Oregon Restaurant and Lodging v. Thomas Perez

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

OREGON RESTAURANT AND No. 13-35765
LODGING ASSOCIATION, a non-profit
Oregon corporation; WASHINGTON D.C. No.
RESTAURANT ASSOCIATION, a non- 3:12-cv-01261-
profit Washington corporation; MO
ALASKA CABARET, HOTEL,
RESTAURANT & RETAILERS
ASSOCIATION, a non-profit Alaska
corporation; NATIONAL
RESTAURANT ASSOCIATION, a non-
profit Illinois corporation; DAVIS
STREET TAVERN LLC, an Oregon
limited liability company; SUSAN
PONTON, an individual,
Plaintiffs-Appellees,

v.

THOMAS PEREZ, in his official
capacity as Secretary of the U.S.
Department of Labor; LAURA
FORTMAN, in her official capacity as
Deputy Administrator of the U.S.
Department of Labor; U.S.
DEPARTMENT OF LABOR,
Defendants-Appellants.
2 OREGON REST. & LODGING ASS’N V. PEREZ

JOSEPH CESARZ; QUY NGOC TANG, No. 14-15243
individually and on behalf of all
others similarly situated, and all D.C. No.
persons whose names are set forth in 2:13-cv-00109-
Exhibit A to the First Amended RCJ-CWH
Complaint,
Plaintiffs-Appellants,
ORDER
v.

WYNN LAS VEGAS, LLC; ANDREW
PASCAL; STEVE WYNN,
Defendants-Appellees.

Filed September 6, 2016

Before: Harry Pregerson, N. Randy Smith,
and John B. Owens, Circuit Judges.

Order;
Dissent by Judge O’Scannlain
 OREGON REST. & LODGING ASS’N V. PEREZ 3

SUMMARY*

Fair Labor Standards Act

The panel denied a petition for panel for rehearing, and
denied on behalf of the court a petition for rehearing en banc.

In its opinion, filed February 23, 2016, the panel majority
reversed the district courts’ decisions in favor of employers,
and held that Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th
Cir. 2010), did not foreclose the Department of Labor’s
ability to promulgate subsequently a formal rule that
extended the tip pooling restrictions of Section 203(m) of the
Fair Labor Standards Act of 1938; and remanded for further
proceedings.

Judge O’Scannlain, joined by Judges Kozinski, Gould,
Tallman, Bybee, Callahan, Bea, M. Smith, Ikuta and
N.R. Smith, dissented from the denial of rehearing en banc
because the panel’s opinion rejected court precedents, and
opened two circuit splits.

COUNSEL

John S. Koppel (argued) and Michael Jay Singer, Attorneys,
United States Department of Justice, Civil Division,
Washington, D.C.; Stuart F. Delery, Assistant Attorney
General, Office of the Attorney General, Washington, D.C.;
S. Amanda Marshall, United States Attorney, United States

*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 OREGON REST. & LODGING ASS’N V. PEREZ

Attorneys’ Office, Oregon, for Defendants-Appellants
Thomas Perez, et al.

Joshua D. Buck (argued), Thierman Buck, Reno, Nevada;
Leon Greenberg and Dana Sniegocki, Leon Greenberg
Professional Corporation, Las Vegas, Nevada, for Plaintiffs-
Appellants Joseph Cesarz and Quy Ngoc Tang.

Paul DeCamp (argued), Jackson Lewis P.C., Reston,
Virginia; Nicholas M. Beerman, Peter H. Nohle, and William
Robert Donovan, Jr., Jackson Lewis P.C., Seattle,
Washington; Scott Oberg Oborn, Jackson Lewis P.C.,
Portland, Oregon, for Plaintiffs-Appellees Oregon Restaurant
and Lodging Association, et al.

Eugene Scalia (argued) and Alexander Cox, Gibson Dunn &
Crutcher LLP, Washington, D.C.; Gregory J. Kamer and
Brian J. Cohen, Kamer Zucker Abbott, Las Vegas, Nevada,
for Defendants-Appellees Wynn Las Vegas, LLC, et al.

ORDER

Judges Pregerson and Owens have voted to deny the
petition for panel rehearing. Judge Owens has voted to deny
the petition for rehearing en banc, and Judge Pregerson has so
recommended. Judge N.R. Smith has voted to grant the
petition for panel rehearing and petition for rehearing en
banc.

The full court was advised of the petition for rehearing en
banc. A judge requested a vote on whether to rehear the
matter en banc. The matter failed to receive a majority of
 OREGON REST. & LODGING ASS’N V. PEREZ 5

votes of the nonrecused active judges in favor of en banc
consideration. Fed. R. App. P. 35.

The petition for panel rehearing and the petition for
rehearing en banc are DENIED.

The order filed on April 1, 2016 denying rehearing in
Cesarz v. Wynn Las Vegas is hereby amended to reflect this
subsequent en banc activity, including the dissent from denial
of rehearing.

