Co-authored by Gerald L. Maatman, Jr. and Jennifer A. Riley

Restaurant servers are some of the few employees to whom employers can pay less than the minimum wage.  This is because they receive tips from customers that, so long as those tips are large enough, often push an employee’s income well above minimum wage.  The FLSA thus allows an employer to take a “tip credit” as to most restaurant servers, provided the employer dots its “i’s” and crosses its “t’s” in following the tip credit regulations.

The vague nature of some of those regulations, and the relatively undeveloped nature of the case law interpreting them, has allowed some plaintiff’s wage-hour lawyers to feast on unsuspecting restaurateurs in obtaining back wages and liquidated damages on behalf of servers, bartenders, and other tipped employees.

But late last month, a federal court judge in the Northern District of Illinois came up with a better recipe for analyzing the tip credit regulations.  In Schaefer v. Walker Bros. Enterprises, et al., Judge Norgle granted summary judgment against plaintiff-servers on their claims that the restaurants at which they work improperly failed to pay servers minimum wage while performing sidework tasks such as refilling, stocking, and chopping, and failed to provide proper notice of their intention to take the tip credit.

The decision in Schaefer represents a significant victory for restaurant employers, particularly the significant number that require their servers to perform end-of-shift and beginning-of-shift sidework duties at the tip credit rate of pay.

Factual Background

In 2010, plaintiff-servers brought suit against Walker Brothers contending that they violated federal and state minimum wage laws in two ways:  (1) by incorrectly using the tip credit to pay the servers an hourly rate less than minimum wage while requiring them to perform duties unrelated to their tipped occupation; and (2) by failing to inform the servers of their intent to apply the tip credit to the servers’ wages.

Walker Brothers own six restaurants in the Chicago suburbs that operate under the name “The Original Pancake House.”  Upon hire, Walker Brothers provides servers with an employee handbook that states, among other things, that they apply a tip credit that reduces servers’ hourly wages 40% below minimum wage.  They also display DOL-approved posters explaining the tip credit in well-traveled areas of all six restaurants.

In addition to serving customers, servers perform sidework tasks that vary by the station to which they are assigned and by other factors such as location, shift, and manager.  Before May 2011, servers regularly sliced produce like strawberries and mushrooms.  Before and after that time, servers also placed scoops of ice cream on customers’ waffles and stirred blueberries into fruit compote.  Some servers also performed duties like putting water in soup warmers, brewing iced tea, and occasionally dusting or polishing brass.

Servers predominantly performed side work at the beginning or ends of their shifts, but also replenished and restocked certain items throughout the day.  Servers did not perform maintenance or janitorial work, such as cleaning bathrooms, washing dishes, mopping or vacuuming floors, washing windows, or taking out garbage.

On September 19, 2013, the Court granted class certification on the servers’ claims.  The restaurant thereafter moved for summary judgment on the servers’ claims.

The Court’s Opinion

The Court extensively recounted the law relating to the tip credit as set forth in the regulations and the DOL Field Operations Handbook.  Employers may pay “tipped employees” a wage below the federally mandated minimum wage rate, so long as, with tips, they earn at least the minimum wage.  Employers can take the tip credit “only for hours worked by the employee in an occupation in which the employee qualifies as a ‘tipped employee.’”

When “an employee is employed in a dual job,” for example, when a “maintenance man in a hotel also serves as a waiter,” employers cannot take advantage of the tip credit when the employee performs tasks unrelated to his tipped occupation.   On the other hand, when employees perform duties “related” to their tipped occupation, such as when a waitress cleans and sets tables, toasts bread, and makes coffee, “employers may apply the tip credit and continue to pay employees below minimum wage.

The Court then issued three key holdings with respect to application of the tip credit.  First, it held that plaintiffs bear the burden of proving that they were not properly compensated.

Second, the Court held that, even viewed in the light most favorable to plaintiffs, the sidework tasks performed by servers were “incidental to the regular duties of the server (waiter/waitress) and generally assigned to the servers” and, therefore, fell within the DOL Handbook’s interpretation of the applicable regulation. In doing so, the Court also distinguished an earlier Northern District of Illinois case in which it was held that a different restaurant could not take a tip credit.  In that case, employees submitted declarations stating that they were assigned to clean bathrooms, wash dishes, scrub floors, pick up trash in the parking lot, take out garbage, and roll silverware.  In Schaefer, however, the servers admitted that they were not subjected to extensive cleaning duties.   The Court thus held:  “Where the related duties are performed intermittently and as part of the primary occupation,” such as the duties are here, “the duties are subject to the tip credit.”

Third, the Court held that summary judgment in favor of the restaurant was appropriate on the notice claims.  Defendants displayed posters approved by the Illinois Department of Labor in well-traveled areas of their restaurants and informed servers of the tip credit in multiple ways, including by giving servers an employee handbook.

Implications For Employers

The Court’s decision in Schaefer is a stunning victory for the restaurant industry.  Before the Court’s decision in Schaefer, few courts had addressed tip credit claims, and little favorable law existed to validate employers’ regular practice of using servers to perform incidental side work tasks.  As a result, restaurant employers can breathe a little easier in 2015.