Tipped Employees: Dual Employment

A recent decision by Judge Laughrey of the Western District of Missouri in Fast v. Applebee’s Int’l, Inc., 2009 U.S. Dist. LEXIS 67564 (W.D. Mo. Mar. 4, 2010), on appeal, Appeal No. 10-1725 (8th Cir.), underscores the complexity regarding the proper calculation of compensation for tipped employees. The Fast decision involves an aspect of wage and hour law where an employee is employed concurrently in both a tipped and a non-tipped occupation. Some background is necessary in order to understand the issues presented by the Fast case and the court’s resolution of them. 2007 WL 1309680 (W.D. Mo. May 3, 2007) (denying employer’s summary judgment motion).

Generally, the FLSA requires employers to pay a minimum wage of $7.25 per hour. 29 U.S.C. § 206(A)(i)(c). The FLSA permits employers to pay a so-called “direct wage” of $2.13 per hour to employees worked in a “tipped occupation” (29 U.S.C. § 203(m)), so long as they then take a “tip credit” to meet the $7.25 per hour minimum wage requirement. Where tips do not make up the difference, the employer must supplement so the employee receives no less than the full minimum wage for all hours worked.

A “tip credit” is the amount of the employee’s tips that the employer can use to make up the difference between $2.13 per hour and the $7.25 minimum wage. 29 U.S.C. § 203(m).

A “tipped employee” is “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). In determining whether the employee is a “tipped employee,” the courts have focused on the level of customer interaction involved in the particular occupation. Customer service positions in which the employee has more than de minimus interaction with customers have been found to be a tipped occupation even where the employees are prohibited from accepting tips directly from customers. See, e.g., Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 301 (6th Cir. 1998) (finding restaurant hosts to be tipped employees); Dole v. Continental Cuisine, Inc., 751 F. Supp. 799 (E.D. Ark. 1990) (finding maitre d’ to be a tipped employee). In contrast, employees who do not have any customer contact have been found not to be tipped employees. See, e.g., Elkins v. Showcase, Inc., 704 P.2d 977, 989 (Kan. 1985); Myers v. The Copper Cellar Corp., 192 F.3d 546 (6th Cir. 1999).

Under the “tip credit” provisions, an employer is only required to pay $2.13 in direct wages so long as that amount, combined with the employee’s tips, equals the hourly minimum wage, currently $7.25.

If an employee is engaged in both a tipped occupation and a non-tipped occupation, so-called dual employment, then the tip credit can only be taken for the time worked in the tipped occupation. Employers are required to keep separate records for tipped and non-tipped occupations. 29 C.F.R. § 516.28. A DOL regulation addresses the circumstance of dual occupations. 29 C.F.R. § 531.56(e). The regulation provides that so long as a tipped employee is doing related work in the tipped occupation, a tip credit is permitted. Thus, the regulation, by way of example, references a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses, as an example of someone in a tipped occupation performing duties related to that occupation for whom the employer may take a tip credit.

DOL’s Field Operations Handbook contains guidelines for determining how much non-tipped work can be assigned to an employee before the employee has become a dual employee, that is, an employee working in a tipped and a non-tipped occupation. The Handbook (Section 30d00e) indicates that employees who spend more than 20% of their time on general preparation and maintenance work cannot be considered tipped employees for the time spent doing general preparation and maintenance.

In a 1985 opinion letter (Dep’t of Labor, Wage & Hour Div., Op. Letter FLSA-854 (Dec. 20, 1985)), the Department addressed the issue further and stated that the tip credit could be taken for “preparation work or after hours clean-up if such duties are incidental to the waiter or waitress’s regular duties and are assigned generally to the waiter/waitress staff. However, where the facts indicate that specific employees are routinely assigned to maintenance work or that tipped employees spend a substantial amount of time performing general preparation work or maintenance, we would not approve a tip credit for hours spent in such activities.” Several years later, in 1988, DOL’s Handbook contained the 20% rule, which defined when general preparation or maintenance work had become substantial.

With this background, the principal contention in Fast is Applebee’s argument that the district court used a task-based analysis rather than an occupation-based analysis. In its opening brief to the Eighth Circuit, Applebee’s argues that the FLSA’s tip credit requires an occupation-based analysis. Applebee’s relies upon the language of the statute (§ 203(t)), which refers to “an occupation” as well as the record-keeping regulation (29 C.F.R. §516.28(a)(4) and (5)), which also uses the terminology “occupation.”

Like all tipped employee issues, these issues are complicated and of enormous importance to the restaurant industry and those employed therein. The National Council of Chain Restaurants is scheduled to file an amicus brief in Fast on June 18th. We will post further about the arguments in Fast in the coming days.

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