O’SCANNLAIN, Circuit Judge, with whom KOZINSKI,
GOULD, TALLMAN, BYBEE, CALLAHAN, BEA, M.
SMITH, IKUTA, N.R. SMITH, Circuit Judges, join,
dissenting from the denial of rehearing en banc:

Our court today rejects the most elemental teaching of
administrative law: agencies exercise whatever powers they
possess because—and only because—such powers have been
delegated to them by Congress. Flouting that first principle,
the panel majority equates a statute’s “silence” with an
agency’s invitation to regulate, thereby reaching the startling
conclusion that the Department of Labor can prohibit any
workplace practice Congress has not “unambiguously and
categorically protected” through positive law. The dissenting
opinion had it right; the panel majority’s extravagant theory
is more than the Constitution will bear. And it is more than
our own precedents will allow. Because the panel majority
reads our precedents out of existence, and opens not one, but
two circuit splits in the process, I respectfully dissent from
our refusal to rehear these consolidated cases en banc.
6 OREGON REST. & LODGING ASS’N V. PEREZ

I

A

Here is a brief overview of the statutory and regulatory
landscape. The Fair Labor Standards Act (FLSA), 29 U.S.C.
§ 201 et seq., sets a minimum wage employers must pay their
employees, id. § 206(a). Employers who have “tipped
employee[s]” can meet the minimum-wage requirement in
either of two ways. Id. § 203(m). First, they can simply pay
such employees a cash wage at or above the minimum. Id.
Second, they can pay a cash wage below the minimum, but
only if such employees receive enough money in tips to make
up the difference. Id. Employers who choose the second
option are said to take a “tip credit.” In addition, for many
decades it has been common practice for employers across
service industries to require the people who work for them to
share tips with one another, a practice known as “tip
pooling.” But not all employees are alike. Some, like
restaurant servers,1 are “customarily and regularly tipped,”
id.; others, like the kitchen staff, are not. Section 203(m) says
that if an employer takes a tip credit to satisfy its federal
minimum-wage obligations, it is not allowed to institute a tip
pool comprising both categories of employees. Id. So, if a
restaurant takes a tip credit, it cannot require its servers to
share their tips with the kitchen staff (but it can require the
servers to share tips with their fellow servers).

Although § 203(m) speaks directly about the tip-pooling
practices of employers who take advantage of the tip credit,
it says absolutely nothing about tip pooling by employers

1
We use the term “server” to include the waiters and waitresses serving
tables.
 OREGON REST. & LODGING ASS’N V. PEREZ 7

who do not take a tip credit. In Cumbie v. Woodie Woo, Inc.,
596 F.3d 577, 578 (9th Cir. 2010), we addressed “whether a
restaurant violates the Fair Labor Standards Act, when,
despite paying a cash wage greater than the minimum wage,
it requires its wait staff to participate in a ‘tip pool’ that
redistributes some of their tips to the kitchen staff.” We held
it does not; instead, the statute’s carefully calibrated scope
evidenced Congress’s clear intent to leave employers who do
not take a tip credit free to arrange their tip-pooling affairs
however they and their employees see fit. Id. at 580–83. So,
if a restaurant guarantees its employees the federal minimum
wage, the restaurant can (so far as federal labor law is
concerned) force its servers to share their tips with the
bussers, cooks, and dishwashers. Section 203(m) does not
apply here—it is simply indifferent to the fate of the servers’
tips.

Two background principles informed Cumbie’s
construction of the statute. First, it has been settled law for
three-quarters of a century that “[i]n businesses where tipping
is customary, the tips, in the absence of an explicit contrary
understanding, belong to the recipient. Where, however, such
an arrangement is made, in the absence of statutory
interference, no reason is perceived for its invalidity.” Id. at
579 (quoting Williams v. Jacksonville Terminal Co., 315 U.S.
386, 397 (1942)) (alterations omitted) (emphasis deleted).
“Williams establishes the default rule that an arrangement to
turn over or to redistribute tips is presumptively valid.” Id. at
583. Second, the “Supreme Court has made it clear that an
employment practice does not violate the FLSA unless the
FLSA prohibits it.” Id. (citing Christensen v. Harris Cty.,
529 U.S. 576, 588 (2000) (“Unless the FLSA prohibits
respondents from adopting its policy, petitioners cannot show
that Harris County has violated the FLSA.”)).
8 OREGON REST. & LODGING ASS’N V. PEREZ

After examining the statute’s text and structure, id. at
580–81, we determined that the “plain text” of § 203(m) only
“imposes conditions on taking a tip credit and does not state
freestanding requirements pertaining to all tipped
employees,” id. at 581. As a result, we concluded that the
“FLSA does not restrict tip pooling when no tip credit is
taken.” Id. at 582. “Since Woo [the employer] did not take
a tip credit, we perceive[d] no basis for concluding that
Woo’s tippooling arrangement violated section 203(m).” Id.
“Having concluded that nothing in the text of the FLSA
purports to restrict employee tip-pooling arrangements when
no tip credit is taken, we perceive[d] no statutory impediment
to Woo’s” tip-pooling practice. Id. at 583.

