United States: DOL Reissues 2009 Opinion Letter And Loosens Rules To Apply A Tip Credit To Employees Who Perform Side Work

Last Updated: November 15 2018
Article by Eli Freedberg

On November 8, 2018, the U.S. Department of Labor (DOL) reissued and adopted a nearly decade-old opinion letter to clarify how employers must pay tipped employees who perform dual jobs.

For years, hospitality employers have faced difficulty applying a tip credit towards their regularly and customarily tipped workers' wages when the workers engage in side work activities such as rolling silverware, filling salt and pepper shakers, brewing coffee, and cleaning and setting tables. The applicable regulation, 29 C.F.R. § 531.56(e), provides that if a tipped worker, such as a server or bartender, is also employed in an entirely separate occupation, such as a maintenance worker or a security guard, then the employer can only apply a tip credit towards the employee's wages when he or she is working as a waiter or bartender, and cannot apply the tip credit when the employee is working as a maintenance worker or security guard. The regulation also addresses the more common situation when a tipped employee is not working in an entirely separate occupation, but is performing side work tasks that are related to his or her job. The regulation indicates that the employer can apply a tip credit towards the tipped employee's wages for the time the employee spends on tasks related to the job even if those related tasks are not specifically directed towards producing or generating tips.

The DOL expounded on this regulation in its Field Operations Handbook (FOH), and in doing so, complicated matters. In this manual, the DOL declared than an employer is only allowed to apply a tip credit towards workers' wages when that employee is spending less than 20% of his or her shift performing related work that does not explicitly generate tips from guests. Specifically, the FOH provides that:

29 CFR 531.56(e) permits the employer to take a tip credit for time spent in duties related to the tipped occupation of an employee, even though such duties are not by themselves directed toward producing tips, provided such related duties are incidental to the regular duties of the tipped employees and are generally assigned to the tipped employee. For example, duties related to the tipped occupation may include a server who does preparatory or closing activities, rolls silverware and fills salt and pepper shakers while the restaurant is open, cleans and sets tables, makes coffee, and occasionally washes dishes or glasses. . . .

However, where the facts indicate that tipped employees spend a substantial amount of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties. All related duties count toward the 20 percent tolerance.1

The DOL seemingly adopted this arbitrary 20% limit at random because this guidance does not appear anywhere in the text of the Fair Labor Standards Act or its regulations.

In recent years, employees have filed class litigation lawsuits relying on the 20% standard to seek recovery of the tip credits for employees. While some courts found that the FOH was entitled to deference and adopted the 20% side work standard, other courts rejected the FOH's 20% limit on related side work duties.

On January 16, 2009, following conflicting court decisions on the issue, the DOL tried to clarify the confusion caused by the FOH and issued opinion letter FLSA 2009-23. In the opinion letter, the DOL stated that it did not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as these tasks are performed contemporaneously with direct customer service duties. In other words, as long as the side work is "running side work" there is no limit to the amount of side work that can be performed. So if a server is brewing coffee, and rolling and polishing silverware during operational hours while she is also serving guests at other tables, this type of work can be performed, without limit, while the employer is still applying a tip credit towards the employee's wages. Presumably, for any opening or closing duties that are performed before guests arrive, or after guests leave, a limit would still apply.

In addition, the DOL, by reference, identified 25 distinct activities that are considered to be directly related to tip-producing duties.2 These tasks include:

  • Taking orders from patrons for food or beverages.
  • Checking with customers to ensure that they are enjoying their meals and taking action to correct any problems.
  • Checking patrons' identification to ensure they meet minimum age requirements for consumption of alcoholic beverages.
  • Collecting payments from customers.
  • Writing patrons' food orders on order slips, memorizing orders, or entering orders into computers for transmittal to kitchen staff.
  • Preparing checks that itemize and total meal costs and sales taxes.
  • Presenting menus to patrons and answering questions about menu items, making recommendations upon request.
  • Removing dishes and glasses from tables or counters and taking them to the kitchen for cleaning.
  • Serving food or beverages to patrons, and preparing or serving specialty dishes at tables as required.
  • Cleaning tables or counters after patrons have finished dining.
  • Preparing tables for meals, including setting up items such as linens, silverware, and glassware.
  • Explaining how various menu items are prepared, describing ingredients and cooking methods.
  • Assisting host or hostess by answering phones to take reservations or to-go orders, and by greeting, seating, and thanking guests.
  • Escorting customers to their tables.
  • Performing cleaning duties, such as sweeping and mopping floors, vacuuming carpets, tidying up server stations, taking out trash, or checking and cleaning bathrooms.
  • Informing customers of daily specials.
  • Preparing hot, cold, and mixed drinks for patrons, and chilling bottles of wine.
  • Rolling silverware, setting up food stations, or setting up dining areas to prepare for the next shift or for large parties.
  • Stocking service areas with supplies such as coffee, food, tableware, and linens.
  • Bringing wine selections to tables with appropriate glasses, and pouring the wines for customers.
  • Filling salt, pepper, sugar, cream, condiment, and napkin containers.
  • Describing and recommending wines to customers.
  • Performing food preparation duties such as preparing salads, appetizers, and cold dishes, portioning desserts, and brewing coffee.
  • Providing guests with information about local areas, including giving directions.
  • Garnishing and decorating dishes in preparation for serving.

This list is expansive and important because, for years, the plaintiffs' bar has argued that tasks such as rolling silverware, performing cleaning duties, preparing salads, brewing coffee, and preparing tables for meals are not tip-producing activities and should be counted toward the 20% limit.

Unfortunately, the DOL withdrew the opinion letter for consideration almost immediately after it was issued in 2009. However, on November 8, 2018, almost 10 years after the DOL issued this opinion letter, it reissued and adopted this letter in order to provide clarity on the dual-jobs conundrum that has been haunting hospitality employers for more than a decade. Accordingly, employers may rely on this opinion letter and cut off any future liability with respect to 20% claims pursuant to 29 U.S.C. § 258; however, as always, employers are encouraged to consult with their counsel prior to implementing any changes to side work policies.

In addition, hospitality employers should be aware that certain states have adopted their own version of the 20% rule and this opinion letter will not affect those states' laws or regulations. States that have adopted their own corresponding laws include Arkansas, Connecticut, Hawaii, Iowa, Maryland, New Hampshire, New York, Virginia and West Virginia. Employers with locations in those states are strongly advised to consult with local counsel to determine whether those states would adopt a position similar to the newly reissued opinion letter.

Footnotes

1 See DOL FOH § 30d00(f)(2)-(3).

2 This list can now be referenced here: https://www.onetonline.org/link/summary/35-3031.00.

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.

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