The U.S. Court of Appeals for the Eighth Circuit has upheld a lower court's ruling denying summary judgment to a restaurant that claimed a tip credit against all of the wages earned by its servers and bartenders, even though the employees spent considerable time performing tasks for which they did not receive tips [Fast v. Applebee's International, Inc., CA8, Dkt. No. 10-1725/10-1726, 4/21/11].
The law. 29 USC 203(m) of the Fair Labor Standards Act (FLSA) allows an employer to pay tipped employees who meet certain requirements a cash wage of $2.13 per hour, and to take a tip credit of up to $5.12 per hour to meet the federal minimum wage requirement of $7.25 per hour.
Two jobs. 29 CFR 531.56(e) permits an employer to take a tip credit for time spent by employees on duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips. For example, waiters/waitresses who also clean and set tables, make coffee, and occasionally wash dishes or glasses, may continue to be engaged in a tipped occupation even though these duties are not tip-producing. The duties must be incidental to their regular duties and they must be generally assigned these tasks. However, Department of Labor (DOL) Field Operations Handbook Sec. 30d00(e) states that if the facts indicate that specific employees are routinely assigned to maintenance, or that tipped employees spend a substantial amount of time (in excess of 20%) performing general preparation work or maintenance, the tip credit may not be claimed for the time spent on these tasks.
The facts. Servers and bartenders at Applebee's restaurants claimed that they regularly spent more than 20% of their time on general preparation and maintenance. Applebee's took a tip credit for all work performed by its servers and bartenders, including the general preparation and maintenance work at issue, even when it amounted to more than 20% of the employee's work. The servers contended that this was a violation of the FLSA and that Applebee's owed them additional compensation.
Applebee's argued that the FLSA focuses not on the duties performed by the employee, but on the occupation of the employee. According to Applebee's, once a server or bartender is classified as a server or bartender, he or she may be paid at the tipped wage rate, and a tip credit can be taken for all work performed, regardless of the duties assigned.
Prior ruling. In 2010, a federal district court ruled that Applebee's was not entitled to summary judgment on the plaintiffs' FLSA claim. The court believed that 29 CFR 531.56(e) and DOL Field Operations Handbook Sec. 30d00(e) “draw a persuasive line” between when a tipped employee is engaged in a tipped occupation and when the employee is no longer working in that occupation. The court pointed out that under Applebee's interpretation of the FLSA, servers and bartenders could perform an unlimited amount of non-tipped duties and their employer would still be allowed to pay them at the tipped wage rate.
Applebee's appealed the district court ruling because it believed the ruling was inconsistent with the relevant statutes and regulations. The company claimed that neither the statutes nor the regulations placed a quantitative limit on the amount of time tipped employees can spend performing duties related to their tipped occupation, as long as the total tips received plus the cash wages equal or exceed the minimum wage rate.
Appeals court ruling. The Eighth Circuit disagreed with Applebee's. The court pointed out that 29 CFR 531.56(e) makes a distinction between an employee performing two distinct jobs, one tipped and one not, and an employee performing related duties within an occupation “part of the time” and “occasionally.” By using the terms “part of the time” and “occasionally,” the court believed that the regulation clearly placed a time limit on the amount of related duties an employee can perform and still be considered to be engaged in a tip-producing occupation.
The regulations do not define “part of the time” and “occasionally” for purposes of 29 CFR 531.56(e). DOL Field Operations Handbook Sec. 30d00(e) attempts to clarify the regulations by using 20% as the cutoff on the percentage of time that an employee can spend performing non-tip-producing work. The court said that the 20% rule in DOL Field Operations Handbook Sec. 30d00(e) was a reasonable interpretation of the time limit imposed in 29 CFR 531.56(e). According to the court, the DOL's interpretation of a regulation was controlling unless plainly erroneous or inconsistent with the regulation.
It is now up to the employees to prove that they spent a substantial amount of time performing activities that didn't generate tips.
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