Tipped Off: No Private Right of Action Under Tennessee Tip Statute

In Hardy v. TPC Southwind,[1] Justice Kirby, writing for a unanimous court, held that the Tennessee Tip Statute[2] does not create an implied private right of action against employers. In reaching this conclusion, the court examined the legislative history of the statute, expressly overruled a 1998 Court of Appeals decision on the same issue, and provided an in-depth analysis on the doctrine known as “legislative inaction.”

The Tip Statute provides in relevant part:

  1. (1) If a business, including a private club, lounge, bar or restaurant, includes on the bill presented to and paid by a customer, member or a patron, an automatic percentage or specific dollar amount denominated as a service charge, tip, gratuity, or otherwise, which amount is customarily assumed to be intended for the employee or employees who have served the customer, member or patron, that amount should be paid over to or distributed among the employee or employees who have rendered that service ….
  2. A violation of this section is a Class C misdemeanor. Each failure to pay an employee constitutes a separate offense.[3]

The plaintiff, Ms. Hardy, filed suit alleging that TPC Southwind, a private club with dining and banquet facilities, distributed a portion of the gratuity money to “non-tipped” employees (i.e, cooks or managers) in violation of the Tip Statute. The trial court granted TPC Southwind’s motion to dismiss, holding that the Tip Statute did not provide for a private right of action. In a divided opinion, the Court of Appeals found that the Tip Statute created an implied private right of action.[4] The Court of Appeals relied on a 1998 decision from the Court of Appeals, Owens v. University Club of Memphis,[5] holding that the Tip Statute did provide for a private right of action. The Court of Appeals’ rationale in Hardy was rooted in the legislative inaction doctrine: “This Court’s holding in Owens has not been overruled; the General Assembly did not amend §107 when it amended §101 in 2013; and the General Assembly amended §107 in 2012 and did not legislatively overrule our holding in Owens.”

Because the Tip Statute obviously did not expressly grant the right to employees to file private lawsuits, the question before the Tennessee Supreme Court was whether Hardy had an implied private right of action under the Tip Statute.[6] Following the guidance of its previous opinion in Brown v. Tennessee Title Loans Inc.,[7] the court set out on a mission to analyze the statutory structure and legislative history of the Tip Statute. Specifically, the court sought to determine: (1) whether Hardy was an intended beneficiary within the protection of the statute; (2) whether there was any indication of legislative intent, express or implied, to create or deny the private right of action; and (3) whether applying such a remedy was consistent with the underlying purposes of the legislation.[8] In examining the statutory language, the court noted that while the statute did not specifically call for a private right of action, it did specify that a violation of the Tip Statute constitutes a Class C Misdemeanor.[9]

In evaluating the three factors outlined in the Brown decision, the court first held that Hardy clearly falls within the class of persons intended to benefit from the protections of the Tip Statute. This was not the end of the court’s analysis, however: “The mere fact that the Legislature enacted the Tip statute to protect and benefit employees such as Ms. Hardy is not alone sufficient … to imply a private right of action.”[10]

As to the second Brown factor, the court was tasked with determining whether there was any indication of legislative intent, expressed or implied, to create or deny a private right of action. To determine legislative intent, the court examined “the context, language and legislative history” of the statute at issue.[11] The court turned its attention to the legislative archives, reviewing statements made by Tip Statute sponsors Sen. Ray Albright and Rep. Bob Davis. In this regard, the court noted as follows:

Clearly, the Legislature intended to require the targeted business establishments to distribute tips to the employees who provide the service to the customer who left the tip, with a governmental remedy in the form of fines. … However, we find nothing in the “context, language, and legislative history” of the Tip Statute indicating one way or another whether the Legislature envisioned individual employees filing suit under the statute to recover their unpaid tips, gratuities or service charges from their employers.[12]

As to the last Brown factor, the court examined whether implying a private remedy was inconsistent with the underlying purposes of the legislation. Here, the Supreme Court began to tackle the Court of Appeals’ previous decision in Owens v. University Club of Memphis, decided in 1998. The court recognized that there had been an ideological shift in determining implied rights of action between the time of the Owens decision in 1998 and the time of the Brown decision in 2010. Specifically, the court held:

By the time Brown was decided, however, the scales had tipped against recognizing a private right of action under a statute and the absence of “manifest” legislative intent to permit it, particularly where a statute includes express governmental mechanisms for enforcing it.[13]

Because of this shift, the Tennessee Supreme Court held that Owens was inconsistent with its current jurisprudence and expressly overruled it.

