IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
PHO AN RESTAURANT, INC., and No. 88762-9-I NGA LE, as an individual, DIVISION ONE
Appellants,
v. UNPUBLISHED OPINION
DEPARTMENT OF LABOR & INDUSTRIES,
Respondent,
and
FERNANDO JEREMIAS MARROQUIN; and JUAN JOSE GARCIA CASTILLO,
Defendants.
SMITH, J. — In August 2023, the Department of Labor and Industries issued a citation to Pho An Restaurant, Inc., alleging that the business and its owner, Nga Le, (collectively, Pho An), violated the wage payment act and/or the Washington Minimum Wage Act. Particularly, the citation alleged that Pho An owed wages, penalties, and interest to two former employees: Juan Jose Garcia Castillo (Jose Garcia) and Fernando Jeremias Marroquin Canil (Jeremias Marroquin). An Administrative Law Judge (ALJ) found that Pho An: (1) failed to pay regular and overtime wages to Marroquin for work performed from September 2019 through July 2022, and (2) failed to pay tips to Marroquin from
April 2020 through December 2020. The ALJ found that Pho An owed Marroquin unpaid wages, tips, penalties, and interest accordingly.
Pho An appealed the ALJ order, and the Director affirmed. Pho An then petitioned for judicial review in superior court, which then granted the Department’s motion to transfer the case to this court for direct review. Because substantial evidence supports the findings of fact, we affirm the Director’s order.
FACTS
Background
In August 2023, the Department of Labor and Industries (Department)
issued a citation to Pho An Restaurant, Inc., alleging that the business and its owner, Nga Le, violated the Washington Minimum Wage Act, ch. 49.46 RCW, and/or the wage payment act, ch. 49.48 RCW. Particularly, the citation alleged that Pho An owed wages, penalties, and interest to two former employees: Jose Garcia and Jeremias Marroquin. In September 2023, Pho An appealed the citation.
Marroquin’s Employment
In 2019, Marroquin began working at Pho An as a dishwasher. Tri Ho, the husband of Pho An’s owner, Nga Le, hired Marroquin and informed him of the restaurant’s tip policy: all tips were left at the cash register and at the end of the pay period, the tips were split between the wait staff. In March 2020, Pho An closed because of the COVID-19 pandemic, and reopened in April 2020. The restaurant offered takeout only and customers were not allowed inside. Only
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Marroquin, Ho, and Le worked full time at the restaurant. In 2022, Marroquin stopped working at Pho An and initiated a complaint with the Department.
Hearing
The administrative hearing was held in May 2024. Marroquin testified that during the COVID-19 pandemic, he ran food from the kitchen out to the customers. Marroquin stated that Le and Ho were scared to touch customer payments, so they did not have direct interaction with customers. Marroquin further testified that Le and Ho did not want to expose themselves to the COVID- 19 virus out of concern for Le’s mom. Marroquin testified that in addition to taking orders to customers, he prepped food and washed dishes. When Marroquin was asked how he knew that customers left tips, Marroquin stated that he saw that customers included tips on receipts. Marroquin also testified that customers left cash tips that he put in the tip jar. Marroquin’s W2 wage and tax statement issued by Pho An showed he was paid the following tips: $7,965.00 in 2020 and $4,706.20 in 2021.1 Le testified that tips were shared among waiters and waitresses. Le testified that during the COVID-19 pandemic, she and the waiters gave customers their food orders and handled payments. She also testified that when the restaurant was takeout only, Ho prepared food and gave customers their order. During the same period, Le testified that Marroquin helped with food preparation and washed dishes.
1 Marroquin’s federal W2 form shows that he was paid $34,650.00 in 2020 and $37,202.10 in 2021.
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Ho testified that during the COVID-19 pandemic, only he, Le, and two other employees worked at the restaurant. Ho stated that Marroquin worked as a prep cook and did not talk to customers or give them their orders. Ho testified that most of the time, he took food out to the customers and sometimes asked Marroquin to help him. Ho also stated that he received the tips paid during the pandemic, testifying that tips were “very tiny because the budgets of people w[ere] really low at the time.”
