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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].