9TH Circuit Declines To Enforce DOL’s “80/20” Tip Credit Guidance

Generally, employers must pay employees at least the federal minimum wage of $7.25 per hour. In several states and municipalities, employers must pay a higher minimum wage set by statute, ordinance or regulation. With respect to tipped employees, however, employers must pay a cash wage of $2.13 per hour and then take a credit for the employee’s tips to make up the difference between $2.13 and $7.25. A tipped employee includes “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. §203(t). In the event the tips actually received by the employee do not meet the $7.25 minimum wage, the employer must increase the employee’s cash wage to meet the minimum wage.

In addition, the Department of Labor (“DOL”) has issued regulations addressing the situation where an employee performs both tipped work and non-tipped work. In such “dual jobs” scenarios, the employee is a tipped employee only with respect to the employment in which tips are received. For example, a hotel work who is both a maintenance person and a waiter would be a tipped employee only for the time spent as a waiter. As a result, a tip credit could be taken only for time spent working as a waiter. To the contrary, a waiter who spends part of his time cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes would not be engaged in a dual job.

In Marsh v. J. Alexander’s LLC, __ F.3d __ (9th Cir. 2017), the plaintiffs were servers and bartenders who alleged their employers improperly claimed a tip credit and, therefore, failed to pay the minimum wage required by the Fair Labor Standards Act (“FLSA”). Marsh, one of the plaintiffs, performed several duties for which he did not receive tips, such as brewing tea and coffee, cutting, arranging and stocking lemons and limes, cleaning drink dispensers, and performing other cleaning duties. The employer took a tip credit for all of his working time. Marsh filed a lawsuit alleging he should have been paid $7.25 per hour for time spent on duties that were not directed towards generating tips.

After consolidating Marsh’s case with several others alleging similar violations, the district court dismissed the complaint, concluding Marsh failed to allege he was working “dual jobs” as described in the DOL regulations.  In addition, the court held Marsh failed to allege his average hourly wage across any given work week was below the federal minimum wage.

On appeal, the Ninth Circuit Court of Appeals analyzed the DOL’s history of interpreting the dual jobs issue through its regulations, opinion letters and Field Operations Handbook (“FOH”) and concluded its “80/20” interpretation as set forth in its FOH should not be given deference. The FOH guidance provides that “where tipped employees spend a substantial amount of time (in excess of 20 percent) performing preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” The Ninth Circuit found this approach required an employer to divide an employee’s tasks into various groups – tip-generating tasks, related but not tip-generating tasks, and not tip-generating tasks. Then, if the related tasks take up more than 20 percent of total time worked, the employer could take a tip credit only for the time spent on tip-generating tasks.

In short, the Ninth Circuit concluded the DOL’s “dual jobs” regulation focused on the situation where an employee has two different jobs and did not require an analysis of the various tasks an employee may perform throughout the work day in a particular job. As a result, the Court held there is no requirement for employers “to engage in time tracking and accounting for minutes spent in diverse tasks before claiming a tip credit.” Thus, the Court upheld dismissal of the complaint because Marsh did not allege he was performing dual jobs; rather, he alleged he performed various duties over the course of the work week that were related to his job as a server but were not, in his view, tipped work.

Notably, the Ninth Circuit disagreed with the Eighth Circuit’s decision in Fast v. Applebee’s International, Inc., 638 F.2d 872 (8th Cir. 2011).  In Fast, the Eighth Circuit deferred to the DOL’s “80/20” interpretation, holding it was not inconsistent with the regulations. The Ninth Circuit held it would not follow the Fast decision because the Eighth Circuit failed to consider whether it was reasonable to determine that an employee is engaged in a second “job” by time-tracking an employee’s discrete tasks, categorizing them, and accounting for minutes spent in various activities.

Based on Marsh, employers in the Ninth Circuit may rely on the DOL’s regulations addressing dual jobs rather than its FOH guidance which sets forth a different approach to addressing this issue. Accordingly, such employers will not be forced to conduct a detailed analysis of every minute of a tipped employee’s work day to determine whether the 20% limit has been reached. Rather, an employer appears to be safe in relying on the DOL’s regulation on the issue. The Ninth Circuit remanded the Marsh case back to the district court for a determination of whether the plaintiffs’ jobs qualified as “dual jobs” under the regulations.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.