After the administrative hearing, in September 2024, the Office of Administrative Hearings issued an initial order. The ALJ found that Pho An “did not have a method for contemporaneously recording the exact time or hours worked by [its] employees.” The ALJ also found that Le’s submitted timecards and calendars were inconsistent with her original statements to the Department’s Industrial Relations Agent that she did not keep time records. The ALJ found that the testimony of Marroquin and Le conflicted regarding material points. The ALJ found that Le’s testimony was vague and evasive as to key facts in the case. The ALJ also found that Marroquin’s testimony was more logically persuasive based on the totality of the testimony and documentation. Ultimately, the initial order found, in part, that Pho An: (1) failed to pay regular and overtime wages to Marroquin for work performed from September 2019 through July 2022, and (2) failed to pay tips to Marroquin from April 2020 through December 2020. The ALJ found that Pho An owed Marroquin unpaid wages, tips, penalties, and interest accordingly.
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Pho An appealed the initial order. In April 2025, the Director affirmed the ALJ’s findings and incorporated the initial order by reference. In part, the Director’s order found that during the COVID-19 pandemic, “Marroquin was the only employee in the restaurant eligible for tips. He acted as a waiter or server by carrying food out to people ordering takeout.” The Director found that Le testified that on average, the daily sales prior to the COVID-19 pandemic were about $2,000 to $2,500 per day; therefore, if customers tipped 15 percent, that amounted to $300 in tips per day. Although Le testified that sales decreased during the pandemic, Marroquin testified that customers tipped generously. The Director found that the evidence supported that during this time period, the tips continued to average around $300 per day despite the reduced sales.
Pho An petitioned for judicial review in superior court, and the Department then moved to transfer the case to this court for direct review which the superior court granted.
ANALYSIS
Legal Principles
The final decisions of the Director of the Department of Labor and Industries are governed by the Administrative Procedure Act (APA), ch. 35.05 RCW. RCW 34.05.570. This court grants relief if the decision erroneously interprets the law or “when the order is not supported by substantial evidence on the record.” Silverstreak, Inc. v. Dep't of Lab. & Indus., 159 Wn.2d 868, 898, 154 P.3d 891 (2007). When looking at the record as a whole, substantial evidence exists when there is “a sufficient quantity of evidence to persuade a fair-minded
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person of the order’s the truth or correctness.” Crosswhite v. Dep't of Soc. & Health Servs., 197 Wn. App. 539, 548, 389 P.3d 731 (2017). When reviewing administrative decisions, “this court applies the APA standards directly to the record before the administrative tribunal.” Glacier Nw., Inc. v. Dep't of Lab. & Indus., 32 Wn. App. 2d 189, 195, 555 P.3d 896 (2024). “An agency’s findings of fact and its regulatory interpretations are granted deference.” Silverstreak, 159 Wn.2d at 879. However, we review questions of law under a de novo standard. Silverstreak, 159 Wn.2d at 880. “Whether the law was correctly applied to the facts as found by the agency is also a question of law that we review de novo.” Silverstreak, 159 Wn.2d at 898. This court will not substitute our judgment for the lower court’s judgment “even though, had we been the trier of fact in the first instance, our judgment might have been different.” Parkridge v. City of Seattle, 89 Wn.2d 454, 464, 573 P.2d 359 (1978).
Under RCW 49.46.020(3)(a), employers must pay its employees “all tips and gratuities.” The Department states that “tips and gratuities are amounts freely given by a customer to an employee.” Wash. Dep't of Lab. & Indus., Admin. Pol’y ES.A.12, at 1 (Mar. 6, 2019), https://www.lni.wa.gov/workers- rights/docs/esa12.pdf [https://perma.cc/MBP2-MDH7].
Washington law does not state what type of employees are eligible for a tip pool. See Admin. Pol’y ES.A.12. But “those who are exempt from the definition of ‘employee’ under RCW 49.46.010(3) may not be part of a mandatory tip pool.” Admin. Pol’y ES.A.12, at 2. Employers, managers, or supervisors may accept tips only for services they directly provide. Admin. Pol’y ES.A.12, at 2.
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Ho’s Eligibility to Receive Tips Pho An asserts the Director erred when he concluded that Ho was not entitled to tips given that he had some managerial duties. The State contends that the Director did not find that Ho was ineligible for tips because he was a manager. Rather, the Director found that Ho was ineligible for tips because he did not provide services directly to customers when the restaurant was takeout only.2 In light of evidence presented, and giving deference to the Director’s factual determinations, substantial evidence supports that Ho did not serve customers during the time in question. We find no error.
