Seyfarth Synopsis: Even though the DOL abandoned its 20% tip credit rule in November 2018, one federal district judge has refused to defer to the agency, opting to defer to the old guidance instead.
As employers using the tip credit know full well, an individual employed in dual occupations–one tipped and one not–cannot be paid using the tip credit for hours worked in the non-tipped occupation. FLSA regulations clarify, however, that duties related to a tipped occupation, but not themselves directed toward producing tips, are not considered a separate occupation. For example, a waitress may nonetheless spend part of her time “cleaning and setting tables, toasting bread, making coffee[,] and occasionally washing dishes or glasses” without being employed in “dual occupations.” Although the regulations impose no limitation on the amount or type of “related duties,” an internal DOL Field Operations Handbook (“FOH”) — a document meant originally for investigators but later made available on the DOL’s website — required that employees may not spend more than 20% of hours in a workweek performing duties related to the tipped occupation but not themselves tip-generating.
This “20% rule” was followed by the Eighth and Ninth Circuit Court of Appeals, and several lower courts (but not by the Eleventh Circuit and some district courts), under the reasoning that the DOL’s interpretation of its own regulations was reasonable and thus entitled to deference. Tracking servers, and bartenders’ time on various tasks has proven impracticable for hospitality employers and has led to a wave of collective actions that often have been expensive to settle. Mercifully, the DOL laid the 20% rule to rest by issuing an opinion letter last fall stating its position that “no limit is placed on the amount of [related but non-tipped] duties that may be performed . . . as long as they are performed contemporaneously with the duties involving direct service or for a reasonable time immediately before or after performing such direct-service duties” (emphasis added). That opinion letter also noted that a revised FOH would be forthcoming.
The 20% rule was not enacted by Congress. Nor was it imposed by judges. It did not undergo notice-and-comment rulemaking to become a legislative regulation. It was not even an interpretive bulletin placed by the DOL into the Code of Federal Regulations. Rather, the 20% appeared in a handbook given to DOL investigators, and then was urged by the DOL onto courts for the first time in an amicus brief. Deemed as a reasonable interpretation of the DOL’s own regulations by many courts, the 20% is thus purely a creature of deference. And if the 20% rule can live only by deference, it stands to reason that it dies by deference too.
But earlier this month, a federal district judge attempted to resurrect DOL tip credit guidance that even the Department had left for dead. The ruling takes a results-oriented approach and dismisses more recent, well-reasoned guidance to the contrary.
The case brought by current and former servers and bartenders of a group of restaurants, alleged that they were owed unpaid wages due to improper use of the tip credit, including spending more than 20% of their time on non-tip producing work. In ruling on the employer’s motion for decertification, the court concluded that the DOL did not offer any reasoning or evidence of thorough consideration for “reversing course” with the opinion letter, yet the decision neglected to fully consider that the same opinion letter had previously been handed down in the final days of the Bush Administration, only to be withdrawn in the first months of President Obama’s first term. The ruling also failed to consider that the 20% rule itself has never been fully explained by the DOL, nor has the Department clearly articulated why 20% is an appropriate number, how duties should be categorized, or how time should be tracked. In contrast, the November 8 opinion letter provides a detailed explanation for the basis of the rule it articulates and a methodology for ensuring compliance. The decision is also premised on facts likely distinguishable from future cases. The court found it significant that the 20% rule was in effect during the three years at issue, such that application of the DOL’s new guidance would be an “unfair surprise” to the plaintiffs.
The decision is one of the first to rule on deference to the DOL’s new opinion letter, but it may be short-lived due to appeal or due to other courts distinguishing or refusing to follow it. In an attempt to ensure that plaintiffs who had been litigating for years did not have the rug pulled out from underneath them, the court did not fully address the thoroughness or reasoning of the two divergent interpretations. The decision may very well end up an outlier, particularly as previously-filed tip credit litigation dries up, sending the 20% rule to its grave once and for all.