Surly settles $2.5 million class-action lawsuit over mandatory tip-pooling

Surly Brewing Co. has settled a $2.5 million class-action lawsuit launched by employees accusing the Minneapolis brewery of violating state law by allegedly making tip-pooling mandatory, firing some who balked at the practice and unfairly distributing gratuities among staffers.

"We are pretty excited about what the class gets," said Steven Andrew Smith, the plaintiffs' attorney. "We believe it's the largest tip-pooling settlement in the history of the state."

Surly said in a statement that it set up the tip pool with good intentions to be fair to all employees. But since the court has ruled against the brewery, it has replaced it with a traditional tip system.

However, a final settlement approval was signed March 26 by Hennepin County District Judge Karen Janisch. As part of the agreement, Surly agreed to pay roughly 140 bartenders and servers in the class action case about $2.5 million. It has also amended its tips policy to comply with state law.

After attorneys' fees and expenses, eligible class plaintiffs will receive an estimated average of $11,600. Plaintiffs' attorneys said the amount is meant to represent tips that were incorrectly shared with, or diverted to, other employees.

The lead plaintiff in the case, former Surly bartender James Russell Conlon, also will receive a $15,000 service award for his role representing the class action.

Court records show that attorneys for the class will be awarded $833,333. That sum will come out of the $2.5 million.

Conlon, of Minneapolis, originally sued Surly in February 2016, claiming that Surly's tip-pooling policy went against state law and separately benefited the company but not employees.

In May 2017, the court certified Conlon's lawsuit as a class action for other Surly bartenders and servers. The class was certified only with regard to the claim that Surly's tip-pooling policy violated the gratuities provisions of the Minnesota Fair Labor Standards Act. Surly previously denied that it violated any state laws.

Minnesota law allows employees to organize their own tip pools, but employers are not allowed to enforce one.

In a statement Friday, Surly said that its tip policy was set up in 2014 after consulting with industry experts and leaders.

Surly's policy was intended to "benefit the best interest of all employees," officials said. "We believed [it] was fair and beneficial to employees. In recent months, the Minnesota Fair Labor Standards Act tip-pooling statute was interpreted in a way that found our tip system did not fully comply with state law. There was no malice intended, nor were any employee tips or wages retained by Surly."

Going forward, officials said they have "agreed on settlement terms, and a traditional tipping system that fully complies with the state statute has been implemented."

Conlon's original lawsuit alleged that Surly announced to its staff in October 2015 that it might allow employees to opt out of tip pooling. However, Conlon said the company then began keeping lists and in some cases firing those who balked at the practice. He said he was one of those who complained and then was fired. That firing issue is not addressed in the class-action lawsuit settled this week.

The class-action settlement involves about 140 Surly servers and bartenders who worked at Surly between Dec. 19, 2014, and 2017.

In his complaint, Conlon said Surly's tip-pooling mandate "operated for the benefit of [Surly] because it resulted in the defendant's indirect service employees receiving a higher wage than they would have received had [Surly] not disbursed a portion of the gratuities" that the front-line servers collected.

As a result, Conlon claimed he and other front-line servers effectively bore the cost of the "supplemental wages" paid to all indirect service employees because that money came from customers' tips and not from Surly's payroll. With the way Surly structured its tip pooling, the company "did not have to commit any additional funds to the payroll," the complaint said.

The lawsuit also said Surly's tip system may not have been processed evenly. All tips paid via a customer's credit card were immediately shared. In contrast, tips paid with cash were sometimes secretly pocketed by individual servers, effectively decreasing tip income for all other staffers.

Dee DePass • 612-673-7725