DOL Revokes Employer '80/20' Tip Credit Rule

Legal

The U.S. Department of Labor announced last week that it is rescinding an Obama-era regulation prohibiting restaurants from sharing waitstaff customer tips with other back-of-the store employees. The tip credit was for workers who spent more than 20 percent of their time performing non-tip generating duties.

That “tipping pool” rule has spawned numerous so-called “80/20” lawsuits, alleging servers spent too much time performing allegedly non-tipped work. The Wage and Hour Division has now rendered invalid the 2011 Eighth Circuit Court of Appeals decision upholding the Obama-era rule in Fast v. Applebee’s International, Inc., and the recent 2018 Ninth Circuit decision in Marsh v. J. Alexander’s LLC. Those decisions were grounded in giving deference to the Obama-era guidance that the DOL has now abandoned.

In its announcement, the Department of Labor explained that when an employee is engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips, the employer may pay a reduced cash wage (currently $2.13) and claim a “tip credit” to make up the difference between the reduced cash wage and the $7.25 hourly minimum. Such individuals are referred to as “tipped employees.” Since 2011, the DOL had taken the enforcement position that if a tipped employee spends more than 20% of his or her time on non-tip-producing tasks (even if those tasks were directly related to tip-producing duties), the employee’s time spent on those non-tip-producing tasks must be paid at minimum wage rather than at the sub-minimum “tip credit” rate. As a result, plaintiffs’ attorneys have used the DOL’s enforcement position as the basis for lawsuits, often, collective actions, alleging that the tipped employees in question engage in non-tipped work for more than 20% of their work time and therefore are entitled to the full minimum wage for their work.

The DOL's November 8, 2018 reissued opinion letters state, “We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.”

The Labor Department clarifies that its newly-announced position is “consistent with that taken by the Jackson Lewis law firm in private litigation for clients and against the DOL.” Today, Jackson Lewis, founded in 1958, has more than 850 attorneys in major cities nationwide and in Puerto Rico. It specializes in employment issues, including affirmative action compliance, immigration, non-competes and protection against unfair labor, wage and hour and workplace safety and health. The Labor Department announcement states that a more thorough discussion of the change will be addressed in a forthcoming Jackson Lewis web article.

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Janet Sparks