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DOL’s 80/20 provision, ‘dual jobs’ rules for tip credit are challenged

By Pamela Wolf, J.D.

The Restaurant Law Center (RLC) and the Texas Restaurant Association (TRA) have filed a lawsuit against the Department of Labor challenging the so-called “80/20″ rule on the availability of the tip credit based on tipped and non-tipped duties. According to their complaint, not only was the provision quietly slipped into an internal agency handbook without notice to the public or an opportunity for comment, the DOL has tried to elevate this subregulatory pronouncement to the force of law through repeated amicus curiae briefs arguing that courts should defer to its rule. But the DOL’s action is ultra vires, contrary to the pertinent statute, and illegal, the plaintiffs contend.

Under the 80/20 rule, if so-called tipped employees, such as waiters and bartenders, spend less than 80 percent of their working time on tip-generating tasks, the employer forfeits the statutory right to pay those employees a tipped wage. The rule, however, is not stated in the text of the FLSA, nor in its implementing regulations, the complaint notes.

Tip credit. In 1966, as part of the legislative compromise struck in extending the FLSA’s coverage to restaurants and hotels, Congress enacted the tip credit provision, modifying section 3(m) and adding section 3(t) to the FLSA to permit the tips received by employees to satisfy a portion of the minimum wage obligation, according to the complaint. The regulations issued thereafter, consistent with the statute, provide that the tip credit applies based on the “occupation” of the employee.

Tipped vs. non-tipped duties. Like the text of the FLSA itself, the regulations do not contain any distinction between duties that are “directed toward producing tips” and duties that are “not by themselves directed toward producing tips.” Nor do the regulations impose any specific limitation on the amount of time an employee may spend on certain tasks within his or her occupation before the employer loses the statutory right to take a tip credit for all of the employee’s working time. The regulations explain, consistent with statutory text, that if certain positions, such as a waiter, always receive at least $30 a month in tips, they will qualify for the tip credit.

Dual job regulations challenge. The regulations also address employees who may be employed in two different occupations. Under the “dual jobs” regulation, when an employee works in two separate occupations for the same employer, one tipped and one not tipped, the employer may take a tip credit only for the tipped occupation. According to the plaintiffs, when the DOL promulgated its “dual jobs” regulation, it did not provide a proper opportunity for notice and comment. The Notice of Proposed Rulemaking made no mention at all of this type of dual jobs provision. Further, when the DOL issued its Final Rule, it provided no commentary on the dual jobs provision, other than noting that “a new § 531.56(e) is added” to the regulation. Because the dual jobs regulation is not a logical outgrowth of the original NPRM, the DOL failed to provide the public with the required notice and opportunity to comment on the regulation, the plaintiffs contend, although they are not directly challenging this regulation.

Time limits. In 1988, the DOL issued a section in its Field Operations Handbook (FOH) that did address a time limit, stating, among other things, that “where the facts indicate that specific employees are routinely assigned to maintenance, or that tipped employees spend a substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” (Emphasis in complaint).

Although the DOL subsequently issued some opinion letters, “none of them articulated a temporal limit on performing tasks that do not directly generate tips in order for an employer to retain the right to take a tip credit for all time a tipped employee works,” according to the complaint. A January 15, 2009, opinion letter concluded that a “barback,” a service bartender, who is responsible for “restocking the bar and ensuring that the bar area remains clean and organized” and “clean[ing] empty glasses sitting on the bar, tak[ing] out the trash from behind the bar and clean[ing] the floor of the bar area” was a “tipped employee” eligible for the tip credit. While letter made no reference to an 80 percent standard, the description of duties made it plain that barbacks spent considerably less than 80 percent of their time on activities that directly generate tips, according to the plaintiffs.

Related duties “performed contemporaneously with” or “immediately before or after.” On January 16, 2009, the then-Acting Administrator of the Wage and Hour Division issued an opinion letter acknowledging that the 80 percent standard was unworkable and confusing, and expressly rescinded that standard, the complaint alleges. The DOL said that ‘”no limitation shall be placed on the amount of these [related] duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.”’ Consistent with the text of the FLSA and its regulations, so long as the duties performed by the employees are part of their tipped occupation, those employees are not engaged in “dual jobs,” the DOL explained.

About six weeks later, with a change in the administration, the DOL withdrew the January 16, 2009, opinion letter, but did not withdraw the January 15, 2009, letter pertaining to barbacks.

FOH revision. In June 2012, the DOL revised its FOH, replacing the former section 30d00(e) with a new provision, now located at section 30d00(f). The most fundamental substantive difference between the 1988 version and the 2012 version, according to the complaint, is that the 1988 version permitted tipped employees to spend up to 20 percent of their working time engaged in maintenance activity without loss of the tip credit. In contrast, the 2012 version expressly declares that maintenance work does not count toward the 20 percent threshold, “and instead is per se a separate occupation regardless of the time spent, and that such time is always subject to the full minimum wage,” the complaint states.

When the DOL revised this portion of the FOH in 2012, it failed to disclose this change “publicly” until July 2016, when the department mentioned the change in a footnote to an amicus curiae brief, according to the complaint.

Among other things, the plaintiffs assert that neither the WHD nor the Employment and Training Administration has conducted a study on how much time tipped employees generally spend on specific tasks within their occupations, including the proportion of time spent on tasks that generate tips as opposed to those that do not directly generate tips. “Side work is a normal and customary part of the tipped occupations found in restaurants, and it has been so since before the FLSA applied to restaurant employees,” the complaint states. “There is no accepted standard within the restaurant industry regarding how much time a tipped employee should spend on side work versus other tasks.”

The plaintiffs contend that the DOL’s 80 percent standard and prohibition on taking a tip credit for any time spent cleaning bathrooms or washing windows is contrary to the text of the FLSA, the statute’s legislative history, and the public policy underlying the minimum wage and tip credit provisions, and is arbitrary, capricious, and irrational.

Relief. The complaint seeks declaratory relief that dual jobs FOH provisions, FOH § 30d00(f) (December 12, 2016), are unlawful under the Administrative Procedures Act and the U.S. Constitution’s separation of powers. The plaintiffs are also asking the court for a permanent injunction barring the defendants from enforcing, publicizing, or otherwise encouraging any person or court to follow or to defer to the dual jobs FOH provisions, and ordering the defendants to rescind those provisions.

“The Obama Administration quietly slipped an overly restrictive provision on dual-jobs into an internal agency handbook without notice to the public or an opportunity for comment in violation of the Administrative Procedure Act,” the Restaurant Law Center said in a statement. “We are asking the Court to set this provision aside and enjoin its enforcement. The Obama-era dual-jobs provision in the Department of Labor’s Field Operations Handbook is arbitrary, capricious, contrary to the Fair Labor Standards Act, promulgated in violation of the APA, and a violation of separation of powers.”

The case, which was filed in the Northern District of Texas, Austin Division, is No. 18cv567.