The Tipping Point:
What Table Service Operators Need To Know To Avoid A Lawsuit
Paul DeCamp
Jackson Lewis P.C. | Washington, D.C. Region Office
[email protected] | 703-­483-­8305
©2017 Jackson Lewis P.C.
A Bit About Today’s Presenter
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Principal with national workplace law firm Jackson Lewis P.C.
Former Administrator of U.S. Department of Labor’s Wage and Hour Division
My practice: 100 % representing employers in wage and hour matters
Extensive work with restaurants, including serving as lead counsel in a lawsuit brought by the National Restaurant Association challenging DOL tip pooling regulations
Experience with about a dozen 80/20 cases, where employees argue too much sidework invalidates tip credit
Just returned from taking my sons to Super Bowl LI.
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What We’ll Cover Today
Key litigation risks involving your pay practices, and what to do about them
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“80/20” and “unrelated duties”
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Including non-­tipped employees in the tip pool
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Calculating overtime for tipped employees
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Off-­the-­clock time
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Exempt status of managers and chefs
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Use of independent contractors
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“80/20” And “Unrelated Duties” Claims
The most common class complaint we see today against restaurants with tipped employees: excessive sidework invalidates the tip credit, in whole or in part.
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These cases skyrocketed after Fast v. Applebee’s, Int’l, Inc. (W.D. Mo. 2007), subsequently affirmed by the Eighth Circuit.
Basic gist of the claim:
• “Dual jobs” regulation, 29 C.F.R. § 531.56(e), allows tip credit only for time spent in tipped occupation.
• Regulation differentiates time by employee as hotel maintenance man versus waiter in hotel restaurant.
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“80/20” And “Unrelated Duties” Claims
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Basic gist of the claim (continued):
• Department of Labor Wage and Hour Division’s Field Operations Handbook, at § 30d00(f), applies this dual jobs idea to tasks within a single job:
- No limit on taking a tip credit for time spent on tasks “directed toward producing tips”;;
- Limit on taking a tip credit set at 20% of working time on “related” tasks that are “incidental to the regular duties of the tipped employees and are generally assigned to the tipped employee”;; and
- No tip credit for time spent on duties “not related to the tipped occupation,” such as maintenance work.
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“80/20” And “Unrelated Duties” Claims
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DOL lists examples of “related” duties:
• Doing preparatory or closing activities
• Rolling silverware
• Filling salt and pepper shakers while the restaurant is open
• Cleaning and setting tables
• Making coffee
• Occasionally washing dishes or glasses
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DOL describes maintenance work as “e.g., cleaning bathrooms and washing windows.”
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“80/20” And “Unrelated Duties” Claims
We are aware of dozens of these cases across the country, and there have probably been well over 100 similar complaints filed in the past several years, most often as class and collective actions.
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Most courts have allowed these cases to survive early motions to terminate the litigation.
Most courts have certified classes, at least opt-­in classes under the Fair Labor Standards Act, and allowed notices to go out to employees.
A few courts have dismissed these cases as not presenting a valid theory of recovery.
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“80/20” And “Unrelated Duties” Claims
The issue is now currently on appeal before the Ninth Circuit in nine separate cases that the court is hearing together. (The lead case is No. 15-­15791.)
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DOL has filed an amicus curiae brief in support of the plaintiffs.
The court has indicated that it is considering scheduling oral argument for April 2017.
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“80/20” And “Unrelated Duties” Claims
While the courts hash out these issues, what should restaurants do in the meantime to manage their risk?