Enter the doctrine of legislative inaction. Hardy argued that the Owens decision was still important because the General Assembly was presumed to be aware of that decision, and yet it took no action to expressly overrule Owens when it certainly had opportunities to do so. As the court put it, “We consider … whether to infer legislative acquiescence in Owens from the General Assembly’s inaction.”[14] Again, harkening back to the shift in jurisprudence between Owens and Brown, and the fact that the Owens’ rationale is (now) inconsistent with the court’s current line of reasoning, the court declined “to apply the legislative inaction doctrine to presume that the Legislature knew of the Court of Appeals’ interpretation of the Tip Statute in Owens and acquiesced in it.”[15] In rejecting application of the legislative inaction doctrine, the court ultimately concluded that employees have no private right of action under the Tip Statute.

The court’s decision in Hardy provides much needed clarification on the Tip Statute, welcome guidance especially for those practitioners representing clients in the restaurant industry. Moreover, this decision makes clear that Tennessee’s current high court will be hesitant to hold that statutes imply private rights of action, absent a legislative intent to permit it. The Supreme Court seemed to follow the lead of Judge Brandon O. Gibson, who dissented from the earlier Court of Appeals decision:[16] The court’s role is to enforce the remedy already on the books, not create a new one — that is a task left to the General Assembly.

Notes

  1. Hardy v. Tournament Players Club at Southwind Inc., No. W2014-02286-SC-R11-CV, 2016 Tenn. LEXIS 985 (Tenn. Mar. 8, 2017).
  2. Tenn. Code Ann. § 50-2-107.
  3. Tenn. Code Ann. § 50-2-107(a)(1) and (b).
  4. 2015 Tenn. App. LEXIS 524, at **14-16.
  5. Owens v. University Club of Memphis, No. 02A01-9705-cv-00103, 1998 Tenn. App. LEXIS 688, at *11 (Tenn. Ct. App. Oct. 15, 1998); 2015 Tenn. App. LEXIS 524, at * 6.
  6. Id. at ** 10-11.
  7. 328 S. W. 3d 850, 853 (Tenn. 2010).
  8. Id. at **13-14 (citing Brown at 855-56).
  9. Tenn. Code Ann. § 50-2-107(b).
  10. Id. at * 23 (citing Brown, 328 S.W. 3d at 858).  
  11. Id. at * 25 (quoting Thompson v. Thompson, 484 U.S. 174, 180 (1988).
  12. Id. at * 25 (quoting Thompson, 484 U.S. at 180).
  13. Id. at * 30.
  14. Id. at ** 33-34.
  15. Id. at 40-41.
  16. Hardy, 2015 Tenn. App. LEXIS 524 (Tenn. Ct. App. July 2, 2015) (Gibson, J., dissenting) (“Perhaps a private cause of action is the most sensible method of protecting tipped employees; if the General Assembly agrees, it is free to expressly provide such a remedy instead of or in addition to the criminal enforcement mechanism currently provided by section 107. Regardless of whether we believe the enforcement mechanism provided by the General Assembly is the best among various alternatives, we should be “especially reluctant” to imply additional remedies”).

Edward G. Phillips EDWARD G. PHILLIPS is a lawyer with Kramer Rayson LLP in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section.

BRANDON L. MORROW is an associate with Kramer Rayson LLP in Knoxville where his primary areas of practice are labor and employment, and litigation. He earned a bachelor’s degree from the University of Tennessee and a law degree from UT College of Law in 2012.

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