Pho An does not cite to a Director’s finding to support that the Director found that Ho was not eligible to receive tips based on his managerial status. The Director found that from April 29, 2020, through January 31, 2021, “Marroquin was the only employee in the restaurant eligible for tips. He acted as a waiter or server by carrying food out to people ordering takeout.” The Director assessed the credibility of the competing testimony and found that during the COVID-19 pandemic, Ho did not bring food to customers because he did not want to be exposed to the COVID-19 virus. Marroquin testified that Ho did not have face-to-face contact with customers and Marroquin ran food from the kitchen to the customers. Other than Le and Ho, Marroquin was the only other
2 Pho An also asserts the Director erred when he concluded that Ho was a manager or agent that was prohibited from receiving tips. Neither the initial order nor the Director’s order made this finding, and Pho An does not cite to the record in support of this assertion. Under RAP 2.4(a), this court reviews “the decision or parts of the decision designated in the notice of appeal.” Because neither the ALJ nor the Director found that Ho was a manager, we decline to review this issue.
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employee working full time at the restaurant.3 Because substantial evidence supports that Ho did not serve customers when the restaurant was takeout only, we find that the Director did not err in finding that Marroquin was the only employee eligible for tips.
Pho An’s Sales and Tips During COVID-19 Pandemic Pho An contends that the Director erred when he calculated the daily average food sales during the COVID-19 pandemic,4 and therefore, the estimated total tips owed were incorrect. The State asserts that substantial evidence supported the calculation. We agree with the State.
Substantial evidence supports the Director’s determination that Marroquin was entitled to $300 per day in tips. The Director found that Le and Marroquin’s testimony differed regarding the average daily tips during the COVID-19 pandemic. Le testified that the average daily tips were $300, but during the pandemic, the restaurant’s average tips decreased because sales decreased. However, Marroquin testified that although sales decreased during the pandemic, tips were generous, around $300 a day, because customers wanted to support small businesses.5
3 Marroquin testified that another employee, Huong Le, would come in once every other week to make egg rolls. Huong would not stay the full day.
4 Pho An asserts that the Director erred in finding that the daily average food sales during the COVID-19 pandemic was between $2,000 to $2,500, as opposed to $800 to $900 as testified by Le. The Director did not make a finding regarding the daily average food sales during the pandemic as opposed to pre- COVID-19. We decline to review this issue.
5 Marroquin testified, “at that time there was a movement that everyone should support small businesses, and there was really [a] push for people to go
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The initial order, which the Director adopted in his findings,6 found that the parties’ testimony conflicted on material points, and the ALJ found that Marroquin’s testimony was more logically persuasive.
Because we do not reweigh credibility, we accept the Director’s finding.
Port of Seattle v. Pollution Control Hearings Bd., 151 Wn.2d 568, 588, 90 P.3d 659 (2004). Pho An did not keep records about the tips it received, nor did it keep records indicating how the tips were distributed. Conversely, Marroquin estimated the amount of tips received during the COVID-19 pandemic based on the customer receipts he observed and cash left by customers. Marroquin testified that at some point, he counted up to $500 in tips based on the orders he took. Substantial evidence supports the finding that tips were around $300 per day during the pandemic.7 We find no error.
Lastly, Pho An contends that the Director erred when he found that Marroquin was eligible for tips through January 31, 2021, because the restaurant
and shop at small businesses. And the customers were more generous with tips.”
6 Le and Ho’s testimony conflicted regarding whether Le received tips.
During the hearing, the Department’s Industrial Relations Agent, Ana Gamino, testified that Le told Gamino that she participated in the tip pool because Le helped serve. Ho testified that that Le did not participate in the distribution of tips. Le also told Gamino that she did not keep timecards for her employees.
7 Pho An also asserts that the Director erred in calculating Marroquin’s tips during the COVID-19 pandemic. Marroquin’s pre-COVID-19 tips were calculated by taking 15 percent of the average daily sales. Using this same calculation, Pho An asserts that Marroquin’s tips should have been $120 per day to account for the decreased sales. Regarding Marroquin’s COVID-19 tips, the Director did not base his calculation off average daily sales. Rather, the Director relied on Marroquin’s testimony that tips stayed at $300 per day. We find no error.
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reopened in-person dining in December 2020. Pho An asserts that Marroquin’s testimony supported that in-person dining resumed in December 2020.
During the hearing, Marroquin testified, “At the end of 2020, there were scaled openings at the restaurants, and eventually there was one person who came on weekends.” Marroquin did not state exactly when the restaurant resumed in-person dining. Further, Le testified that she did not remember when the restaurant was allowed to offer in-person dining again. The testimony is unclear as to when the restaurant reopened for in-person dining.