B

We decided Cumbie in 2010. Unhappy with our decision,
in 2011 the Department of Labor issued new regulations
addressing the very same issue. See Updating Regulations
Issued Under the Fair Labor Standards Act, 76 Fed. Reg.
18,832 (Apr. 5, 2011). The preamble to those regulations
confessed that Cumbie advanced a “‘plain meaning’
construction,” id. at 18,842, but nevertheless voiced the
Department’s opinion that Cumbie was wrongly decided, id.
at 18,841–42. The Department then announced that, statutory
text and Cumbie notwithstanding, henceforth “tips are the
property of the employee, and . . . section [203(m)] sets forth
the only permitted uses of an employee’s tips—either through
a tip credit or a valid tip pool—whether or not the employer
has elected the tip credit.” Id. at 18,842 (By “valid” tip pool,
the Department apparently means a tip pool consisting
exclusively of employees who are “customarily and regularly
tipped.”) The Department replaced this language:
 OREGON REST. & LODGING ASS’N V. PEREZ 9

In the absence of an agreement to the contrary
between the recipient and a third party, a tip
becomes the property of the person in
recognition of whose service it is presented by
the customer.

with the following:

Tips are the property of the employee whether
or not the employer has taken a tip credit
under section [203(m)] of the FLSA. The
employer is prohibited from using an
employee’s tips, whether or not it has taken a
tip credit, for any reason other than that which
is statutorily permitted in section [203(m)]:
As a credit against its minimum wage
obligations to the employee, or in furtherance
of a valid tip pool.

Compare 32 Fed. Reg. 13,575, 13,580 (1967), with 29 C.F.R.
§ 531.52.

This new regulation thus flips Williams and Christensen
on their heads. It takes the longstanding rule that federal law
permits employers to institute any tip-pooling arrangement
the FLSA does not prohibit, and turns it into a rule that
employers may only institute a tip pool if the FLSA expressly
authorizes it.

II

The facts of these consolidated cases are straightforward
and undisputed. The Appellees are employers who pay all of
their employees at or above the minimum wage. Or. Rest. &
10 OREGON REST. & LODGING ASS’N V. PEREZ

Lodging Ass’n v. Perez, 816 F.3d 1080, 1082 (9th Cir. 2016).
That is, none of them takes a tip credit. In addition, the
employers have opted to institute tip pools comprised of both
customarily tipped employees and non-customarily tipped
employees. Specifically, Wynn Las Vegas requires its casino
dealers to share a portion of their tips with casino floor
supervisors, while the employers represented by the Oregon
Restaurant and Lodging Association require their servers to
share a portion of their tips with the kitchen staff. Id. at 1085.
The question for us is whether such tip pools are prohibited
by § 203(m).

So far, so Cumbie. The facts are the same. The statute is
the same. But this time the panel holds that the tip-pooling
arrangements just described are illegal. The only difference
is that here we have a Department of Labor regulation
declaring that it simply will not follow what Cumbie said was
permitted. The problem for the Department is that the
Supreme Court has prohibited an agency in its position from
doing exactly that. That is, “a court’s interpretation of a
statute trumps an agency’s . . . if the prior court holding
‘determined a statute’s clear meaning.’” Nat’l Cable &
Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967,
984 (2005) (emphasis deleted) (quoting Maislin Indus., U.S.,
Inc. v. Primary Steel, Inc., 497 U.S. 116, 131 (1990)).

That is precisely what we did in Cumbie: we held that
§ 203(m) is clear and unambiguous—and that it clearly and
unambiguously permits employers who forgo a tip credit to
arrange their tip-pooling affairs however they see fit. We
said this explicitly no fewer than six times. Cumbie, 596 F.3d
at 579 n.6 (“[W]e conclude that the meaning of the FLSA’s
tip credit provision is clear . . . .”); id. at 581 (“[W]e cannot
reconcile [Cumbie’s] interpretation with the plain text of [the
 OREGON REST. & LODGING ASS’N V. PEREZ 11

statute] . . . .”); id. at 581 n.11 (“[W]e do not resort to
legislative history to cloud a statutory text that is clear.”
(quoting Ratzlaf v. United States, 510 U.S. 135, 147–48
(1994))); id. at 582 (describing Cumbie’s reading of § 203(m)
as “plainly erroneous”); id. at 582 (refusing to “depart[] from
the plain language of the statute” (quoting Ingalls
Shipbuilding, Inc. v. Dir., Office of Workers’ Comp.
Programs, 519 U.S. 248, 261 (1997))); id. at 583 (reiterating
that our statutory construction proceeded “[a]bsent an
ambiguity”).

Remarkably, we even declined to consider then-existing
Department of Labor regulations—as well as an amicus brief
filed by the Secretary of Labor on Cumbie’s
behalf—precisely because “we conclude[d] that the meaning
of the FLSA’s tip credit provision is clear,” and hence “we
need not decide . . . what level of deference [the Department’s
interpretations] merit.” Id. at 579 n.6. And, as if the
substance of our holding were not already obvious beyond
doubt, we cited a Chevron Step One decision to illustrate our
reasoning. Id. (citing Metro Leasing & Dev. Corp. v.
Comm’r, 376 F.3d 1015, 1027 n.10 (9th Cir. 2004) (“Because
we conclude that [the] meaning of the statute is clear, we
need not decide whether this regulation should be upheld.”)).

Cumbie’s teaching is straightforward: § 203(m) simply
does not protect an employee’s tips except when his or her
employer takes a tip credit. Hence, § 203(m) unambiguously
establishes that, so far as the FLSA is concerned, employers
who forgo the tip credit must be left free to institute tip pools
comprising servers and line cooks, casino dealers and floor
supervisors, or whatever other combination of employees the
affected parties decide.
12 OREGON REST. & LODGING ASS’N V. PEREZ

III

It would take some mighty fancy footwork to get around
Cumbie; if Brand X does not foreclose a contrary agency
construction here, the doctrine is a dead letter. Indeed, in the
panel majority’s attempt to dance around Cumbie and its
manifestly correct reading of § 203(m), it has stumbled off a
constitutional precipice.

A

The problems begin at the beginning. The majority
acknowledges that “section 203(m) does not restrict the tip
pooling practices of employers who do not take tip credits.”
Or. Rest., 816 F.3d at 1084. That was the holding of Cumbie.
As Cumbie explained, Congress wrote § 203(m) against the
longstanding background norm that tip pooling is a matter of
private contract. 596 F.3d at 579. Thus, given Congress’s
deliberate choice to subject one and only one class of
employer to regulation—namely, employers who take a tip
credit—the clear implication is that all other employers
remain free to arrange their tip-pooling affairs without federal
interference, just as they were before the statute was passed.
And my colleagues say they have “no quarrel with Cumbie.”
Or. Rest., 816 F.3d at 1090. So we all agree that Congress
has chosen not to regulate the tip-pooling practices of
employers like the ones we have here; we all agree that such
conduct indisputably falls beyond the outer reaches of the
FLSA. But then where does the panel majority think the
Department of Labor gets authority to ban the very thing
Congress has decided not to interfere with?

Here is where the panel majority’s analysis goes wrong,
and dangerously so. The majority claims to perceive a
 OREGON REST. & LODGING ASS’N V. PEREZ 13

“crucial distinction between statutory language that
affirmatively protects or prohibits a practice and statutory
language that is silent about that practice.” Or. Rest.,
816 F.3d at 1087. From that premise, it concludes that the
Department of Labor can ban these employers’ tip pooling
because § 203(m) does not “unambiguously and categorically
protect” it; instead, the statute is simply “silent about that
practice.” Id. at 1086–87 (emphasis added). For that reason
alone, the panel majority holds, the Department has a free
hand to prohibit it. Id. As the majority says, any time a
statute does not “unambiguously protect[] or prohibit[]
certain conduct,” the statute necessarily “leaves room for
agency discretion” to regulate such conduct as it sees fit. Id.
at 1088.

This is a caricature of Chevron. Indeed, the notion is
entirely alien to our system of laws.2

In one sense, the panel majority is correct: § 203(m) is
“silent” about whether employers who do not take a tip credit
may require tip pooling, just like it is “silent” about whether
I can require my law clerks to wear business attire in
chambers. Section 203(m) does not “unambiguously and
categorically protect” either practice. Does that mean the
Department of Labor is free to prohibit them both? Of course
not; obviously, the FLSA cannot serve as a source of

2
See, e.g., Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 585
(1952) (“The President’s power, if any, to issue the order must stem either
from an act of Congress or from the Constitution itself.”). The point of
Youngstown is that the Executive must always derive its authority to act
either from an act of Congress or directly from the Constitution;
Youngstown necessarily rejects the idea that the Executive may interfere
with a given interest simply because Congress has not “unambiguously
and categorically protected” it.
14 OREGON REST. & LODGING ASS’N V. PEREZ

authority to prohibit activities it does not cover, just as a
statute reading “No dogs in the park” cannot be said to
authorize a Parks Department to ban birds as well. The
reason is basic but fundamental, and it has nothing to do with
any sort of free-floating nondelegation presumption. Rather,
the point is that a statute’s deliberate non-interference with a
class of activity is not a “gap” in the statute at all; it simply
marks the point where Congress decided to stop authorization
to regulate. And while I do not question that Congress has
given the Department “broad authority . . . to implement the
FLSA,” Or. Rest., 816 F.3d at 1084, one does not
“implement” a statute by expanding its domain to allow
interference with conduct it consciously left alone. The
Department is in reality legislating, yet that is a power the
Constitution does not permit executive agencies to exercise.3

