Check, Please! DOL Issues Opinion Letter Ending Its 20% Tip Credit Rule

Seyfarth Synopsis: The DOL has reissued a long-awaited opinion letter withdrawing its previous 20% tip credit rule and making clear that “no limit is placed on the amount of [related but non-tipped] duties that may be performed,” so long as they are performed “contemporaneously with the duties involving direct service or for a reasonable time immediately before or after” direct service.

For about a decade, restaurant employers have faced the daunting prospect of collective and class action litigation by their servers and bartenders paid under the tip credit claiming that they spent more than 20% of their time on so-called side work that didn’t directly produce tips Without incredibly detailed time records showing exactly when each server engaged in each of their various duties, restaurants have had a hard time rebutting such claims. Further, because servers and bartenders at restaurants usually are asked to perform somewhat similar duties, restaurateurs usually have not fared well in defeating certification efforts in such cases.

Those collective and class actions all stem from DOL guidance that the tip credit may not be used to the extent an employee spends more than 20% of their time on non-tip producing work. Late last week, however, the DOL’s Wage-Hour Division issued a long-awaited opinion letter intended to clear up “confusion and inconsistent application” stemming from guidance contained in its Field Operations Handbook (“FOH”) regarding use of the tip credit to pay regularly tipped employees. The opinion letter provides clarity as to when and how often a tipped employee may perform non-tipped tasks and is welcome guidance to many employers.

Under the FLSA regulations, an individual employed in dual occupations--one tipped and one not--cannot be paid using the tip credit for hours worked in the non-tipped occupation. The regulations clarify, however, that “[s]uch a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee[,] and occasionally washing dishes or glasses. . . . Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.” Yet, DOL guidance interpreting the regulations, contained first in the DOL’s FOH and then set forth in an amicus brief, imposed time and duty-based limitations not present in the regulations themselves: the tip credit may not be used if an employee spends over 20% of hours in a workweek performing duties related to the tipped occupation but not themselves tip-generating. Deference to the DOL’s guidance and enforceability of the 20% rule has caused a circuit split, with the Eighth and Ninth Circuit Court of Appeals following the rule, and the Eleventh Circuit refusing. (We previously blogged on the Eighth and Ninth Circuit decisions.)

On November 8, the DOL reissued an opinion letter it had previously handed down in the final days of the Bush Administration, but subsequently withdrew in the first months of President Obama’s first term. The letter provides clarity as to the DOL’s position on the 20% rule, stating that “no limit is placed on the amount of [related but non-tipped] duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with the duties involving direct service or for a reasonable time immediately before or after performing such direct-service duties.” (emphasis added)

With respect to whether a particular duty is related to the tipped occupation, the opinion letter refers readers to O*NET, an occupational database created under the sponsorship of the DOL. O*NET provides reports of the tasks involved for various occupations, including servers and bartenders. O*NET’s task list is often very detailed and includes, for example, many tasks plaintiffs’ counsel regularly argue are completely outside a server’s occupation (e.g., “[p]erform cleaning duties, such as sweeping and mopping floors, vacuuming carpet, tidying up server station, taking out trash, or checking and cleaning bathroom”). The opinion letter further states, however, that if a task is not on the O*NET list, an employer may not take the tip credit for time spent performing the duty (while nonetheless acknowledging that such time may be subject to the FLSA’s de minimis rule).

The reasoning of those courts that followed the 20% rule was deference to the DOL’s expertise in interpreting its own dual jobs regulation. Now, however, that rule is gone (indeed, the opinion letter states that a revised FOH is “forthcoming”), leaving it unlikely (but not impossible) that courts will continue to follow the FOH. And although state laws may differ, because many court interpretations of state wage and hours laws have depended on analogy to the federal FLSA, it also is unlikely that the 20% rule will continue to apply to such claims under the majority of state minimum wage laws.

Of course, it is possible that the rule could reemerge under a future Democratic administration, but even so, courts may no longer defer to a re-instituted 20% rule because they often reject administrative agency guidance that changes with the political winds