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Posts Tagged ‘Eighth Circuit’

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].

9th Circuit Holds Inadmissible Evidence May Support Class Cert

Posted on: May 17th, 2018

By: Ted Peters

Courts around the country are split over whether admissible evidence is needed to support a class certification.  The Fifth Circuit requires it, and the Seventh and Third Circuits appear to be of the same opinion.  In contrast, the Eighth Circuit has indicated that inadmissible evidence can be considered.  On May 3, 2018, the Ninth Circuit join ranks with the Eighth Circuit when it issued an opinion indicating that certification of a class action can be supported by inadmissible evidence.

The case arises out of the district court’s decision to deny class certification to a group of nurses based, in part, on the finding that two of the named plaintiffs had not offered evidence that they were underpaid.  Their only evidence consisted of a paralegal’s analysis of time cards reflecting that hours were not properly calculated.  While perhaps not sufficiently trustworthy to be admitted at trial, the Ninth Circuit concluded that the district court prematurely rejected such evidence when ruling on whether the class could be certified.  The Court stated: “Notably, the evidence needed to prove a class’s case often lies in a defendant’s possession and may be obtained only through discovery.  Limiting class-certification-state proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence.”

The Court also concluded that, because there was no consideration as to whether the employer controlled the nurses after they clocked in, the district court misapplied the definition of “work” under California jurisprudence.  Lastly, the Court was critical of the finding that the law firm representing the putative class action was incapable of properly representing the class, focusing on “apparent errors by counsel with no mention of the evidence in the record demonstrating class counsel’s substantial and competent work on [the] case.”

If you have questions or would like more information, please contact Ted Peters at [email protected].

Wire Fraud. Who Bears the Risk?

Posted on: November 2nd, 2017

By: Allison S. Hyatt

Wire fraud is on the rise in recent years. Finding out that escrow funds were mistakenly wired into the wrong hands is every broker, banker, consumer or escrow agent’s worst nightmare. Article 4A of the Uniform Commercial Code governs wire transfers and the unique issues raised by this method of payment commonly used in commercial transactions. The purpose of Article 4A was to define precise and detailed rules to assign responsibility, allocate risks, and establish limits on liability with respect to the complex claims that may result when a wire transfer goes awry. Critical consideration was given with respect to each party’s need to predict risk with certainty, insure that risk, adjust operational and security procedures, and to price wire transfer services appropriately, especially given the substantial amounts of money commonly involved in these transactions.

One of the liabilities balanced by Article 4A is the risk that a third party will steal a customer’s identity and issue a fraudulent payment order to the bank. Usually the bank bears the risk for unauthorized wire transfers. However, in a real estate transaction, whether the bank, broker, or escrow agent employed commercially reasonable security procedures in the transaction may shift this liability. For instance, as the Eighth Circuit found in Choice Escrow & Land Title, LLC v. BancorpSouth Bank, if a bank’s security procedures are commercially reasonable and it complies with those procedures along with its customer’s wiring instructions, the loss of funds resulting from an unauthorized wire transfer will fall on the customer if the bank is found to have accepted the fraudulent payment order in good faith. 754 F.3d 611, 625 (8th Cir. 2014).

In Choice Escrow, an employee of the escrow company fell prey to a phishing scam causing the company to contract a computer virus that led to a series of fraudulent transactions. 754 F.3d at 615. Choice Escrow maintained a trust account with BankcorpSouth. The bank received a request for a wire transfer of $440,000.00 from Choice Escrow’s trust account via the bank’s internet wire transfer system. Because the request was made using Choice’s User ID and Password, the bank approved the fraudulent transfer request even though the account lacked sufficient funds to cover the transfer. Id. at 616.

In its analysis, the Eighth Circuit evaluated BankcorpSouth’s security procedures, which provided its customers with four different security measures. Choice Escrow had declined two of these measures. 754 F.3d at 617-622. Looking to a recommendation report published by the Federal Financial Institutions Examination Council (FFIEC), the court found that BankcorpSouth’s security procedures complied with the FFIEC’s guidance. In addition, the bank had also expanded its security procedures to address security threats that arose after the report was issued. Taking these factors into consideration, the court found that BankcorpSouth’s security procedures were commercially reasonable. Id.

Next, the court analyzed whether BankcorpSouth acted in good faith, finding that “[w]here, as here, a bank’s security procedures do not depend on the judgment or discretion of its employees, the scope of the good-faith inquiry under Article 4A is correspondingly narrow.” 754 F.3d at 623. The court reasoned that because the bank had promptly executed a payment order that had cleared the bank’s commercially reasonable security procedures and the bank had no independent reason to suspect the order was fraudulent, the bank met its burden of establishing it had acted in good faith. Id. at 624. Thus, Choice Escrow was left liable for its customer’s loss. The fact that the escrow company had declined two of the security procedures offered by the bank appears to have been a significant factor in the court’s reasoning.

The lesson to glean from the Choice Escrow opinion is that to protect against liability, escrow companies, brokers, and other parties involved in commercial transactions, should all continually assess the commercial reasonableness of their security measures, which may include: 1) the use of email accounts that require additional forms of authentication; 2) the use of digital signatures for messages; 3) the use of encryption to communicate with clients; and 4) the frequency of password changes, among others. In addition, if a breach occurs resulting in an unauthorized wire transfer, courts will likely evaluate the reasonableness of the company’s wiring procedures, including steps taken to review wiring instructions to verify their authenticity. Strict adherence to commercially reasonable security measures is key.

If you have any questions or would like additional information, please contact Allison S. Hyatt at [email protected] or (916) 472-3302.