In a new opinion letter, the US Department of Labor's Wage and Hour Division removed the 20% limitation on the amount of time employees can spend on non-tipped "sidework" that does not generate tips, replacing it with a more flexible test.
The Wage and Hour Division (WHD) issued four new opinion letters on November 8, one of which addresses the application of the tip credit in situations where an employee in a tipped occupation performs related duties that are non-tip-producing.1 This situation can arise in any tipped occupation, but most often occurs in the restaurant industry, where the related duties are commonly referred to as "sidework." The new opinion letter is a reissuance of a January 16, 2009, opinion letter that was issued at the end of the Bush administration but was withdrawn at the beginning of the Obama administration for further consideration, languishing until Acting Administrator Bryan Jarrett reissued it as WHD official policy.2
Tipped Employees Under the FLSA
The Fair Labor Standards Act (FLSA) permits an employer to take a "tip credit" towards its minimum wage obligation for tipped employees. In short, the employer can pay a minimum of $2.13 per hour in cash wages and can offset the difference between the cash wage and the federal minimum wage with tips.3 A "tipped employee" is any employee engaged in an occupation in which he or she customarily receives not less than $30 a month in tips.4 Department of Labor (DOL) regulations address situations where an employee is employed in "dual jobs," one which is tipped (such as waiting on tables) and one which is not tipped (such as cleaning or maintenance). In such dual job situations, the tip credit can be taken only for compensating the time spent in the tipped job.5
The DOL regulations recognize, however, that some tipped occupations, such as waiting tables, may involve both tip-producing and non-tip-producing duties, without constituting a dual job that would require two different methods of payment. Instead, the regulations provide that non-tip-producing "sidework" performed by servers in the restaurant industry, such as cleaning and setting up tables, are "related duties" and, therefore, employers are permitted to take the tip credit to compensate the employee for time spent in these duties as well.6 However, uncertainty on this topic arose from guidance in the WHD Field Operations Handbook (FOH) that prohibited an employer from taking a tip credit if more than 20% of the tipped employee's time was spent on performing these related duties. If the 20% threshold was breached, the employer could not take a tip credit for the time spent on performing those duties.7 This became known as the "80/20 rule."
The 80/20 Guidance Versus the New "Contemporaneous" Guidance
Not surprisingly, the FOH guidance led to litigation, often in collective actions, in which employees claimed they were not paid the full minimum wage for performing "related duties" over the 20% threshold. Some courts ruled that the 20% guidance did not apply to related duties, while other courts deferred to the DOL's interpretation.8 Particular confusion arose as to what tasks fell on the tip/non-tip side of the line. Compliance often turned on constant surveillance and recording of time for every job duty, from cutting lemons and limes to taking out the trash, alongside judgment calls as to whether each duty fell on the tipped or non-tipped side of the line. The re-issued opinion letter discards the quantitative limitation of the amount of time a tipped worker can spend on related duties and instead provides that "related duties" are those performed contemporaneously with direct customer-service duties, or for a reasonable time immediately before or after performing direct service duties, regardless of whether they involve direct customer service and not tied to any specific percentage of time.9 WHD directs employers to consult the Tasks section of O*NET;10 duties listed as core or supplemental in the O*NET are "related duties" while those not listed are not related.
What Does This Mean Going Forward?
The policy change is good news for the restaurant industry and other employers with tipped workers as they no longer need to slice and dice time spent on related duties. Moreover, reference to the O*NET is straightforward and definitive in the vast majority of situations. However, the revised policy has potential to cause a different type of confusion, and will not necessarily curtail all existing or future lawsuits. First, what if an occupation is not listed on O*NET? The opinion letter points out that if a unique or newly emerging occupation (such as teppanyaki chef) is not described in O*NET, employers should look to similar occupations for related duties (such as counter attendant). This still leaves room for interpretation and uncertainty for unlisted occupations. Further, WHD's reference to the de minimus rule for tasks that may not be listed in O*NET raises the question of whether and how that rule applies.11
Second, the new policy does not completely jettison all temporal inquiries. While "contemporaneous" seems straightforward, there is room for varying interpretations of what constitutes a "reasonable" amount of time and whether any time lapse is allowed in determining what falls "immediately" before or after performance of the direct service duties.12
Finally, because an opinion letter is interpretive guidance and not a rule promulgated under Administrative Procedure Act notice and comment rulemaking procedures, courts may apply a less deferential standard of deference to this guidance.13 Courts may decide to follow it, or not. In addition, employers should exercise caution in relying on opinion letters because they are based exclusively on the individual employer's facts and circumstances described in the request and varying facts could result in a different conclusion. In particular, employers must remain mindful of the dual jobs regulation and not assume that a server can now perform all sorts of unrelated tasks.
Employers should continue to ensure they are in compliance with the other requirements under the FLSA for taking a tip credit, as well as state and local laws which can vary considerably. For example, seven states do not allow employers to take a tip credit at all,14 while other states have stricter tip credit rules. In New York, for example, if an employee performs more than two hours or 20% non-tipped duties (whichever is less) in a shift, the employer cannot take a tip credit at all that day.15
In sum, the opinion letter is useful guidance that, at least for now, provides employers taking a tip credit with some relief from the monitoring and tracking requirements, and consequent litigation, stemming from the rescinded 80/20 guidance. However, employers should carefully evaluate employee job duties before they change their methods of pay for tipped employees, not only to ensure they are following all FLSA requirements and any applicable state or local law, but also to ensure they are taking into account the remaining areas of ambiguity described above.
Footnotes
1 See DOL's news release. The other three opinion letters addressed: (1) when a company that operates swimming pools at hotels, motels and the like qualifies for the "amusement or recreational establishment" exemption; (2) whether a guaranteed weekly salary for a professional employee has a "reasonable relationship" with his or her "usual earnings" for determining whether the employee is paid a salary for purposes of the executive, administrative, or professional exemption; and (3) whether certain private, nonprofit volunteer fire departments are "public agencies" entitled to the partial overtime exemption.
2 Opinion Letter FLSA 2018-27.
3 29 U.S.C. § 203(m).
4 29 U.S.C. § 203(t).
5 29 C.F.R. § 531.56.
6 Id.
7 FOH 30d00(f) (2016).
8 Compare Pellon v. Business Representation Int'l, Inc., 528 F.Supp.2d 1306 (S.D. Fl. 2007), aff'd, 291 F. App'x 310 (11th Cir. 2008) (per curiam) with Fast v. Applebee's International, Inc., 638 F.3d 872 (8th Cir. 2011); Marsh v. J. Alexander's LLC, 905 F.3d 610 (9th Cir. 2018) (en banc).
9 Opinion Letter FLSA 2018-27 (emphasis added).
10 Occupational Information Network.
11 29 C.F.R. § 785.47
12 WHD points to the example of a waitperson vacuuming after the restaurant closed being subject to the tip credit. Opinion Letter FLSA 2018-27 at n.4 (citing WH-02 (Mar. 28, 1980)).
13 Auer v. Robbins, 519 U.S. 452 (1997).
14 See here.
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