May 12, 2011

Recent Ruling Complicates Wage-Hour Compliance for Tipped Employees in the Restaurant and Hospitality Industries

Holland & Knight Alert
Loren Lee Forrest Jr.

Waiters and waitresses typically spend some time serving customers and some time setting or cleaning the tables before customers arrive. Generally speaking, restaurant operators are entitled to take a “tip credit” for both. However, a recent federal appellate court ruling imposes a strict 20 percent cap on the amount of time that can be spent on the “related duties” that do not generate tips. Most importantly, the court held that if that 20 percent cap is exceeded, all non-tipped hours must be compensated at the full minimum wage without any adjustment for the tip credit. While the appellate court’s reasoning can be questioned, it is binding legal precedent for now. Employers in the restaurant and hospitality industries are well-advised to implement preventive measures to assure compliance with the new judicial interpretation.


In Fast v. Applebee’s, 2011 WL 1496489 (8th Cir. 2011) a class of more than 5,500 current and former servers and bartenders at Applebee’s restaurants brought a federal lawsuit claiming that Applebee’s improperly used the tip credit to satisfy their obligation to pay the minimum wage under the Fair Labor Standards Act (FLSA). Under the “tip credit,” restaurant employers are entitled to pay tipped employees a guaranteed wage less than the minimum wage if the tips received bring the employee’s hourly pay up to the minimum wage.

These restaurant workers alleged that Applebee’s ordered them to perform non-tip-producing duties for significant portions of their shifts, while compensating them at the lower $2.13 hourly rate for tipped employees. Significantly, it was undisputed that the workers were, in fact, tipped employees under FLSA regulations and that the tips they received were sufficient to bring their hourly rate to at least the minimum wage for all hours worked.

Nonetheless, the employees objected to use of the tip credit for what they claimed were general preparatory and cleaning work. The bartenders alleged that these non-tip-producing tasks included wiping down bottles, cleaning blenders, cutting fruit for garnishes, taking inventory, preparing drink mixers and cleaning up after closing hours. The Applebee’s servers objected to using the tip credit for tasks such as cleaning bathrooms, sweeping, cleaning and stocking serving areas, rolling silverware, preparing the restaurant to open and general cleaning before and after the restaurant was open.

The Appellate Court’s Ruling

Relying on the United States Department of Labor’s (DOL’s) 1988 Field Operations Handbook (Handbook), the United States Court of Appeals for the Eighth Circuit concluded that if tipped employees spend more than 20 percent of their time performing “related, but non-tipped duties,” they had to be paid the full minimum wage for that time without the tip credit.

The court rejected Applebee’s argument that the duties described by the employees as non-tipped duties were actually “related” duties that all Applebee’s servers and bartenders perform as part of their occupation and were, therefore, still subject to the tip credit. It found that argument to be foreclosed by the DOL’s Handbook, which states 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.”

In deciding in favor of the Applebee’s employees, the Eighth Circuit emphasized that Section 531.56(e) of the DOL’s wage-and-hour regulations make a “distinction between an employee performing two distinct jobs, one tipped and one not, and an employee performing related duties within an occupation ‘part of [the] time’ and ‘occasionally.’” The court reasoned that “[b]y using the terms ‘part of the time’ and ‘occasionally,’ the regulation clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation.”

(Hospitality employers in New York State are cautioned that the New York State Department of Labor endorses a similar and, in some ways, more onerous position. Under recently-issued regulations for New York State employers, tipped employees working at a non-tipped occupation for two or more hours or for more than 20 percent of their shift, whichever is less, are ineligible for a tip credit for the entire day.)

It could be argued that the 20 percent cap imposed on the performance of non-tip-producing tasks is itself arbitrary, when imposed without regard for whether or not those duties constituted part of a “dual” or secondary occupation. There is, after all, no occupation other than bartender that cuts fruit for garnish or prepares drink mixes. And those tasks are directly related to the ability of the bartenders to earn tips by rapid service when customers are being served. Applebee’s position was weakened, though, if (as alleged) waiters and waitresses were required to clean bathrooms and do general cleaning before opening and after closing, since those tasks are not as integrally related to their service occupation.

As construed by the court, the 20 percent limit applies most clearly to “general preparation work and maintenance.” This implies that there may be a category of “specific” preparation (perhaps, cutting fruit for drink garnishes or folding cloth napkins) that may be regarded as so integral to the occupation as to be outside the 20 percent limitation.

Considerations for Employers

The case now goes back to the District Court. That court may yet give guidance on the difference between duties that “comprise the occupation” of server or bartender, and thus are not subject the 20 percent cap, and those “related” duties that, according to the appellate court’s interpretation of the DOL Handbook, cannot exceed 20 percent of a server or bartender’s time. Until the matter is clarified, employers would be well advised to follow certain guidelines when assigning tipped employees tasks that do not in themselves generate tips.

  1. Where the non-tip-generating duties are performed intermittently and intertwined with the tip- generating tasks of the primary occupation, they are more likely to be properly subject to the tip credit, and not counted against the 20 percent limitation.
  2. Activities such as cleaning and setting tables, toasting bread and making coffee might be regarded as duties so integral to the tipped occupation that the 20 percent cap does not apply, provided that these duties are part of the regular duties of all employees in that category and there is no other hospitality occupation that generally performs such tasks. However, in light of the Applebees decision, this matter is open to question.
  3. Employers should be especially careful about having employees perform non-tipped and “related” duties before opening and after closing the establishment to the public as this is subject to greater scrutiny under the current regulatory regime. To avoid any possible claim of non-compliance, employers should consider limiting pre-opening and post-closing work to an average of no more than 1.6 hours per 8-hour shift.
  4. Employers who require tipped employees to perform general preparatory or cleaning work at the beginning or end of their shifts should consider paying them the full minimum wage (without tip credit) for those hours (although this would not be advisable in states such as New York, which disallows the tip credit for the entire shift if the 20 percent threshold for work in a non-tipped occupation is exceeded).

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