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Posts Tagged ‘minimum wage’

Here’s Your Tip Of The Day – Another Appellate Court Defers To DOL On Use Of 80/20 Rule For Tipped Employees

Posted on: September 24th, 2018

By: Brad Adler & Koty Newman

The Ninth Circuit’s recent decision in Marsh v. J. Alexander’s, 2018 U.S. App. LEXIS 26387 (9th Cir. Sep. 18, 2018) is important for employers trying to navigate the FLSA and pay their tipped employees the correct amount.  The Ninth Circuit has joined the Eighth Circuit in deciding that the Department of Labor’s (“DOL”) dual jobs regulation, 29 C.F.R. § 531.56(e) (a/k/a “80/20 rule”), and its interpretation found in the Wage and Hour Division’s Field Operations Handbook are entitled to judicial deference.  This affects what employers must pay their tipped employees in these jurisdictions.

Generally, the federal hourly minimum wage is $7.25 per hour.  However, employers may legally pay their employees in tipped occupations, under federal law, as little as $2.13 per hour.  This is due to the FLSA’s tip credit provision, which permits employers to take a tip credit for employees in tipped occupations, such as serving or bartending.  The tip credit offsets the employer’s duty to pay the minimum wage to their tipped employees.  Even so, when a server’s tipped wages come up short of the hourly minimum wage of $7.25 per hour, the employer has a duty to make up the difference.

But how much is an employer required to pay an employee when that that employee performs some tipped duties and some untipped duties?  With the Ninth Circuit’s recent decision, the wages that an employer must pay an employee who receives tips turns upon whether the employee’s untipped duties are related to the employee’s tipped duties, and how long the employee spends performing each of those duties.

In the case before the Ninth Circuit, Alec Marsh and thirteen other former servers and bartenders challenged their employer’s payment practices under the FLSA.  Plaintiffs alleged that their employers abused the FLSA’s tip credit provision in two ways.  Plaintiffs alleged that employers violated the provision by treating them as tipped employees when they performed work that was unrelated to serving or bartending, such as when they cleaned restrooms or washed windows. Further, plaintiffs alleged that it was a violation for their employers to treat them as tipped employees when they performed untipped tasks related to serving and bartending, such as filling salt and pepper shakers, when those tasks consumed an excess of twenty percent of their time worked during the workweek.

In the Ninth Circuit’s view, the alleged payment practices of plaintiffs’ employers – in essence, crediting an employee’s tips toward the employers’ obligation to pay the full minimum wage for a non-tipped occupation – effectively allowed the employers to treat their employees’ tips as payments to the employers rather than the employees, thereby minimizing the employers’ obligation to pay their employees the full minimum wage for time spent performing work in a non-tipped occupation.  Marsh, 2018 U.S. App. LEXIS 26387, at *6 & n.2.

The Ninth Circuit ultimately determined that this practice is disallowed.  The Ninth Circuit held that the DOL “foreclosed an employer’s ability to engage in this practice by promulgating a dual jobs regulation in 1967, 29 C.F.R. § 531.56(e), and subsequently interpreting that regulation in its 1988 Field Operations Handbook.”  Marsh v. J. Alexander’s, 2018 U.S. App. LEXIS 26387, at *6.  The Court concluded that both the regulation and the DOL’s interpretation of that regulation were entitled to deference.   This result aligns the Ninth Circuit with the Eighth Circuit and its decision in Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th Cir. 2011).

As a result of giving deference to the regulation and its interpretation, the Court concluded that Marsh “stated two claims for relief under the FLSA: first, that he is entitled to the full hourly minimum wage for the substantial time he spent completing related but untipped tasks, defined as more than 20% of his workweek; and second, that he is entitled to the same for time he spent on unrelated tasks.”  Marsh, 2018 U.S. App. LEXIS 26387, at *42.

If you believe that separating employees’ tasks and pay in this manner is unworkable, the Ninth Circuit would disagree.  The Court believes the system is workable because an employer may “keep track of time spent on related tasks by requiring employees to clock in any time spent rolling silverware or cleaning the restaurant before and after the restaurant closes or when business is slow.”  Marsh, 2018 U.S. App. LEXIS 26387, at *38-39.  Of course, it remains to be seen how the other appellate courts will deal with this issue, particularly in light of the arguments asserted in the lawsuit filed by a restaurant group in Texas that the 80/20 rule is invalid (see blog on Texas lawsuit).

Thus, practically speaking, an employer with tipped employees needs to pay careful attention to who is performing tasks unrelated to those tipped occupations, and who dedicates a substantial amount (more than twenty percent) of their working time to tasks that are untipped-yet-related to their tipped occupation.  Because now, payment of those employees is subject to both the DOL’s regulation and interpretation, at least in jurisdictions covered by the Eighth and Ninth Circuits.

If you have any questions or would like more information, please contact Brad Adler at [email protected] or Koty Newman at [email protected].

