United States: DOL Discards ‘80/20' Guidance For Tipped Employees

Last Updated: November 22 2018
Article by Susan Harthill

In a new opinion letter, the US Department of Labor's Wage and Hour Division removed the 20% limitation on the amount of time employees can spend on non-tipped "sidework" that does not generate tips, replacing it with a more flexible test.

The Wage and Hour Division (WHD) issued four new opinion letters on November 8, one of which addresses the application of the tip credit in situations where an employee in a tipped occupation performs related duties that are non-tip-producing.1 This situation can arise in any tipped occupation, but most often occurs in the restaurant industry, where the related duties are commonly referred to as "sidework." The new opinion letter is a reissuance of a January 16, 2009, opinion letter that was issued at the end of the Bush administration but was withdrawn at the beginning of the Obama administration for further consideration, languishing until Acting Administrator Bryan Jarrett reissued it as WHD official policy.2

Tipped Employees Under the FLSA

The Fair Labor Standards Act (FLSA) permits an employer to take a "tip credit" towards its minimum wage obligation for tipped employees. In short, the employer can pay a minimum of $2.13 per hour in cash wages and can offset the difference between the cash wage and the federal minimum wage with tips.3 A "tipped employee" is any employee engaged in an occupation in which he or she customarily receives not less than $30 a month in tips.4 Department of Labor (DOL) regulations address situations where an employee is employed in "dual jobs," one which is tipped (such as waiting on tables) and one which is not tipped (such as cleaning or maintenance). In such dual job situations, the tip credit can be taken only for compensating the time spent in the tipped job.5

The DOL regulations recognize, however, that some tipped occupations, such as waiting tables, may involve both tip-producing and non-tip-producing duties, without constituting a dual job that would require two different methods of payment. Instead, the regulations provide that non-tip-producing "sidework" performed by servers in the restaurant industry, such as cleaning and setting up tables, are "related duties" and, therefore, employers are permitted to take the tip credit to compensate the employee for time spent in these duties as well.6 However, uncertainty on this topic arose from guidance in the WHD Field Operations Handbook (FOH) that prohibited an employer from taking a tip credit if more than 20% of the tipped employee's time was spent on performing these related duties. If the 20% threshold was breached, the employer could not take a tip credit for the time spent on performing those duties.7 This became known as the "80/20 rule."

The 80/20 Guidance Versus the New "Contemporaneous" Guidance

Not surprisingly, the FOH guidance led to litigation, often in collective actions, in which employees claimed they were not paid the full minimum wage for performing "related duties" over the 20% threshold. Some courts ruled that the 20% guidance did not apply to related duties, while other courts deferred to the DOL's interpretation.8 Particular confusion arose as to what tasks fell on the tip/non-tip side of the line. Compliance often turned on constant surveillance and recording of time for every job duty, from cutting lemons and limes to taking out the trash, alongside judgment calls as to whether each duty fell on the tipped or non-tipped side of the line. The re-issued opinion letter discards the quantitative limitation of the amount of time a tipped worker can spend on related duties and instead provides that "related duties" are those performed contemporaneously with direct customer-service duties, or for a reasonable time immediately before or after performing direct service duties, regardless of whether they involve direct customer service and not tied to any specific percentage of time.9 WHD directs employers to consult the Tasks section of O*NET;10 duties listed as core or supplemental in the O*NET are "related duties" while those not listed are not related.

What Does This Mean Going Forward?

The policy change is good news for the restaurant industry and other employers with tipped workers as they no longer need to slice and dice time spent on related duties. Moreover, reference to the O*NET is straightforward and definitive in the vast majority of situations. However, the revised policy has potential to cause a different type of confusion, and will not necessarily curtail all existing or future lawsuits. First, what if an occupation is not listed on O*NET? The opinion letter points out that if a unique or newly emerging occupation (such as teppanyaki chef) is not described in O*NET, employers should look to similar occupations for related duties (such as counter attendant). This still leaves room for interpretation and uncertainty for unlisted occupations. Further, WHD's reference to the de minimus rule for tasks that may not be listed in O*NET raises the question of whether and how that rule applies.11

Second, the new policy does not completely jettison all temporal inquiries. While "contemporaneous" seems straightforward, there is room for varying interpretations of what constitutes a "reasonable" amount of time and whether any time lapse is allowed in determining what falls "immediately" before or after performance of the direct service duties.12

Finally, because an opinion letter is interpretive guidance and not a rule promulgated under Administrative Procedure Act notice and comment rulemaking procedures, courts may apply a less deferential standard of deference to this guidance.13 Courts may decide to follow it, or not. In addition, employers should exercise caution in relying on opinion letters because they are based exclusively on the individual employer's facts and circumstances described in the request and varying facts could result in a different conclusion. In particular, employers must remain mindful of the dual jobs regulation and not assume that a server can now perform all sorts of unrelated tasks.

Employers should continue to ensure they are in compliance with the other requirements under the FLSA for taking a tip credit, as well as state and local laws which can vary considerably. For example, seven states do not allow employers to take a tip credit at all,14 while other states have stricter tip credit rules. In New York, for example, if an employee performs more than two hours or 20% non-tipped duties (whichever is less) in a shift, the employer cannot take a tip credit at all that day.15

In sum, the opinion letter is useful guidance that, at least for now, provides employers taking a tip credit with some relief from the monitoring and tracking requirements, and consequent litigation, stemming from the rescinded 80/20 guidance. However, employers should carefully evaluate employee job duties before they change their methods of pay for tipped employees, not only to ensure they are following all FLSA requirements and any applicable state or local law, but also to ensure they are taking into account the remaining areas of ambiguity described above.

Footnotes

1 See DOL's news release. The other three opinion letters addressed: (1) when a company that operates swimming pools at hotels, motels and the like qualifies for the "amusement or recreational establishment" exemption; (2) whether a guaranteed weekly salary for a professional employee has a "reasonable relationship" with his or her "usual earnings" for determining whether the employee is paid a salary for purposes of the executive, administrative, or professional exemption; and (3) whether certain private, nonprofit volunteer fire departments are "public agencies" entitled to the partial overtime exemption.

2 Opinion Letter FLSA 2018-27.

3 29 U.S.C. § 203(m).

4 29 U.S.C. § 203(t).

5 29 C.F.R. § 531.56.

6 Id.

7 FOH 30d00(f) (2016).

8 Compare Pellon v. Business Representation Int'l, Inc., 528 F.Supp.2d 1306 (S.D. Fl. 2007), aff'd, 291 F. App'x 310 (11th Cir. 2008) (per curiam) with Fast v. Applebee's International, Inc., 638 F.3d 872 (8th Cir. 2011); Marsh v. J. Alexander's LLC, 905 F.3d 610 (9th Cir. 2018) (en banc).

9 Opinion Letter FLSA 2018-27 (emphasis added).

10 Occupational Information Network.

11 29 C.F.R. § 785.47

12 WHD points to the example of a waitperson vacuuming after the restaurant closed being subject to the tip credit. Opinion Letter FLSA 2018-27 at n.4 (citing WH-02 (Mar. 28, 1980)).

13 Auer v. Robbins, 519 U.S. 452 (1997).

14 See here.

15 NYCRR § 146-2.9 (2016).

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions