United States: 80/20 Rule Still Followed In Some Parts

Nathan A. Adams IV is a Partner in our Tallahassee office.

The U.S. Department of Labor (DOL) issued guidance doing away with the so-called "80/20 rule" in November 2018. District courts have greeted the new guidance with differing reactions.

As background, the Fair Labor Standards Act (FLSA) defines a "tipped employee" as an employee "engaged in an occupation in which the employee customarily and regularly receives more than $30 a month in tips." 29 U.S.C. §203(t). In some situations, employees who fall into this category work "dual jobs" such as, for example, when a maintenance man in a hotel also serves as a waiter. 29 C.F.R. §531.56(e). Such a person may not take a tip credit for hours of employment served as a maintenance man. Id. But this is distinguishable from a "waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses." Id. "Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips. Id. Through 2016, DOL's Field Operations Handbook (FOH) interpreted section 531.56(e) to mean that, "where the facts indicate that tipped employees spend a substantial amount of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties." 30d00(f)(3). This became known as the "80/20 rule." On Nov. 8, 2018, DOL issued Opinion Letter FLSA2018-27, which did away with the so-called "80/20 rule," re-issuing FLSA2009-23, and stating that "[no] limitation shall be placed on the amount of duties [related to a tip-producing occupation] that may be performed...."

Courts are not uniformly following DOL's 2018 opinion letter. In Cope v. Let's Eat Out, Inc., 354 F. Supp. 3d 976 (W.D. Mo. 2019), the court determined that the new opinion letter was "unworthy of Auer deference" or "Skidmore deference." Under Auer, an agency's interpretation of its own ambiguous regulation is controlling unless "plainly erroneous or inconsistent with regulation." Where Auer deference is not warranted, a court may afford "Skidmore deference," which is "deference proportional to the 'thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade[.]' " The court fell back to Eighth Circuit precedent according Auer deference to the 80/20 rule in the FOH and determined that even if it is rescinded or revised, the Eighth Circuit's rationale treating the 80/20 rule as a reasonable interpretation of the dual jobs regulation is controlling. The court in Esry v. P.F. Chang's China Bistro, Inc., 373 F. Supp. 3d 1205 (E.D. Ark. 2019), also fell back on Eighth Circuit precedent after determining that the measure of Skidmore deference that the 2018 DOL letter is owed is negligible. Following Cope, the court determined to continue following the 20 percent rule. Likewise, the court in Callaway v. Denone, LLC, No. 1:18-cv-1981, 2019 WL 1090346 (N.D. Ohio Mar. 8, 2019), questioned whether Auer deference was appropriate to the 2018 letter, but determined that it did not need to resolve the matter because some of the plaintiffs' duties did not appear in the online list of tasks (the O*Net task list) that the 2018 letter says may be performed contemporaneously with duties involving direct service to customers or for a reasonable time immediately before or after without limitation. Therefore, the court denied judgment on the complaint.

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