The Side Work Struggle: Nonprofit Restaurant Group Challenges The 80/20 Tip Credit Rule In Texas Federal Court

Posted on: September 19th, 2018

By: John McAvoy

On July 6, 2018, a nonprofit restaurant advocacy group filed suit against the U.S. Department of Labor in Texas Federal Court challenging the rule that governs the compensation of tipped employees; specifically, the DOL’s “80/20 Tip Credit Rule” or “20% Rule” set forth in the 2012 revision to the DOL’s Field Operations Handbook. Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567 (W.D. Tex. July 6, 2018).

Under the Fair Labor Standards Act (the “FLSA”), employers may pay a “tipped employee”—i.e., “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips”—a cash wage of $2.13 per hour (or more) so long as the employer satisfies certain statutory criteria, including that the employee’s tips plus the cash wage equal the minimum wage. See 29 U.S.C. §§ 203(m), 203(t). That means tips are credited against – and satisfy a portion of – employers’ obligation to pay minimum wage. Congress has noted occupations in which workers qualify for this so-called tip credit: “waiters, bellhops, waitresses, countermen, busboys, service bartenders, etc.” S. Rep. No. 93-690, at 43 (Feb. 22, 1974).

The FLSA tip credit is not available to employers in all situations. Rather, the 80/20 Tip Credit Rule limits the use of a tip credit wage where workers spend more than 20% of their time performing secondary work not directly related to tip-generating activities. Such secondary work is universally known throughout the restaurant industry as “side work.”

Side work encompasses any and all secondary tasks restaurant employees must complete in addition to their primary responsibilities waiting tables, expediting food, bussing tables or tending bar. Side work generally includes things like rolling silverware, restocking glasses and various other items, cleaning and/or any other behind the scenes tasks necessary to ensure that restaurant operations run smoothly.

The 80/20 Tip Credit Rule provides that if a tipped employee spends more than 20% of his or her time during a workweek performing side work, i.e. duties that are not directly related to generating tips, the employer may not take a tip credit for the time spent performing those duties.

Tipped employees and employers throughout the industry share a deep-seated aversion to the 80/20 Tip Credit Rule for three (3) main reasons. First, the Rule is unclear as to what is, and what is not, an allegedly “tip generating” duty. Second, side work varies from restaurant to restaurant and shift to shift and is subject to unpredictable external conditions; most notably, the number of patrons that dine in the restaurant on any given day. For example, a bartender working the Saturday night shift in a chain restaurant may spend 95% of his or her shift serving customers, and a mere 5% on side work. However, that same bartender may open the restaurant the following day (Sunday morning) and spend 40% of his or her shift on side work from the night before, and only 60% serving customers. Third, tipped employees do not generally log their hours separately by task. As a result, tipped employees and their employers have struggled to apply the Rule. Tipped employees have to ask themselves whether they are working for less than minimum wage, and employers have to constantly wonder whether they are in compliance with the current state of the 80/20 Rule.

These issues, among others, have spawned several lawsuits challenging the 80/20 Tip Credit Rule. For example, the plaintiff in Restaurant Law Center contends, among other things, that the DOL “surreptitiously and improperly” created the 80/20 Tip Credit Rule, rather than abiding by the rulemaking process, thereby violating the Administrative Procedure Act.

Restaurant Law Center is worth mentioning because there is a split emerging among the circuit courts as to the 80/20 Tip Credit Rule’s validity. In 2011, the U.S. Court of Appeals for the Eighth Circuit upheld the validity of the Rule. However, in September 2017, a three-judge panel from the U.S. Court of Appeals for the Ninth Circuit concluded that the DOL effectively imposed new recordkeeping guidelines on employers to determine which tasks are tip generating and which are not.  In doing so, the Ninth Circuit held that the DOL had created a new regulation inconsistent with the “dual jobs” regulation. Shortly after the Ninth Circuit’s three-judge panel issued this opinion, the Ninth Circuit granted a rehearing before the full panel. Although the case was re-argued in March 2018, the full panel has yet to issue its opinion. If the Ninth Circuit upholds its prior decision, or the Fifth Circuit (where the July 6, 2018 lawsuit is pending) ultimately invalidates the 80/20 Tip Credit Rule on appeal, there will be a split among the federal appeals courts, opening the doors for the U.S. Supreme Court to decide the validity and enforceability of the 80/20 Tip Credit Rule.

Needless to say, the outcome of these cases will have serious implications to the restaurant industry in all jurisdictions throughout the country.

If you have any questions or would like more information, please contact John McAvoy at [email protected].

Another Day, Another Dollar: Private Detention Center Sued By Detainees for Violations of the Washington Minimum Wage Act

Posted on: August 9th, 2018

By: Layli Eskandari Deal

A lawsuit filed by thousands of detained immigrants held at the Northwest Detention Center (NWDC) in Tacoma, Washington alleges systematic wage theft by GEO Group, Inc.  The Plaintiffs seek to recover wages under the Washington Minimum Wage Act, as well as other damages allowable under State law.

