Tip credits and the multitasking hospitality employee
Tip credits and the multitasking hospitality employee
25 OCTOBER 2017 7:10 AM

A recent federal court ruling regarding tip credits for employees undoubtedly favors employers in the hospitality industry, but careful consideration is still needed to avoid legal troubles. 

There is good news for employers in the hospitality space coming out of the U.S. 9th Circuit Court of Appeals.

In the case Marsh vs. J. Alexander’s, LLC, the court recently ruled that tipped employees who also perform non-tip-generating work cannot state a claim for violation of the tip credit provision of the Fair Labor Standards Act.

More to the point, employees—such as servers and bartenders in hotel restaurants and valet parkers—who may occasionally handle “discrete related tasks” over the course of any given shift that are intermingled with duties directed at earning tips remain subject to tip credits (at least in those states that allow tip credits—California is not one of them). This is despite interpretive guidance issued by the Department of Labor setting forth the so-called “80/20” tip credit rule.

The Arizona-based employers in the Marsh case, involving nine consolidated actions, claimed employee tips as credit toward the required $7.25 federal minimum wage ordinarily paid to workers. This practice was premised on the FLSA, which authorizes employers to pay tipped employees a lesser hourly wage and claim such a tip credit to make up the difference between it and the minimum wage mandated by law.

The plaintiffs argued that because they performed various non-tip duties in addition to their work that generated gratuities, the tip credit should not apply to them. By extension, these employees maintained that they deserved to be paid the minimum wage—for at least a portion of their work—plus tips earned. That position is premised on the labor department’s interpretive guidance suggesting that when tipped employees spend in excess of 20% of their time performing non-tipped tasks (cleaning, setting tables, etc.), no tip credit can be taken for the hours dedicated to such work. The court disagreed.

The court ruled that the department’s interpretive guidance was owed no deference because it was not consistent with the FLSA or the regulations it purportedly clarified. Likewise, the court noted that the guidance was unreasonable because it required the determination of whether an employee was engaged in a second job by time-tracking discrete tasks, categorizing them and accounting for minutes spent on various activities.

Ultimately, the court’s view was that the labor department’s dual-job regulations related to employees having two jobs, not employees engaged in different tasks within a single job. That being said, the court failed to address what constitutes a “distinct job” for purposes of the regulations, leaving a great deal of uncertainty surrounding this very nuanced issue.

While the court’s decision is undoubtedly favorable for hospitality employers, they are urged to proceed cautiously when it comes to tip credits, given the lack of guidance from the 9th Circuit.

Indeed, going forward, hoteliers are encouraged to closely scrutinize the work being done by tipped employees to determine:

  1. Whether they are being assigned tasks involving no possibility of gratuities (if not, the issues presented in the Marsh case may be irrelevant);
  2. Whether all similarly-situated employees are responsible to handle the same or comparable non-tipped duties (which would suggest they are not engaged in more than one “distinct job”); and
  3. Whether undertaking non-tipped duties constitutes a substantial portion of any given employee’s workday.

Careful consideration of these factors will help employers in the hospitality space avoid potential troubles when it comes to the sometimes-murky topic of tip credits.

Kyle Klein is an associate at Michelman &Robinson, LLP, a national law firm with offices in Los Angeles, Orange County (California), San Francisco, Chicago and New York City. He focuses his practice on the hospitality industry and related labor and employment matters. He can be contacted at 310-564-2670 or kklein@mrllp.com.

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