Employers with tipped employees should take note of a new decision issued by the U.S. Court of Appeals for the Eighth Circuit, which sets out a quantitative standard for determining whether the tip credit can be applied. On April 21, 2011, the Eighth Circuit in Fast v. Applebee’s International, Inc. held that an employer is not permitted to pay an employee the sub-minimum wage tip credit rate for time spent performing “general preparation and maintenance duties” if the employee spends more than twenty percent of his time performing such duties. In its decision, the Court gave “controlling” deference to the DOL Wage and Hour Division’s interpretation of its regulations.
The plaintiff class, which includes 5500 servers and bartenders of Applebee’s, claims the company improperly paid them the tip-credit rate regardless of the time they spent on non-tip producing tasks like “side work” (cleaning, stocking serving areas, prepping food, etc.). In its motion for summary judgment, Applebee’s argued that serving and bartending are “tipped occupations” which permit payment of the tip-credit rate for time spent performing any incidental activities like side work. The plaintiffs countered that the tip credit should not apply, because they spent more than twenty percent of their time performing non-tip producing duties. After the District Court sided with the plaintiffs, Applebee’s appealed to the Eighth Circuit, which affirmed.
The Eighth Circuit gave controlling deference to DOL’s interpretation of its own regulations. Looking at the regulations governing tipped employees performing dual jobs, the court concluded that the regulations are ambiguous because they do not explicitly define key terms and concepts, such as when an employee is “engaged” in a tipped occupation. The Eighth Circuit explained that the DOL’s interpretation of these regulations was entitled to controlling deference because it provided specificity to the regulations. Thus, the court held that a tipped employee may not spend more than twenty percent of his time on the performance of “general preparation or maintenance” work if the employer applies the tip credit to that employee’s wages. However, the Eighth Circuit declined to address which duties would be included within this twenty percent limit.
While other courts have reached a different result than the Eighth Circuit (Pellon v. Bus. Representation Int’l, Inc., 291 F. Appx. 310 (11th Cir. 2008)), the Fast decision suggests that employers with tipped employees may now need to engage in a quantitative assessment of the amount of time spent on tip-producing versus other work. Unfortunately, the Eighth Circuit’s failure to address which particular duties are subject to the twenty percent limit will lead to further uncertainty.
The Fast decision may make it easier to oppose conditional or class certification. Conducting a quantitative assessment will necessarily require individualized inquiries, thereby making tip credit cases unsuitable for collective or class treatment. Apart from this silver lining, the Fast decision may impose additional obligations on employers with tipped employees. If you are such an employer, you should carefully consider which tasks are “general preparation and maintenance duties” and measure how much time tipped employees are spending on such tasks.
See Seyfarth Shaw’s One Minute Memo for further information relating to this decision.