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Plaintiffs tend to focus heavily on a few key areas:
• Opening sidework before the restaurant opens for business
• Closing sidework after the restaurant closes for the day
• Any kind of cleaning, mopping, or polishing
• Washing dishes (i.e., loading a dishwasher rack)
• Rolling silverware
• Anything happening in the back of the house
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“80/20” And “Unrelated Duties” Claims
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Some companies have taken steps to reduce their susceptibility to dual jobs claims:
• Having all tipped employees clock in at a minimum wage rate for any work done before the restaurant opens, then clock out and back in at a tipped rate once the restaurant is open
• Having post-­closing work performed at a minimum wage rate
• Having people arrive for work closer to when the restaurant opens
• Having back-­of-­house employees handle rolling silverware, kitchen sidework, and bathroom cleaning
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“80/20” And “Unrelated Duties” Claims
The $100 million question:
Will DOL revise, or even rescind outright, its dual jobs guidance in the new administration?
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Non-­Tipped Employees In The Tip Pool
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Under section 3(m) of the FLSA, one condition on taking a tip credit is that if you have a mandatory tip pool, only “employees who customarily and regularly receive tips” may participate in the pool.
Some state laws contain similar restrictions, and some go even further in specifying otherwise tipped roles that may not be included in a tip pool. (And, of course, a few states ban mandatory tip pools entirely.)
The easy cases: managers, owners, cooks, dishwashers
What plaintiffs’ lawyers are looking for: expediters in the tip pool
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Non-­Tipped Employees In The Tip Pool
What if you don’t take a tip credit in the first place?
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Since 1974, DOL has taken the position that regardless of whether a restaurant takes a tip credit, tips are the property of the tipped employee, and you cannot require a tipped employee to share tips with a non-­tipped employee.
In 2010, the Ninth Circuit decided Cumbie v. Woody Woo, Inc., concluding that the FLSA’s restrictions on tip pooling apply only if you take a tip credit. The case upheld a tip pool that included back-­of-­house employees because all employees had a cash wage at or above the federal minimum wage regardless of tips.
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Non-­Tipped Employees In The Tip Pool
What if you don’t take a tip credit in the first place? (continued)
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In 2011, DOL issued regulations stating that the Ninth Circuit was wrong, and doubling down on DOL’s enforcement position that back-­of-­house employees can never be in a tip pool that includes front-­of-­house employees.
In 2012, the National Restaurant Association, along with state associations from Oregon, Washington, and Alaska, as well as an Oregon restaurant and a server at that restaurant, sued DOL, arguing that the regulation is unlawful.
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Non-­Tipped Employees In The Tip Pool
What if you don’t take a tip credit in the first place? (continued)
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In 2013, the federal district court in Oregon ruled that DOL’s regulation is unlawful.
DOL appealed, and in 2016 the Ninth Circuit, in a sharply divided opinion, held that the regulation was within DOL’s broad authority under the FLSA. One judge dissented with a strongly worded opinion.
The Ninth Circuit declined to hear the case en banc, and ten judges signed onto a scathing dissent from that denial, arguing that the court’s decision violated Supreme Court case law and created two circuit splits.
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Non-­Tipped Employees In The Tip Pool
What if you don’t take a tip credit in the first place? (continued)
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The Ninth Circuit case is Oregon Restaurant & Lodging Ass’n v. Perez, and there are now two certiorari petitions pending before the Supreme Court seeking review of that ruling. (The cases are Nos. 16-­163 and 16-­920.) The petition in Wynn Las Vegas, LLC v. Cesarz is fully briefed, and the government’s response in National Restaurant Ass’n v. Department of Labor is due later this month.
What should restaurants do in the meantime?
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Calculating Overtime For Tipped Employees
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For a long time, the place where restaurants got in trouble was in taking 1-­1/2 times the maximum allowable tip credit in overtime hours. The regulations are clear that the maximum federal tip credit is $5.12 per hour in straight-­time and overtime hours. Under the FLSA, the minimum cash wage is $2.13 in straight-­time hours and $5.76 (i.e., $10.88 -­ $5.12) in overtime hours. If you take less tip credit, then the required cash wages increase.
In the early years of the last administration, DOL, starting in the Northeast with respect to Massachusetts, took an aggressive new position concerning the tip credit in states that both have a higher minimum wage and also allow for a greater tip credit than under federal law.