GEO Group, Inc. has owned and operated the NWDC, which has 1,500 beds for immigrants, since 2005.  The lawsuit alleges that rather than hire from local workforce, GEO relies upon “captive detainee workers to clean, maintain, and operate NWDC.”  It further states that “GEO’s NWDC Detainee Handbook describes detainee work assignments as including kitchen and laundry work, as well as recreation/library/barber and janitorial services.  The Handbook refers to these various tasks as ‘work’ and a ‘job,’ and references ‘wages earned’ by detainee ‘workers.’”

The Plaintiffs asked the Federal District Court for class certification.  Judge Robert Bryan of the U.S. District Court for the Western District of Washington determined that the detained immigrants have an “employment relationship with GEO.”  The Judge determined that the group of detained immigrants all participate in a volunteer program at NWDC and allege the same “injury,” which is that they are only paid a $1 per day for work, “an amount not commensurate” with the law.  The Judge granted certification for the Plaintiffs to proceed as a class.

In addition to the Federal lawsuit, the State of Washington has also brought a lawsuit against GEO Group, Inc. in the State Superior Court that alleges GEO is violating the State’s minimum wage laws.  The Attorney General for the State of Washington, Bob Ferguson, stated, “A multi-billion dollar corporation is trying to get away with paying its workers $1 per day. That shouldn’t happen in America, and I will not tolerate it happening in Washington. For-profit companies cannot exploit Washington workers.”

Multiple lawsuits have been filed against private prisons, including GEO and others, over detainee pay and other issues. The lawsuits allege that the private prison giants use voluntary work programs to violate state minimum wage laws, the Trafficking Victims Protection Act, unjust enrichment and other labor statutes.  The outcome of these cases will have significant effect on the way prison systems treat and compensate detained workers.

For additional information related to this topic and for advice regarding how to navigate U.S. immigration laws you may contact Layli Eskandari Deal of the law firm of Freeman Mathis & Gary, LLP at (770-551-2700) or [email protected].

California’s New Independent Contractor Test

Posted on: July 11th, 2018

By: Christine Lee

On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations West, Inc. v. Superior Court, No. S222732, in which the Court adopted an extremely broad view of workers who will be deemed “employees” as opposed to “independent contractors” for purposes of claims alleging violations of California’s Wage Orders.  This decision will undoubtedly lead to increased litigation challenging classification of workers across the state as employers will now have a much higher burden to defeat such claims.

Under the new “ABC” test set forth in Dynamex, a worker will be presumed to be an employee unless the hiring entity proves all of the following:

(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact; and

(B) The worker performs work that is outside the usual course of the hiring entity’s business; and

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work he or she performed for the principal.

An employer’s failure to establish any one of the three factors will result in a determination that the worker is an employee as a matter of law.  The Court’s ruling specifically applies to claims asserted under the IWC Wage Orders, which impose obligations related to minimum wages, overtime, and required meal and rest breaks. It is presently unclear how the case applies to claims arising under other statutes.

We encourage all companies doing business in California to immediately evaluate classification of outside contractors or vendors.  Under Dynamex, the vast majority of persons performing services for a company will be considered employees if they are performing work within the usual course of the company’s business, even if those individuals act autonomously and are free from control or direction of the hiring entity.

Therefore, we strongly encourage employers to consult with counsel to evaluate and consider reclassifying independent contractors or risk finding themselves on the losing end of an expensive and painful misclassification case.

If you have any questions or would like more information, please contact Christine Lee at [email protected].

Congress Steps Into Tip-Pooling Fight

Posted on: March 23rd, 2018

By: Timothy J. Holdsworth

We wrote previously about the background on the tip-pooling regulations and the DOL’s Notice of Proposed Rulemaking (“NPR”) that would allow tip-pooling arrangements that include employees who do not regularly and customarily receive tips under the Fair Labor Standards Act (“FLSA”). The DOL received a considerable number of comments on the NPR, some of which worried that the NPR would allow employers to keep their workers’ tips.

Buried in the spending bill Congress passed (pages 2025-2027 if you are dying to read it) is a rider that will affect the current U.S. Department of Labor (“DOL”) laws on tips. The bill proposes language that prohibits an employer, including managers and supervisors, from keeping tips received by employees. This prohibition would apply regardless of whether the employer takes the tip credit. The rider also would make employers liable to employees for any tips unlawfully kept by the employer.

If the bill is signed by President Trump, these may substantially affect any tip-pooling arrangements employers planned to enact under the NPR. It is also unclear if the DOL may try to revise the NPR in any way.

The provision would also subject employers to new liability under the FLSA. Just last year, the Eleventh Circuit (Alabama, Florida, and Georgia) in Malivuk v. Ameripark, LLC held that the FLSA does not authorize an employee to sue her employer solely for an employer allegedly withholding her tips when the employee does not allege that she received less than the minimum wage or less than what she was entitled to for overtime work. The rider creates a new cause of action solely for withheld tips.

If you have any questions about what these potential changes may mean for your business or would like more information on navigating wage and hour laws, please contact Tim Holdsworth at [email protected].