The problem here is that the majority has confused two
very different types of statutory silence. Sometimes
“[statutory] silence is meant to convey nothing more than a
refusal to tie the agency’s hands,” meaning that Congress has
given the agency discretion to choose between policy options

3
As every novice learns, the official theory of the administrative state
begins from the premise that “the lawmaking function belongs to Congress
. . . and may not be conveyed to another branch or entity.” Loving v.
United States, 517 U.S. 748, 758 (1996). Agency rulemaking respects that
constraint so long as it remains guided by an “intelligible principle”
supplied by Congress. E.g., City of Arlington v. FCC, 133 S. Ct. 1863,
1873 n.4 (2013). But the panel majority would effectively vaporize even
that flimsy constraint by holding that an agency need not justify a given
rule by tracing it to a valid statutory grant of authority; instead, it need
only demonstrate that Congress has not affirmatively voiced opposition to
the rule in question. The majority’s vision makes a fear of “delegation
running riot” look quaint by comparison, A.L.A. Schechter Poultry Corp.
v. United States, 295 U.S. 495, 553 (1935) (Cardozo, J., concurring), for
it would dispense with even the pretense of delegation altogether.
 OREGON REST. & LODGING ASS’N V. PEREZ 15

Congress itself has placed on the table. Entergy Corp. v.
Riverkeeper, Inc., 556 U.S. 208, 222 (2009). But “sometimes
statutory silence, when viewed in context, is best interpreted
as limiting agency discretion.” Id. at 223. In other words, not
all statutory silences are created equal. But you would never
know that from the majority’s opinion. The majority seems
to think executive agencies have plenary power to regulate
whatever they want, unless and until Congress affirmatively
preempts them. With all due respect, that is a profoundly
misguided understanding of administrative law.

An agency may not issue a given regulation unless it has
a “textual commitment of authority” to do so. Whitman v.
Am. Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001). Indeed,
it is axiomatic that “an agency literally has no power to act
. . . unless and until Congress confers power upon it.” La.
Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986). Thus,
it should go without saying that an agency “may not construe
the statute in a way that completely nullifies textually
applicable provisions meant to limit its discretion.” Am.
Trucking, 531 U.S. at 485. And “Congress knows to speak in
plain terms when it wishes to circumscribe, and in capacious
terms when it wishes to enlarge, agency discretion.” City of
Arlington, 133 S. Ct. at 1868.

Section 203(m) speaks in plain terms, not capacious ones.
To illustrate the contrast, imagine a statute that said, simply,
“Unfair tipping practices are prohibited. The Secretary may
promulgate rules necessary to carry into execution the
foregoing prohibition.” Now that would be a capacious
statute. I will stipulate that a reasonable person could read it
to prohibit tip pooling even by employers who do not take a
tip credit; on the other hand, a reasonable person could read
it not to interfere with such practice. Our hypothetical statute
16 OREGON REST. & LODGING ASS’N V. PEREZ

is “silent” in the relevant sense: in the sense that we might
read it to cover the practice in question, but we are not
compelled to read it that way, so the choice is for the agency
to make. But § 203(m) is nothing like that hypothetical
statute. It regulates tip pooling by one, and only one, specific
class of employer: the employer who takes a tip credit.
Hence, as we put it in Cumbie, § 203(m) “does not restrict tip
pooling when no tip credit is taken.” 596 F.3d at 582. There
is no question, therefore, that § 203(m) stops short of
regulating employers who do not take a tip credit. The
Department has no power to put words in Congress’s mouth
when Congress has deliberately chosen to stay quiet in the
face of activity it knows is taking place.

Simply put, Congress intended to control, not to delegate,
when employers may require tip pooling. And there can be
no question that the Department of Labor has no power to
extend the statute beyond its stopping point. As the Supreme
Court has said time and again, “an administrative agency’s
power to regulate . . . must always be grounded in a valid
grant of authority from Congress. And ‘[i]n our anxiety to
effectuate the congressional purpose . . . , we must take care
not to extend the scope of the statute beyond the point where
Congress indicated it would stop.’” FDA v. Brown &
Williamson Tobacco Corp., 529 U.S. 120, 161 (2000)
(quoting United States v. Article of Drug . . . Bacto-Unidisk
. . . , 394 U.S. 784, 800 (1969)).

Thus, as in Brown & Williamson, here “Congress has
clearly precluded the [Department] from asserting jurisdiction
to regulate” tip pooling by employers who do not take a tip
credit. Id. at 126. “Such authority is inconsistent with the
intent that Congress has expressed in the [FLSA’s] overall
regulatory scheme . . . . In light of this clear intent, the
 OREGON REST. & LODGING ASS’N V. PEREZ 17

[Department’s] assertion of jurisdiction is impermissible.”
Id. Because “the statutory text forecloses the agency’s
assertion of authority,” its attempt to prohibit tip pooling by
employers like the ones before us “is ultra vires.” City of
Arlington, 133 S. Ct. at 1871, 1869.

