Applebees had its bar tenders and servers perform a variety of duties which the employees contended were outside the scope of duties for which tips were traditionally paid. In a decision issued today, the federal court of appeals in St. Louis, sided with the Department of Labor in upholding the DOL's interpretation of its tip credit rules.
Tip credits, for those that don't know, permit employers to pay tipped employees a lower fixed hourly rate ($2.13) and having tips make up the difference to minimum wage. Today's decision explained the rules governing tip credits:
The FLSA requires employers to pay a minimum hourly wage, which is currently $7.25 per hour. See 29 U.S.C. § 206(a)(1). The "wage" paid to a "tipped employee" is defined as the sum of (1) the cash wage paid to the employee, which must be at least the minimum cash wage that was required to be paid to tipped employees on August 20, 1996 ($2.13 per hour), and (2) an additional amount based on the tips received by the employee that is equal to the difference between the amount stated in paragraph (1) and the current rate required by § 206(a)(1). See 29 U.S.C. § 203(m) (defining "wage").
I mentioned tip credits in a recent post on the recently issued Wage and Hour Division regulations. As to tipped employees doing other non-tipped duties, the court explained:
The DOL regulations recognize that an employee may hold more than one job for the same employer, one which generates tips and one which does not, and that the employee is entitled to the full minimum wage rate while performing the job that does not generate tips. See 29 C.F.R. § 531.56(e). The DOL's 1988 Handbook provides that if a tipped employee spends a substantial amount of time (defined as more than 20 percent) performing related but nontipped work, such as general preparation work or cleaning and maintenance, then the employer may not take the tip credit for the amount of time the employee spends performing those duties.
The bar tenders and servers contended they did a lot more than their tipped work:
The plaintiff bartenders claim that they were required to perform such duties as wiping down bottles, cleaning blenders, cutting fruit for garnishes, taking inventory, preparing drink mixers, and cleaning up after closing hours. The servers claim that they performed such duties as cleaning bathrooms, sweeping, cleaning and stocking serving areas, rolling silverware, preparing the restaurant to open, and general cleaning before and after the restaurant was open.
Applebee's argued these were incidental duties. The crux of the case concerned the Wage and Hour Division's regulation on performing non-tipped tasks. The regulation recognizes, the court explained, that an employee may perform "related duties in . . . a tipped occupation" that are not themselves tip producing "part of [the] time" and "occasionally," and that the time spent performing these related duties is subject to the tip credit, but it does not address the impact of an employee performing related duties more than "part of [the] time" or more than "occasionally." The DOL further explained these limits not in a regulation but in a handbook the DOL prepared for its investigators to use:
where 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 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.
The court of appeals upheld the 20 percent limitation set forth in the DOL Handbook. The decision is an unfortunate reminder for any employer with tipped employees that the DOL rules on tips are a frequent source of litigation, are often complex and difficult to follow.