or imposing a penalty . . . specifically authorizes the recovery thereof in a class action, an action to recover a penalty . . . may not be maintained as a class action." Defendants contend that plaintiff's class action must be dismissed because he seeks to recover statutory penalties for defendants' alleged violation of Labor Law § 195 (1) and (3) even though the statute does not specifically authorize their recovery through a class action suit. Defendants' argument has no merit. Where a statute imposes nonmandatory penalties, courts permit plaintiffs to waive any right to the penalty so that they may bring the claim as a class action. (Borden v 400 E. 55th St. Assoc., L.P., 24 NY3d 382, 394 [2014]; Gudz v Jemrock Realty Co., LLC, 105 AD3d 625, 625 [1st Dept 2013] ["Plaintiff's rent overcharge claim did not seek a 'penalty' within the meaning of CPLR 901 (b), because she waived her right to treble damages"].) Here, plaintiff's amended complaint explicitly seeks statutory penalties and liquidated damages on an individual basis and only if the court denies class certification. (NYSCEF Doc No. 20 at 11.) Should the court grant class certification, plaintiff acknowledges that he expressly waives the right to seek either a penalty or liquidated damages. (Id.) Accordingly, defendants are not entitled to dismissal on this ground.

Dismissal of Complaint against Non-Tipped Employees

Defendants argue that all of plaintiff's allegations—the failure to pay a tip-inclusive minimum wage, the failure to provide{**81 Misc 3d at 848} notice of a tip credit and related wage statements, and the policy allowing managers to retain employee tips—relate to workers who receive a tip-inclusive wage and not to defendants' non-tipped workers. Accordingly, defendants seek to exclude from the potential class all non-tipped employees. (NYSCEF Doc No. 29, defendants' mem of law at 12.) Plaintiff does not oppose this branch of the motion, conceding that his amended complaint does not allege violations against non-tipped workers. Accordingly, this branch of the motion is granted. Further, although plaintiff recommends that the court dismiss without prejudice class claims for "back of the house employees (e.g., line cooks, cooks, preparers, etc.)," the court instead (and as argued by defendants) dismisses without prejudice class claims for all "non-[*4]tipped employees."

Dismissal of Plaintiff's Minimum Wage and Tip-Retention Claims

Defendants next contend that plaintiff has not sufficiently pleaded facts demonstrating it committed tip violations. More specifically, it argues that (1) "documentary evidence (plaintiff's wage notice and paystubs) conclusively shows that throughout his employment . . . [plaintiff's] tipped hourly rate met, or exceeded, the requirements of the NYLL and 12 NYCRR § 146-1.3" (id. at 14); (2) the complaint does not plead facts from which the court can infer in which specific weeks plaintiff's compensation fell below the minimum wage^[FN1] (id. at 12; NYSCEF Doc No. 35, reply mem of law at 8); and (3) "other than claiming that Plaintiff performed activities he characterizes as 'non-tipped,' the [complaint's] generalized allegations fail to state how or why such work fell outside the scope of the tipped occupation" (NYSCEF Doc No. 29 at 17). None are persuasive.

First, defendants do not provide the court with any of plaintiff's paystubs that attest to whether his tip-inclusive wage met or exceeded the minimum wage throughout his employment. As such, defendants are not entitled to dismissal pursuant to CPLR 3211 (a) (1) on his 12 NYCRR 146-1.3 claim. Second, as to whether plaintiff adequately pleaded that he did not receive the minimum wage, New York uses a liberal, notice pleading standard (see Leon v Martinez, 84 NY2d at 87; CPLR 3013), which plaintiff met by simply alleging from September-{**81 Misc 3d at 849}October 2017 and from November 2019-January 2020 that he did not, at all times, receive a tip-inclusive minimum wage. The court must accept this allegation as true, and there is no requirement that plaintiff provide specific dates or specific weeks. Accordingly, the court finds his minimum-wage cause of action adequately pleaded. Third, again, New York only requires a plaintiff to plead facts that put the defendants on notice of the transactions and occurrences that make up the material elements of a cause of action. Under this standard, plaintiff's 12 NYCRR 146-2.9 claim is adequately pleaded since he describes, in detail, the various tasks that comprised non-tipped work. Requiring plaintiff "to state how and or why such work fell outside the scope of the tipped occupation," as defendants argue, would place an additional pleading burden not required under CPLR 3211 or 3013.

As to plaintiff's Labor Law § 196-d claim that defendants permitted its managers to retain its employees' tips, defendants contend that a violation of this section does not invalidate the tip credit it took from plaintiff's wages. Accordingly, from this perspective, since the tip credit was at all times properly taken, plaintiff is not entitled to seek them as part of his demand for compensatory damages.

Courts confronted with this issue have reached opposite conclusions. On one hand, courts have found that an employer forfeits its right to claim a tip credit when it violates section 196-d (see Hai Ming Lu v Jing Fong Rest., Inc., 503 F Supp 2d 706, 711 [SD NY 2007] ["(T)his separate violation of § 196-d would render (defendant) ineligible to receive a tip credit under New York law"]; Copantitla v Fiskardo Estiatorio, Inc., 788 F Supp 2d 253, 291 [SD NY 2011]; Chowdhury v GK Grill LLC, 2015 NY Slip Op 30169[U], *4 [Sup Ct, NY County 2015] ["Plaintiffs have [*5]provided legal support for the proposition that, under appropriate circumstances, employers can be ordered to repay a tip credit to its employees, as part of compensatory relief"]; Gomez v MLB Enters., Corp., 2018 WL 3019102, *6, 2018 US Dist LEXIS 96145, *19 [SD NY, June 5, 2018, No. 15-cv-3326(CM)] ["Defendants also forfeited their right to take a tip credit under the NYLL. As with the (Fair Labor Standards Act), an employer loses its entitlement to the NYLL's tip credit if it improperly retains an employee's tips"]); on the other hand, courts have found that an employer's tip credit remains unaffected by a section 196-d violation. (See Murphy v Lajaunie, 2016 WL 1192689, *5-6, 2016 US Dist{**81 Misc 3d at 850}LEXIS 37137, *20-21 [SD NY, Mar. 22, 2016, No. 13-cv-6503 (RJS)] [finding that section 196-d's plain language and a New York Department of Labor guidance letter support the conclusion "that an employer's violation of Section 196-d does not entitle employees to recover tip credits as damages"], citing Schear v Food Scope Am., Inc., 297 FRD 114, 133 [SD NY 2014].) Neither the Court of Appeals nor any Appellate Division has addressed this issue.

The court finds the Southern District of New York's rationale in Murphy v Lajaunie persuasive. There, the court held that section 196-d's language—that "nothing in [section 196-d] 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"—unambiguously precluded plaintiff's recovery of the claimed tip credit. (2016 WL 1192689, *5, 2016 US Dist LEXIS 37137, *18.) The court contrasted the "nothing shall be construed as affecting allowances from the minimum wage"-language in section 196-d with the Fair Labor Standards Act (FLSA) section governing tip credits. In section 203 (m), the FLSA explicitly conditions an employer's right to claim a tip credit on whether the employer provides notice and whether "all tips received by such employee have been retained by the employee." (29 USC § 203 [m] [2] [A].) There is no equivalent in section 196-d.^[FN2] The court then noted that a 2009 guidance letter issued by New York's Department of Labor accorded with the court's interpretation of the statute's plain meaning. (See Dept of Labor Request for Op RO-09-0063 [Sept. 22, 2009], Labor Law § 196-d Violation.)^[FN3] Therein, the Department explained that, where an employer retains an employee's tips in violation of this section but pays a tip-inclusive wage that is above the minimum, the employer is not required to pay, in compensatory damages, the tip credit it retained. (Id. at 1.) Accordingly, defendants' motion to preclude tip credits in an award of unpaid wages under the New York Labor Law is granted.{**81 Misc 3d at 851}

