On Sept. 18, 2018, the Ninth Circuit Court of Appeals, in an en banc ruling, reversed the district courts' dismissals of various actions under the Fair Labor Standards Act ("FLSA") concerning tip credits and wages for servers and bartenders. See Marsh v. J. Alexander's LLC, No. 15-15791 (9th Cir. Sept. 18, 2018).
Alec Marsh and thirteen other former servers and bartenders alleged that they were not paid appropriate wages for non-tipped work by their respective employers, which included P.F. Chang’s China Bistro and J. Alexander’s. Under the FLSA, employers are permitted to take a tip credit for employees in tipped occupations, such as servers and bartenders, reducing the hourly wage employers must pay to as low as $2.13 per hour. The plaintiffs here alleged that their employers abused the FLSA tip credit provision by improperly treating them as tipped employees when they were engaged in non-tipped tasks that were unrelated to serving and bartending, such as cleaning toilets, or non-incidental tasks related to serving or bartending, such as cleaning soft drink dispensers in excess of 20 percent of their workweek.
According to the U.S. Department of Labor ("DOL")'s dual jobs regulation C.F.R. § 531.56(e) and its interpretation contained in its 1988 Field Operations Handbook, known as the "Guidance," employees are entitled to the full minimum wage for any time spent in a non-tipped occupation. This includes any non-tipped work unrelated to serving and bartending, as well as non-incidental tasks related to serving and bartending that exceeds 20 percent of their workweek. The regulation is meant to prevent employers from paying workers less than the minimum wage simply because they perform both tipped and non-tipped work during the course of a workweek. The court concluded that since the FLSA "is silent or ambiguous" as to the treatment of employees who make more than $30 a month in tips but may be engaged in non-tipped and tipped work, the DOL’s regulation was based on a permissible construction of the statute and "a reasonable choice within a gap left open by Congress."
Second, the court held that the Guidance is entitled to Auer deference, and thus must be followed by courts and now employers. This ended a split in the Circuit Courts of Appeals as the Ninth Circuit is now consistent with the Eighth Circuit’s ruling in Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th Cir. 2011). The court concluded that since the regulation and Guidance are entitled to judicial deference, plaintiffs stated claims for relief under the FLSA, and reversed the lower courts’ dismissal of their lawsuits.
As employers determine the appropriate wages for their tipped employees, they should be aware of the burgeoning shift for federal courts to give the DOL's dual jobs regulation and Guidance deference in regards to the treatment of tipped workers who perform non-tipped or non-incidental tasks. As Judge Richard Paez noted when writing for the majority, "a server’s tips serve as a gift to the server, as opposed to a cost-saving benefit to the employer."
Should you have any questions regarding wage issues for tipped employees, please contact Kellie Y. Chen, Dena B. Calo, or your designated Saul Ewing Arnstein & Lehr LLP attorney.