The majority’s reasoning flies in the face of the above
principles. To prop up its theory that an agency’s power to
regulate surges like an expansive body of water, covering
everything until it bumps up against a wall erected by
Congress, the majority relies on Christensen v. Harris
County, 529 U.S. 576 (2000), and “Judge Souter’s [sic]
concurrence,” Or. Rest., 816 F.3d at 1088. But Christensen
and Justice Souter’s concurrence give absolutely no support
to the majority’s radical idea that an agency can regulate
whatever it wants until Congress says out loud that it must
stop. Christensen says only what everybody already knows:
if a statute can reasonably be read either to permit or to
prohibit a given practice, then the agency has discretion to
choose which reading to enforce. 529 U.S. at 587–88; id. at
589 (Souter, J., concurring). But the whole question is
whether a particular statute can be read either way.
Sometimes the answer is yes; other times the answer is no,
depending on the statute. In this case, Cumbie already said,
correctly, that § 203(m) cannot be read either way—it
subjects to regulation only employers who take a tip credit,
and nobody else. 596 F.3d at 582. The Department has no
power to enlarge the statute beyond the point where Congress
decided to stop regulating. The Department, and my
colleagues along with it, have yet to grasp that “an agency’s
power is no greater than that delegated to it by Congress.”
Lyng v. Payne, 476 U.S. 926, 937 (1986).
18 OREGON REST. & LODGING ASS’N V. PEREZ

B

It should come as no surprise that our sister circuits have
roundly and forcefully repudiated the specious theory of
agency power our court now adopts. Those circuits have
echoed again and again the basic reality that silence does not
always constitute a gap an agency may fill, but often reflects
Congress’s decision not to regulate in a particular area at all,
a decision that is binding on the agency.

As the D.C. Circuit has explained, “[w]ere courts to
presume a delegation of power absent an express withholding
of such power, agencies would enjoy virtually limitless
hegemony, a result plainly out of keeping with Chevron and
quite likely with the Constitution as well.” Ry. Labor Execs.
Ass’n v. Nat’l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir.
1994) (en banc) (as amended); id. at 659 (“[T]he Board
would have us presume a delegation of power from Congress
absent an express withholding of such power. This comes
close to saying that the Board has the power to do whatever
it pleases merely by virtue of its existence, a suggestion that
we view to be incredible.”); id. at 671 (“To suggest, as the
Board effectively does, that Chevron step two is implicated
any time a statute does not expressly negate the existence of
a claimed administrative power (i.e. when the statute is not
written in ‘thou shalt not’ terms), is both flatly unfaithful to
the principles of administrative law . . . , and refuted by
precedent.”); see also Aid Ass’n for Lutherans v. U.S. Postal
Serv., 321 F.3d 1166, 1174–75 (D.C. Cir. 2003) (“[T]he
Postal Service’s position seems to be that the disputed
regulations are permissible because the statute does not
expressly foreclose the construction advanced by the agency.
We reject this position as entirely untenable under well-
 OREGON REST. & LODGING ASS’N V. PEREZ 19

established case law.”); Motion Picture Ass’n of Am., Inc. v.
FCC, 309 F.3d 796, 805 (D.C. Cir. 2002) (same).

Likewise, the Third Circuit has recognized that “[e]ven
where a statute is ‘silent’ on the question at issue, such
silence ‘does not confer gap-filling power on an agency
unless the question is in fact a gap—an ambiguity tied up
with the provisions of the statute.’” Coffelt v. Fawkes,
765 F.3d 197, 202 (3d Cir. 2014) (quoting Lin-Zheng v.
Attorney Gen., 557 F.3d 147, 156 (3d Cir. 2009) (en banc)).

The Fourth Circuit, as well, has held that “[b]ecause we
do not presume a delegation of power simply from the
absence of an express withholding of power, we do not find
that Chevron’s second step is implicated ‘any time a statute
does not expressly negate the existence of a claimed
administrative power.’” Chamber of Commerce v. NLRB,
721 F.3d 152, 160 (4th Cir. 2013) (quoting Am. Bar Ass’n v.
FTC, 430 F.3d 457, 468 (D.C. Cir. 2005)).

The Fifth Circuit agrees. See Texas v. United States,
809 F.3d 134, 186 (5th Cir. 2015) (as revised) (“The dissent
repeatedly claims that congressional silence has conferred on
DHS the power to act. To the contrary, any such inaction
cannot create such power.” (citation omitted)).

Same for the Seventh Circuit: “Courts ‘will not presume
a delegation of power based solely on the fact that there is not
an express withholding of such power.’” Sierra Club v. EPA,
311 F.3d 853, 861 (7th Cir. 2002) (quoting Am. Petroleum
Inst. v. EPA, 52 F.3d 1113, 1120 (D.C. Cir. 1995)).

The Eleventh Circuit piles on: “[I]f congressional silence
is a sufficient basis upon which an agency may build a
20 OREGON REST. & LODGING ASS’N V. PEREZ

rulemaking authority, the relationship between the executive
and legislative branches would undergo a fundamental
change and ‘agencies would enjoy virtually limitless
hegemony, a result plainly out of keeping with Chevron . . .
and quite likely with the Constitution as well.’” Bayou Lawn
& Landscape Servs. v. Sec’y of Labor, 713 F.3d 1080, 1085
(11th Cir. 2013) (quoting Ethyl Corp. v. EPA, 51 F.3d 1053,
1060 (D.C. Cir. 1995)).

Notice what the panel majority has not produced: a
citation to a single case endorsing the extravagant theory of
executive lawmaking our court adopts today. Meaningful
silence?

At any rate we, too, once knew all of this. In Martinez v.
Wells Fargo Home Mortgage, Inc., 598 F.3d 549, 554 n.5
(9th Cir. 2010), we were asked to defer to an agency’s
regulation of certain bank “overcharges” on the theory that
the Real Estate Settlement Procedures Act did “not
specifically address the situation at bar” and was therefore
“sufficiently silent on the precise matter as to be ambiguous.”
Nonsense, we said; statutory “‘silence’ on the subject of
overcharges does not mean that Congress’s actions were
ambiguous on that subject. Congress simply did not legislate
at all on overcharges.” Id. So, too, with tip pooling by
employers who do not take a tip credit, or so I would have
thought.

Oh well. Add Martinez to the heap of controlling
authorities the panel majority has so casually tossed aside,
 OREGON REST. & LODGING ASS’N V. PEREZ 21

placing us, here as elsewhere, directly at odds with our
colleagues in the rest of the country.4

IV

A

Even if this case were framed in terms of Chevron Step
Two, it would not make any difference to the analysis or the
outcome. Precisely because the Department has not been
delegated authority to ban tip pooling by employers who
forgo the tip credit, the Department’s assertion of regulatory
jurisdiction “is ‘manifestly contrary to the statute,’ and
exceeds [its] statutory authority.” Sullivan v. Zebley,
493 U.S. 521, 541 (1990) (quoting Chevron, 467 U.S. at 844).

My panel-majority colleagues prove the point themselves.
Notwithstanding their conviction that the Department of
Labor can regulate any private activity Congress has not
“unambiguously and categorically protect[ed]” through
positive law, they still undertake to reassure themselves that
the Department’s interpretation of § 203(m) is “reasonable.”
Or. Rest., 816 F.3d at 1089. Yet their analysis on this score
is so perfunctory that it only confirms they must really
believe what they have repeatedly said, namely, that an
agency does not need a discernible grant of regulatory power
over a given subject matter before it can insert itself into the
affairs of ordinary citizens.

4
“Circuit split” perhaps does not fully describe the resulting state of
affairs. It is more like we have spun out of the known legal universe and
are now orbiting alone in some cold, dark corner of a far-off galaxy, where
no one can hear the scream “separation of powers.”
22 OREGON REST. & LODGING ASS’N V. PEREZ

Unsurprisingly, the majority never mentions the text the
Department is (purportedly) executing, not even once. Here
is what the majority offers instead:

First, that it was reasonable for the Department of Labor
to conclude “that, as written, [§] 203(m) contain[s] a
‘loophole’ that allow[s] employers to exploit FLSA tipping
provisions.” Id. Which quite obviously begs the question.
But not only is it entirely question-begging, it unwittingly
concedes that the statute “as written” limits the agency to
regulating only those employers who take a tip credit. As
explained above, an agency “may not construe the statute in
a way that completely nullifies textually applicable provisions
meant to limit its discretion,” Am. Trucking, 532 U.S. at 485,
for otherwise it would be exercising “the lawmaking function
[which] belongs to Congress . . . and may not be conveyed to
another branch or entity,” Loving, 517 U.S. 758.

Second, the majority invokes the FLSA’s legislative
history, even though in Cumbie we explicitly refused to do so,
explaining that “[o]f course, ‘we do not resort to legislative
history to cloud a statutory text that is clear.’” 596 F.3d at
581 n.11 (quoting Ratzlaf, 510 U.S. at 147–48). In any event,
the primary source the majority quotes implicitly disavows
the Department of Labor’s interpretation. The very Senate
Committee Report the majority relies on explains that an
“employer will lose the benefit of [the tip credit] exception if
tipped employees are required to share their tips with
employees who do not customarily and regularly receive
tips.” Or. Rest., 816 F.3d at 1089 (quoting S. Rep. No. 93-
690, at 43 (1974)). That statement makes sense only on the
assumption that employers who forgo the tip credit can
require tip pooling among customarily and non-customarily
tipped employees, just as Cumbie had said. All the majority
 OREGON REST. & LODGING ASS’N V. PEREZ 23

can muster in response is a more general statement from the
same report that § 203(m) “requir[es] . . . that all tips received
be paid out to tipped employees.” Id. at 1090. That’s it.
Even fans of legislative history should hold their noses before
allowing one vague statement from one committee report to
trump not only the clear text of the statute, but also the
express interpretation of that text as set out in the very same
report.