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Calculating Overtime For Tipped Employees
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DOL adopted the view that the minimum cash wage an employer could pay under the FLSA, at least in overtime weeks, was the state minimum wage minus the maximum federal tip credit.
For example, when the Massachusetts minimum wage was $9.00 per hour and the minimum cash wage in the state was $3.00 per hour, restaurants would typically pay tipped employees $3.00 in cash wages and take a $4.25 tip credit under the FLSA and a $6.00 tip credit under state law. With no state-­law overtime requirement for restaurant employees, employees would receive FLSA overtime of $6.63 in cash wage and $4.25 in tip credit.
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Calculating Overtime For Tipped Employees
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DOL’s view, however, was that the employee’s regular rate under the FLSA was not $7.25, but rather $9.00. Accordingly, DOL required restaurants to pay $13.50 per hour in overtime hours. Subject to a $5.12 maximum federal tip credit, the result was requiring cash wages of at least $8.38 per hour (i.e., $13.50 -­ $5.12) in overtime hours, and at least $3.88 per hour (i.e., $9.00 -­ $5.12) for straight-­time hours in overtime weeks.
That result was $0.88 per hour more than either state or federal law required for straight-­time hours, and $1.75 more per hour than federal or state law otherwise required for overtime hours.
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Calculating Overtime For Tipped Employees
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This issue affected a number of jurisdictions with both a higher minimum wage and a larger tip credit than under federal law:
• Delaware
• District of Columbia
• Nebraska
• New Jersey
• New Mexico
• Rhode Island
• West Virginia
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Calculating Overtime For Tipped Employees
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DOL pressured many restaurants in Massachusetts, as well as other jurisdictions, to settle on that basis or else to face broader investigations and potentially litigation.
Fortunately, on December 1, 2016, DOL reversed its position on this issue.
Revised section 30d06(b)(2) clarifies that DOL now follows the traditional reading of the regulations, which is that FLSA and state-­law overtime calculations and compliance stand completely apart from each other.
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Off-­The-­Clock Time
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We still see cases where employees allege that they had to work off the clock. The main concerns seem to be:
• “If you’re on time, you’re late.”
• Servers not being allowed to clock in until their first customer arrives
• Employees choosing not to clock in when they begin working so that they can avoid getting cut during the busy hours if they approach 40 hours for the week
• Managers clocking out other employees, especially while the restaurant is preparing to close and while people are working on closing sidework
• Managers editing time records
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Off-­The-­Clock Time
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These claims can be very challenging and expensive to defend.
It is very important that you clearly communicate to all employees—managers and hourly employees alike—
that hourly employees must never work off the clock and must always be paid for the time they work.
Make sure that employees know the name or number of someone to reach if there is an issue with a manager.
Periodically audit manager time edits. If your system can accommodate it, require a reason for each edit.
Discipline people when issues arise. Take this topic very seriously.
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Exempt Status Of Managers And Chefs
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Cases still arise regarding shift managers, front-­of-­house managers, back-­of-­house managers, assistant managers, and chefs.
For the executive exemption, the claims tend to focus on whether the managers have hire / fire authority, or significant input into major employment decisions. There is also an emphasis on the amount of time managers spend in non-­managerial tasks.
For executive chefs and sous chefs who do not qualify as managers, the focus of litigation claims is on the professional exemption. Unless the employee has a four-­year degree from a culinary school, reliance on the professional exemption is risky. www.jacksonlewis.com
Use Of Independent Contractors
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Cooks as ICs?
We have seen this arise with restaurants that want to hire staff, but the staff have difficulty demonstrating a legal entitlement to work.
Retaining those individuals as independent contractors, either directly or through a staffing company, is not a winning strategy.
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Questions & Answers
Thank you!
Paul DeCamp
Jackson Lewis P.C.
10701 Parkridge Boulevard
Suite 300
Reston, Virginia 20191
Tel: 703-­483-­8305
[email protected]
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