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Denny’s server succeeds in reviving dual-jobs wage claims

By Brandi O. Brown, J.D.

In an appeal by a Denny’s food server whose FLSA lawsuit was dismissed on summary judgment, the Eleventh Circuit reversed, in part, the lower court’s decision, concluding that material issues of fact remained concerning the server’s dual-jobs claims. She attested that she performed myriad duties not related to her server job, among those many duties that did not qualify as work directly supporting tip-producing work and the court agreed that she presented evidence of this sufficient to survive summary judgment under a proper interpretation of the governing regulation. However, the court found the district court had properly granted summary judgment on her notification claims. Judge Luck concurred in the result but wrote a separate concurrence regarding one aspect of the analysis (Rafferty v. Denny’s, Inc., September 15, 2021, Rosenbaum, R.).

Unrelated duties. For six years, the employee worked for Denny’s as a server in an Ohio restaurant. She contended that during that time, she engaged in non-tipped duties related to her occupation as a server, but she also did a wide range of tasks that were unrelated to her occupation serving diners. For example, she prepared salads and other food items in the back of the restaurant; greeted and seated customers; answered phones and worked the cash register; bussed tables; and prepared and plated desserts. She also handled takeout and delivery orders over the phone and from walk-in customers and managed and fulfilled orders from food delivery apps such as GrubHub and Uber Eats.

Including cleaning duties. Additionally, she swept and mopped; wiped down appliances; cleaned and wiped counters; washed and scrubbed walls; broke down and cleaned the beverage machines; wiped down blinds and light fixtures; cleaned chairs; cleaned and scrubbed refrigerators, the ice-cream freezer, sinks, trays, and bins; emptied, washed, and refilled all salt, pepper, and condiment dispensers, and sugar caddies; detail cleaned the salad bar; and detail cleaned the expeditor line.

Dennys claimed tip credit. Throughout her employment as a server, she was paid as a “tipped employee” under the FLSA, which meant that she was paid below minimum wage with the expectation that she would make up the remainder through tips. The employer claimed a “tip credit” under 29 U.S.C. § 203(m)(2)(A). The employer claimed that if, during a workweek, tipped employees reported less in tips than was necessary to make up for the difference between the server’s wage rate and minimum wage, it paid the difference. However, according to the employee, the employer paid her less than the minimum wage and claimed a tip credit for all hours she worked, regardless of whether she was serving customers or engaging in non-tip-producing work.

Lower court relied on 2018 letter. After leaving her job in 2018, she filed a putative collective action against the employer, but, ultimately, had to pursue her claim individually. She alleged three counts under the FLSA: failure to provide employees with appropriate notice of the tip credit it claimed; taking the tip credit for time when the servers were required to engage in untipped duties unrelated to their occupation; and claiming the tip credit even though the employees were required to work more time than permitted in non-tipped duties. The employer moved for summary judgment, which the district court granted. Regarding the two counts involving dual jobs, the district court relied on the 2018 Opinion Letter that the Department of Labor issued interpreting the dual-jobs regulation.

Reversed in part. On appeal, the Eleventh Circuit concluded that material issues of fact existed regarding the employee’s dual-jobs-regulation claims, so that summary judgment was not appropriate. The appeals court spent some time providing the applicable statutory and regulatory background, including the development of the “80/20” or “twenty-percent rule,” noting that understanding the background was “necessary to applying the governing analytical framework.”

Deference not appropriate. After doing so, the court considered whether deference to the Department of Labor’s 2018 Opinion Letter’s interpretation of the dual-jobs regulation was appropriate. The employee argued that it was not entitled to deference under either Auer v. Robbins, under which a court defers to an agency’s reading of its own genuinely ambiguous regulation, or Skidmore v. Swift & Co., a “somewhat weaker form of deference” to an agency’s interpretation of its own regulations. The court agreed.

Ambiguous regulation. In this case, the parties and most of the court agreed that the dual-jobs regulation, 29 C.F.R. § 531.56(e)) is “genuinely ambiguous” regarding how much time a server can spend performing duties related to her tipped occupation that do not produce tips themselves before she no longer is considered a “tipped employee” during the times she performs them. It is also ambiguous regarding what duties are related to the occupation of the server.

For example, the court noted, the regulation states that an employer could take the tip credit for the hours of a waiter “who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses.” The italicized terms “impose a limit on the amount of time an otherwise tipped employee may spend doing untipped work before the employer can no longer claim the tip credit” but they don’t allow the court to draw a line. The regulation, the court noted, “sets out no test, definition, or other analytic tools to allow a court to ascertain what constitute ‘related’ duties and what do not and what demarcates a separate ‘occupation.’”