Third and finally, the majority says that “the FLSA is a
broad and remedial act that Congress has frequently expanded
and extended.” Id. Here we have yet one more frank
admission that the Department of Labor is “expand[ing] and
extend[ing],” not “executing,” the statute Congress enacted.
But notice that even on the majority’s telling, Congress is the
one empowered to expand and extend the statute; the
Department of Labor emphatically is not. And whatever the
majority thinks “the purpose of the FLSA” happens to be, id.,
the Supreme Court has told us that “the purpose of a statute
includes not only what it sets out to change, but also what it
resolves to leave alone,” W. Va. Univ. Hosps., Inc. v. Casey,
499 U.S. 83, 98 (1991). In this case there is no doubt that
Congress resolved to leave employers like the ones before us
alone, at least as far as their tip-pooling practices are
concerned. Neither we nor the Department have any power
to “expand or extend” Congress’s decision.

B

Predictably enough, such shoddy reasoning has opened
yet another circuit split on this precise issue. By defying
Cumbie and rejecting its obviously correct reading of
§ 203(m), the majority has created another split with the
24 OREGON REST. & LODGING ASS’N V. PEREZ

Fourth Circuit and has set us on a collision course with
several others.

Most immediately, in Trejo v. Ryman Hospitality Props.,
Inc., 795 F.3d 442 (4th Cir. 2015), the Fourth Circuit
expressly agreed with Cumbie that “§ 203(m) ‘does not state
freestanding requirements pertaining to all tipped
employees,’ but rather creates rights and obligations for
employers attempting to use tips as a credit against the
minimum wage.” Id. at 448 (quoting Cumbie, 596 F.3d 581).
Accordingly, the Fourth Circuit held that “it is clear that th[e]
language [of § 203(m)] could give rise to a cause of action
only if the employer is using tips to satisfy its minimum wage
requirements.” Id. For the reasons explained above, that
holding necessarily forecloses the Department’s effort to ban
tip pooling by employers who do not take a tip credit. Brand
X, 545 U.S. at 984 (“[A] precedent holding a statute to be
unambiguous forecloses a contrary agency construction.”).

Looking beyond Trejo, the forecast is not encouraging for
the panel majority here. In fact, “[r]elying on Cumbie and
other cases, nearly every court that has considered the DOL
Regulation has invalidated it under Chevron.” Malivuk v.
Ameripark, LLC, No. 1:15-CV-2570-WSD, 2016 WL
3999878, at *4 (N.D. Ga. July 26, 2016); see, e.g., id.;
Brueningsen v. Resort Express Inc., No. 2:12-CV-00843-DN,
2015 WL 339671, at *5 (D. Utah Jan. 26, 2015); Mould v.
NJG Food Serv. Inc., No. CIV. JKB-13-1305, 2014 WL
2768635, at *5 (D. Md. June 17, 2014); Stephenson v. All
Resort Coach, Inc., No. 2:12-CV-1097 TS, 2013 WL
4519781, at *8 (D. Utah Aug. 26, 2013); see also Trinidad v.
Pret A Manger (USA) Ltd., 962 F. Supp. 2d 545, 563
(S.D.N.Y. 2013) (“Because the Court is highly skeptical that
DOL’s regulations permissibly construe the statute, and
 OREGON REST. & LODGING ASS’N V. PEREZ 25

because it is undisputed that Pret paid its employees the
minimum wage without taking into account the tip credit, the
Court, in its discretion, declines to conditionally certify a
class based on plaintiffs’ tip-pooling claims.”).

The only court in the land to misread Cumbie is our own!

V

Never let a statute get in the way of a tempting regulation.
That, at any rate, seems to be the prevailing mood on our
court. I cannot go along with such a breezy approach to the
separation of powers, and I regret our decision to let stand the
majority’s catalog of errors. The majority ignores binding
Supreme Court and circuit precedent, allows the Department
of Labor to defy the clear and unambiguous limits on its
discretion written into the Fair Labor Standards Act, and
creates not one, but two circuit splits in the process.
Amazingly, however, those might be the least offensive
things about the panel majority’s opinion.

More reckless is the unsupported and indefensible idea
that federal agencies can regulate any class of activity that
Congress has not “unambiguously and categorically
protected” through positive law. Such notion is completely
out of step with the most basic principles of administrative
law, if not the rule of law itself.

I respectfully dissent.