United States: Recent Ruling Complicates Wage-Hour Compliance For Tipped Employees In The Restaurant And Hospitality Industries

Last Updated: May 19 2011
Article by Loren Lee Forrest Jr. and Michael Starr

Loren Lee Forrest Jr. is an associate and Michael Starr is a partner in our New York office.

Waiters and waitresses typically spend some time serving customers and some time setting or cleaning the tables before customers arrive. Generally speaking, restaurant operators are entitled to take a "tip credit" for both. However, a recent federal appellate court ruling imposes a strict 20 percent cap on the amount of time that can be spent on the "related duties" that do not generate tips. Most importantly, the court held that if that 20 percent cap is exceeded, all non-tipped hours must be compensated at the full minimum wage without any adjustment for the tip credit. While the appellate court's reasoning can be questioned, it is binding legal precedent for now. Employers in the restaurant and hospitality industries are well-advised to implement preventive measures to assure compliance with the new judicial interpretation.

Background

In Fast v. Applebee's, 2011 WL 1496489 (8th Cir. 2011) a class of more than 5,500 current and former servers and bartenders at Applebee's restaurants brought a federal lawsuit claiming that Applebee's improperly used the tip credit to satisfy their obligation to pay the minimum wage under the Fair Labor Standards Act (FLSA). Under the "tip credit," restaurant employers are entitled to pay tipped employees a guaranteed wage less than the minimum wage if the tips received bring the employee's hourly pay up to the minimum wage.

These restaurant workers alleged that Applebee's ordered them to perform non-tip-producing duties for significant portions of their shifts, while compensating them at the lower $2.13 hourly rate for tipped employees. Significantly, it was undisputed that the workers were, in fact, tipped employees under FLSA regulations and that the tips they received were sufficient to bring their hourly rate to at least the minimum wage for all hours worked.

Nonetheless, the employees objected to use of the tip credit for what they claimed were general preparatory and cleaning work. The bartenders alleged that these non-tip-producing tasks included wiping down bottles, cleaning blenders, cutting fruit for garnishes, taking inventory, preparing drink mixers and cleaning up after closing hours. The Applebee's servers objected to using the tip credit for tasks such 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.

The Appellate Court's Ruling

Relying on the United States Department of Labor's (DOL's) 1988 Field Operations Handbook (Handbook), the United States Court of Appeals for the Eighth Circuit concluded that if tipped employees spend more than 20 percent of their time performing "related, but non-tipped duties," they had to be paid the full minimum wage for that time without the tip credit.

The court rejected Applebee's argument that the duties described by the employees as non-tipped duties were actually "related" duties that all Applebee's servers and bartenders perform as part of their occupation and were, therefore, still subject to the tip credit. It found that argument to be foreclosed by the DOL's Handbook, which states that "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."

In deciding in favor of the Applebee's employees, the Eighth Circuit emphasized that Section 531.56(e) of the DOL's wage-and-hour regulations make a "distinction between an employee performing two distinct jobs, one tipped and one not, and an employee performing related duties within an occupation 'part of [the] time' and 'occasionally.'" The court reasoned that "[b]y using the terms 'part of the time' and 'occasionally,' the regulation clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation."

(Hospitality employers in New York State are cautioned that the New York State Department of Labor endorses a similar and, in some ways, more onerous position. Under recently-issued regulations for New York State employers, tipped employees working at a non-tipped occupation for two or more hours or for more than 20 percent of their shift, whichever is less, are ineligible for a tip credit for the entire day.)

It could be argued that the 20 percent cap imposed on the performance of non-tip-producing tasks is itself arbitrary, when imposed without regard for whether or not those duties constituted part of a "dual" or secondary occupation. There is, after all, no occupation other than bartender that cuts fruit for garnish or prepares drink mixes. And those tasks are directly related to the ability of the bartenders to earn tips by rapid service when customers are being served. Applebee's position was weakened, though, if (as alleged) waiters and waitresses were required to clean bathrooms and do general cleaning before opening and after closing, since those tasks are not as integrally related to their service occupation.

As construed by the court, the 20 percent limit applies most clearly to "general preparation work and maintenance." This implies that there may be a category of "specific" preparation (perhaps, cutting fruit for drink garnishes or folding cloth napkins) that may be regarded as so integral to the occupation as to be outside the 20 percent limitation.

Considerations for Employers

The case now goes back to the District Court. That court may yet give guidance on the difference between duties that "comprise the occupation" of server or bartender, and thus are not subject the 20 percent cap, and those "related" duties that, according to the appellate court's interpretation of the DOL Handbook, cannot exceed 20 percent of a server or bartender's time. Until the matter is clarified, employers would be well advised to follow certain guidelines when assigning tipped employees tasks that do not in themselves generate tips.

  1. Where the non-tip-generating duties are performed intermittently and intertwined with the tip- generating tasks of the primary occupation, they are more likely to be properly subject to the tip credit, and not counted against the 20 percent limitation.
  2. Activities such as cleaning and setting tables, toasting bread and making coffee might be regarded as duties so integral to the tipped occupation that the 20 percent cap does not apply, provided that these duties are part of the regular duties of all employees in that category and there is no other hospitality occupation that generally performs such tasks. However, in light of the Applebee's decision, this matter is open to question.
  3. Employers should be especially careful about having employees perform non-tipped and "related" duties before opening and after closing the establishment to the public as this is subject to greater scrutiny under the current regulatory regime. To avoid any possible claim of non-compliance, employers should consider limiting pre-opening and post-closing work to an average of no more than 1.6 hours per 8-hour shift.
  4. Employers who require tipped employees to perform general preparatory or cleaning work at the beginning or end of their shifts should consider paying them the full minimum wage (without tip credit) for those hours (although this would not be advisable in states such as New York, which disallows the tip credit for the entire shift if the 20 percent threshold for work in a non-tipped occupation is exceeded).

www.hklaw.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Loren Lee Forrest Jr.
 
In association with
Related Video
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.