The structure of the regulation did not offer answers either, nor did the history and purpose of the regulation, the court explained. Additionally, the court majority rejected the argument made by Judge Luck, in a separate concurrence, that the dual-jobs regulation was not ambiguous.

Letters interpretation not reasonable. Thus, reaching the second step of the Auer analysis and considering whether the 2018 Opinion Letter’s interpretation was reasonable, the court concluded it was not, proclaiming that the Letter “essentially rewrites the dual-jobs regulation to impose obstacles to achieving its original purpose” without undergoing the rulemaking process required. “Put simply,” the court concluded, the Letter’s construction of the dual-jobs regulation was “not a reasonable interpretation.”

Not entitled to any deference. It also failed the third prong of Auer, because the character and context of the Letter’s interpretation of the regulation did not entitle it to controlling weight. Worse yet, the court noted, the 2018 policy “tramples the reasons for the dual-jobs regulation’s existence and is inconsistent with the FLSA’s policy of promoting fair conditions for workers.” Having determined that the Letter was not entitled to Auer deference, the court also found it was not entitled to Skidmore deference.

20-percent limit reasonable. Evaluating for itself the meaning of the regulation as it relates to non-tipped time and related-duties issues, the court concluded that the reasonable interpretation was a twenty-percent limitation. The text of the FLSA provides “helpful hints” including its definition of “tipped employee” requiring that a qualifying employee be “engaged in an occupation in which he customarily and regularly receives . . . tips.” “The plain language of this definition,” said the court, “tells us that for the employer to qualify to take the tip credit, the employee’s job must, by tradition and in reality, be one where she consistently earns tips.”

29 U.S.C. § 203(m) authorizes employers to pay their tipped employees substantially less than the minimum wage, the court noted, expecting that the tips will make up the difference. To ensure workers receive at least the minimum wage and that the FLSA’s purpose is satisfied, the court concluded it must “construe the dual-jobs regulation to ensure that the reduced direct wage for tipped employees is available to employers only when employees are actually engaged in a tipped occupation that will allow them to earn the remainder of at least the minimum wage.”

Regulation gives clues. The regulation itself “provides clues” and reading the regulation in conjunction with the FLSA “requires the conclusion that an employer may not take the tip credit for any time that it requires the employee to engage in duties that are not part of the tipped occupation.” Moreover, by using the term “occasionally,” the regulation indicates that a tipped employee may perform nontipped duties that are part of her tipped occupation only as that term is defined: “from time to time[;] [n]ot habitual[ly]; infrequent[ly].”

Thus, the court concluded, a twenty-percent limit “best complies with the temporal limits the regulation places on such duties.” That percentage of time aligns with the general meaning of the term “infrequently” and the Department of Labor “often invokes a twenty-percent threshold in distinguishing between substantial and nonsubstantial work in different contexts within the FLSA.” Indeed, the Eighth and Ninth Circuits have already concluded that a twenty-percent limitation reasonably construes the dual-jobs regulation, the court noted. Twenty percent is also consistent with 30 years of Department interpretation of the regulation, through administrations under both political parties.

Drawing the line. Finally, the regulation provides some guidance regarding the “types of nontipped duties that are part of the tipped occupation (related duties) and the kinds that are not (unrelated duties).” Illustrations provided led the court to understand that duties related to a server’s occupation “have to do with single-step, easily executed food and drink preparations or readying serving items, such as silverware, plates, and dishes for customers’ immediate use,” both categories of which “directly support” the server’s serving duties. Thus, the court was able to conclude that “the dividing line between related and unrelated duties falls where untipped duties no longer directly support tipped duties.”

Fact issues exist. Applied to this case, the court found material issues of fact existed about whether the employee engaged in work that did not directly support her tipped occupation while she was being paid as a tipped worker. She attested that she performed myriad unrelated duties, including cleaning tasks such as wiping down microwaves and stoves, scrubbing walls and refrigerators, and detail cleaning. “These duties plainly do not qualify as work that directly supports tip-producing work.”

Material fact issues also existed concerning whether she spent more than 20 percent of her time performing those duties. In this regard, the court noted that it was the duty of the employer, not the employee, to keep track of the employee’s “wages, hours, and other conditions of employment” so her inability to identify a particular work week in which she spent more than 20 percent of her time performing those duties did not merit summary judgment. In fact, her testimony met her burden.

However, the court concluded that summary judgment was properly granted on her tip-credit notification claim, based on oral notice evidence, and she failed to assert a claim under 29 C.F.R. § 516.28.

Concurrence by Judge Luck. While Judge Luck concurred in the result and agreed that the district court erred in giving Auer deference to the 2018 Opinion Letter, the judge did not agree that the dual jobs regulation was genuinely ambiguous.