Dismissal of Plaintiff's Tip Notice Claim

In support of their motion to dismiss plaintiff's Labor Law § 195 (1) claim (for not providing a tip notice),^[FN4] defendants submit an affidavit from Lori DeBlois, their Director of [*6]Human Resources, and attach plaintiff's signed "NYS Pay/Tip Notice," dated December 2, 2019. (NYSCEF Doc No. 28, DeBlois aff & exhibit 1.) The document provides for plaintiff's rate of pay and informs him of the tip credit that defendants would take: "Rate(s) of Pay: Your regular hourly pay is $15.00 per for the first 40 hours worked in a week. A $5.00 tip credit will be taken, as set forth below, so your hourly wage as a tipped employee . . . will be $10.00 per hour." (Id.) It also explains that

"[y]our hourly cash wage plus this credit must be at least equal to the minimum wage. If you do not receive enough tips over the course of a week so that your tips plus the cash do not meet the minimum wage . . . you will be paid additional wages that week to make up for the difference." (Id.)

As defendants' Human Resource Director, DeBlois avers that the pay/tip notice plaintiff signed was made in the regular course of defendants' business. (Id. ¶¶ 4-5.)

Defendants contend that dismissal of this claim is warranted under CPLR 3211 (a) (1) because the notice is of such quality as to be unambiguous, authentic, and undeniable and "definitively disposes" of plaintiff's claim. In opposition, plaintiff maintains that the tip/pay notice is patently deficient since section 195 (1) (a) requires notice to be provided "at the time of [the employee's] hiring" and the pay/tip notice is dated December 2019, approximately two years after the Roxy Hotel hired him. The court grants this branch of the motion in part. Although it is clear that the pay/tip notice is insufficient to dismiss plaintiff's section 195 (1) claim against the Roxy Hotel, plaintiff admits that he was employed as a tipped worker at Soho Grand Hotel "at the end of 2019 for approximately a month," meaning the pay/tip notice signed in early December 2019 was at the time of his hiring at the Soho Grand Hotel. Accordingly, the motion to dismiss plaintiff's section 195 (1) claim is granted against the Soho Grand Hotel.^[FN5]

{**81 Misc 3d at 852}Citing Ahmed v Morgan's Hotel Group Mgt., LLC (160 AD3d 555 [1st Dept 2018]), defendants argue that the failure to provide notice of a tip credit does not invalidate the credit so long as the employee's tip-inclusive wage meets or exceeds the minimum wage, and since plaintiff "never alleges that he received less than the minimum wage," "plaintiff's claim for wages owed based on the improper taking of a tip credit must be dismissed." (NYSCEF Doc No. 29 at 11.) Yet, as noted in footnote 1, plaintiff does allege that he received less than the minimum wage, and, as noted supra at 848, defendants have produced no wage stubs demonstrating it paid a minimum wage throughout plaintiff's employment. Thus, Ahmed provides no support for dismissing plaintiff's Labor Law § 195 (1) claim.^[FN6]

Accordingly, for the foregoing reasons, it is hereby ordered that defendants Hartz Hotel Services, Inc., Tribeca Grand Hotel, Inc. (doing business as the [*7]Roxy Hotel), Soho Grand Hotel, Constantino Milano, and 320 West Broadway Diner Corp. (doing business as Soho Diner)'s motion to dismiss pursuant to CPLR 3211 is granted as to all class claims brought on behalf of "non-tipped employees," granted to the extent that plaintiff Adrian Little seeks to include defendants' claimed tip credit in an award of damages, and granted as to plaintiff's Labor Law § 195 (1) claim against the Soho Grand Hotel; and it is further ordered that defendants' motion to dismiss is otherwise denied.