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DOL ‘80/20′ interpretation of dual jobs reg invalid for tipped employees doing sidework

By Ronald Miller, J.D.

The Department of Labor’s interpretation, in its Field Operations Handbook (FOH), of 29 C.F.R. § 531.56(e), addressing application of the FLSA’s tip credit provision to the situation in which an employee works for an employer in two different jobs, did not merit controlling deference, ruled the Ninth Circuit. The appeals court found the DOL’s interpretation inconsistent with the dual jobs regulation, and concluded that it was an attempt to create de facto a new regulation. Although the appeals court agreed with the district court’s analysis of the deference question, it vacated the judgment of the district court to allow the employees an opportunity to propose amended pleadings in light of its holding. Judge Paez filed a separate opinion concurring in part and dissenting in part (Marsh v. J. Alexander’s LLC, September 6, 2017, Ikuta, S.).

Former servers and bartenders in this consolidated appeal alleged that their employers improperly claimed the tip credit, thereby failing to pay the required minimum wage. In support of their theory of the case, the employees relied on Section 531.56(e). The district court held that the DOL’s interpretation of the regulation was not entitled to deference and concluded that the employees failed to state claims for minimum wage violations.

Tip credit. The FLSA creates a special rule for how an employer can compensate a “tipped employee,” defined as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Thus, an employer may pay a tipped employee a cash wage of $2.13, and can make up the difference between $2.13 and the federal minimum wage by taking a credit for the employee’s tips.

In May 2014, the lead plaintiff in this action filed a suit alleging that his employer violated the minimum wage provisions of the FLSA by failing to pay him an appropriate minimum wage. As part of his job as a server, the employee also brewed tea during the opening shift, cut and arranged lemons and limes, cleaned the soft drink dispenser, replaced soft drink syrup, and stocked ice. He was also assigned duties cleaning tables, scrubbing walls, taking out trash, sweeping floors, and cleaning restrooms.

The employer took the tip credit for the entire time the employee spent working, including the time he spent on duties that were not directly connected to generating tips. Because those “related duties” took up more than 20 percent of his working hours, the employee alleged that the employer improperly took a tip credit for the time he spent on “related duties.” The employee relied on the DOL’s interpretation of the dual jobs regulation in Section 531.56(e). According to the employee, he should have been paid a cash wage of $7.25 per hour for time spent on related and unrelated duties that were not directed towards generating tips.

Dual jobs regulation. The DOL has also addressed the application of the tip credit provision to the situation in which an employee works for an employer in two different jobs (the dual jobs regulation). In addition, it has issued internal agency guidance in its Wage and Hour Division’s Field Operations Handbook (FOH).

The district court held that the employee’s complaint did not allege that he was working dual jobs, as defined in the dual job regulation, and rejected his reliance on the DOL’s interpretation of the regulation. Alternatively, the district court held that “no minimum wage violation occurs so long as the employer’s total wage paid to an employee in any given workweek divided by the total hours worked in the workweek equal or exceeds the minimum wage rate.” Because the complaint did not allege the employee’s average hourly wage was below the federal minimum wage, he failed to state a claim. This appeal followed.

No deference to DOL. To resolve this appeal, the appeals court had to determine whether it owed deference to the DOL’s interpretation of the dual jobs regulation. Thus, it considered whether the DOL’s interpretation of the dual jobs regulation was consistent with the regulation and statute. In 1988, the DOL introduced the concept that where “tipped employees spend a substantial amount of time (in excess of 20 percent) performing preparation work, no tip credit may be taken for the time spent on such duties. The appeals court saw this as a significant departure from earlier guidance. In 2011, in Fast v. Applebee’s Int’l, Inc, the DOL presented the approach to the dual jobs regulation presented in the FOH as its official interpretation.

Here, the Ninth Circuit determined that the DOL’s interpretations in FOH Section 30d00(f) does not merit controlling deference under the Supreme Court’s ruling in Auer v. Robbins. It concluded that the dual jobs regulation’s reference to employees “engaged in an occupation” to mean employed in a “job,” not performing an activity. It observed that when the regulation refers to minute-by-minute tasks or activities, it uses the term “duties” rather than “occupation.” Nothing in the FLSA’s context, structure, history, or purpose suggests that Congress intended to use the term “occupation” in Section 203(t) to mean discrete duties performed over the course of the day. Moreover, the FLSA consistently uses the word “occupation” to refer to jobs in particular industries, rather than to discrete tasks.

Because the dual jobs regulation is concerned with when an employee has two jobs with no differentiating between tasks within a job, the FOH’s approach is inapposite and inconsistent with dual jobs regulation. Thus, the FOH ignores the regulation’s requirement to identify distinct jobs. Accordingly, the FOH Section 30d00(f) approach provides an interpretation of the dual jobs regulation that is inconsistent with both the regulation’s approach to determining whether an employee has two distinct jobs, and with the statute’s direction that any person engaged in a job that generates the requisite amount of tips is a “tipped employee.” In effect, FOH Section 30d00(f) creates an alternative regulatory approach with new substantive rules that regulate how employees spend their time.

Partial concurrence and partial dissent. In a separate opinion, Judge Paez stated that he would defer to the DOL’s interpretation of 29 C.F.R. § 531.56(e). He argued that employees paid the tipped minimum wage for untipped work are underpaid, and that the DOL recognized this problem and issued guidance clarifying that employers must pay their tipped employees the full minimum wage when such employees spend a substantial amount of time performing untipped work. Thus, Judge Paez found persuasive the Eighth Circuit’s opinion in Fast. He urged that because the DOL’s guidance interpreted an ambiguous regulation, and did so in a manner that was not “plainly erroneous or inconsistent,” it was entitled to deference under Auer v. Robbins.