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New Uncertainties for Employers of Tipped Employees Striving to Comply with Federal Minimum Wage Law
Restaurants and other employers of tipped employees should be disappointed that the United States Supreme Court has declined to hear a case that might have provided much needed guidance on whether the federal "tip credit" against minimum wage is available when those employees spend part of their shift doing non-tipped work. On January 17, the Court announced that it would not review an unfavorable appeals court decision against Applebee's International, Inc., which let stand a trial court ruling permitting thousands of former and current servers and bartenders of the company to pursue their claim that they were entitled to full minimum wage for non-tipped work exceeding 20 percent of their working time.
The case the Supreme Court let stand is a decision of the Eighth Circuit Court of Appeals, which approved a Department of Labor (DOL) interpretation of the Fair Labor Standards Act (FLSA). The DOL asserts that the FLSA prohibits employers from taking the tip credit against minimum wage when employees spend more than 20 percent of their time performing jobs that do not generate tips. In the case, the bartenders claim that Applebee's cannot apply the tip credit to calculate their wages for such non-tip duties as wiping bottles, cleaning blenders, cutting fruit for garnishes, taking inventory, preparing drink mixers, and cleaning up at closing. The servers likewise claim that they should receive full minimum wage for work such as cleaning bathrooms, stocking, doing general cleaning and preparing the restaurant for opening. Applebee's contended that all of those tasks are incidental to work in tipped occupations, and the tip credit should lawfully permit payment of $2.13 per hour regardless of the amount of time the employees spend on those duties, as long as the employee received enough tip income to reach the federal minimum wage of $7.25 per hour. The National Council of Chain Restaurants and National Restaurant Association submitted briefs in support of Applebee's.
The impact of the Supreme Court's decision not to hear the case against Applebee's is limited for now to states in the jurisdiction of the Eighth Circuit, which covers Minnesota, Arkansas, Iowa, Missouri, Nebraska, North Dakota, and South Dakota. To the extent other courts have reached different conclusions or not decided this issue, employers must design their pay practices accordingly. (Note: the case has no bearing on establishments in Minnesota because our state law prohibits employers from using the tip credit when calculating employee pay for all duties).
The Applebee's case creates several administrative challenges:
- If an employer continues to apply a tip credit and pay below minimum wage for tipped work on a shift, it must devise a system to separately track hours the worker spends on non-tipped jobs and pay the minimum wage for that time as soon as it hits the 20 percent limit on work that does not generate tips.
- The tip credit is still available even for non-tipped work if the employee spends less than 20 percent of the time on duties that do not generate tips. The system for separately tracking time on tipped and non-tipped work will need to precisely show the breakdown and establish if the employee meets or exceeds that 20 percent threshold.
- Applebee's and the employees do not agree on what qualifies as non-tipped duties that are subject to the 20 percent limit, and the ruling does not resolve that dispute. The DOL's interpretation is that non-tipped duties include "general preparation work or maintenance." However, as noted above, the employees are arguing for a far more expansive interpretation of "general preparation work or maintenance" than Applebee's concedes.
- Most importantly, there is a troubling question of whether the employer or employee has to prove that the employee did more than enough non-tipped work to make the tip credit inapplicable. The Eighth Circuit decided that employees must initially prove that they worked enough time performing non-tip producing duties but did not receive proper compensation because the employer wrongfully applied the tip credit to not pay the minimum wage. The court said it was then up to the employer to show that it maintained sufficient time records to distinguish between tipped duties and non-tip producing duties. In the absence of those employer records, the employees can successfully prove their case if they have sufficient evidence to show that the amount and extent of what they did was non-tipped work and should not be subject to tip credit.
Please contact Maslon's Labor & Employment Team if you have questions or would like additional information about this important development.
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