On the other hand, the Department offered evidence that the State of Washington did not allow in-person dining until February 2021. In its response brief filed in January 2025, the Department asserted that Marroquin delivered orders to customers outside the restaurant from April 29, 2020 to January 31, 2021. The Department stated that the January 31, 2021 date was based on the State’s reopening plan that allowed restaurants to reopen for in-person dining starting on February 1, 2021. The Director did not err when he found that Marroquin was a server until January 31, 2021.
Arbitrary or Capricious
Pho An contends that the Director’s order is arbitrary or capricious because it fails to consider undisputed facts showing that: (1) the restaurant shifted from in-person dining and limited itself to takeout food services from April 28, 2020 through December 31, 2020 because of the COVID-19 pandemic, (2) daily sales were greatly reduced from pre-COVID-19 sales at $2,000 to $2,500 per day to an average of $800 to $900 per day when the restaurant was
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takeout only, (3) Ho, the lead server, was in fact entitled to retain the tips he received for the direct food service that he provided, and (4) the tips were reduced to an average of $120 per day when the restaurant was takeout only.
We review whether an order is arbitrary or capricious under a de novo standard. Wash. Indep. Tel. Ass'n v. Wash. Utils. & Transp. Comm'n, 149 Wn.2d 17, 24, 65 P.3d 319 (2003). An order is arbitrary or capricious if “it is willful and unreasoning and disregards or does not consider the facts and circumstances underlying the decision.” Stewart v. Dep't of Soc. & Health Servs., 162 Wn. App. 266, 273, 252 P.3d 920 (2011). An order is not arbitrary or capricious if “it is made honestly and upon due consideration,” even if the court may disagree with the outcome. Alpha Kappa Lambda Fraternity v. Wash. State Univ., 152 Wn. App. 401, 421-22, 216 P.3d 451 (2009). “[T]he harshness of the sanctions imposed is not the test for arbitrary or capricious action.” Alpha Kappa, 152 Wn. App. at 421.
Pho An asserts that the order is arbitrary or capricious because the Director’s order disregards the testimony of the Department's Industrial Relations Agent that Marroquin was not entitled to tips and that errors existed in Marroquin and Garcia’s calculations of hours worked, and also because it allowed the State to amend the citation in the middle of the hearing. Pho An also claims it is apparent that the Director disregarded the agent’s testimony because he did not adopt the agent’s determination. But the Director is not bound by the agent’s
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determination.8 See RCW 34.05.464 (stating that the Director “shall exercise all the decision-making power that the reviewing officer would have had to decide and enter the final order”).
Pho An contends that the Director failed to take into account the fact that the Department amended the citation in the middle of the hearings and never provided an amended citation setting forth facts that warranted the amendment. Pho An fails to recognize that the citation’s amendment contained updated information based on the testimony given during the hearing.9 Pho An does not provide any legal authority for how the Director should have considered the amendment, cite to any legal statute that the Director violated, nor state any alleged prejudice. Additionally, Pho An had sufficient notice of the amendment. The amended citation was issued on June 13, 2024. The last day of the hearing occurred on July 22, 2024. Pho An had over a month to consider the amended citation. As discussed supra, the Director did consider the facts which were disputed, and substantial evidence supports the Director’s findings. Therefore, the order is not arbitrary or capricious.
Lastly, Pho An contends that it is entitled to relief because pursuant to RCW 34.05.570(1)(d), it has been substantially prejudiced by the agency’s action
8 Gamino testified that to her understanding, Marroquin’s role at the restaurant was a dishwasher and that Marroquin did not have the typical waiter role of serving food to people sitting at tables.
9 The amended citation updated the amount of earnings, interest, and penalty regarding Marroquin’s claim. The initial citation stated that Marroquin’s earnings were $21,570.00, the interest was $7,724.39, and the penalty was $2,357.00. The amended citation listed Marroquin’s earnings at $209,270.00, the interest at $62,793.47, and the penalty at $20,927.00.
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because the restaurant and Le do not have the ability to pay the unpaid tips, wages, interest, and penalties. However, Pho An provides no authority to support that the severity of the sanctions is sufficient to show that an order is substantially prejudicial, particularly when it is directly related to wages owed. We find no error.
We affirm.
WE CONCUR: