February 6, 2012

Supreme Court’s Denial of Review Imposes Onerous Burden on Hospitality Employers

Holland & Knight Alert
Loren Lee Forrest Jr.

The United States Supreme Court recently denied an employer’s request for review of a decision by the United States Court of Appeals for the Eighth Circuit, which held that tipped employees spending more than 20 percent of their time performing related but non-tipped duties must be paid the full minimum wage for that time, without the tip credit.

Despite a split in the federal circuit courts on this issue, the Eighth Circuit’s decision approved the enforcement policy of the Department of Labor (DOL), which, if accepted by other courts, would require many hospitality employers to restrict or even remove certain duties now commonly performed by tipped employees. Such an adjustment could be costly and difficult to implement for many hospitality employers.


In Fast v. Applebee’s, 678 F.3d 872 (8th Cir. 2011), a class of current and former servers and bartenders at Applebee’s restaurants brought a federal lawsuit claiming that Applebee’s violated the Fair Labor Standards Act (FLSA) by improperly using the tip credit and failing to pay them the appropriate wages. These restaurant workers alleged that Applebee’s ordered them to perform duties that were purportedly “non-tip producing” activities (such as cleaning the restaurant, stocking the serving area and rolling silverware) for significant portions of their shifts, while still compensating them at the lower $2.13 hourly rate for tipped employees. Applebee’s countered that neither the federal statutes nor the DOL’s regulations placed a quantitative time limit on the amount of time a tipped employee can spend performing purportedly “non-tip producing” duties related to the tipped occupation so long as the tips and cash wages equal or exceed the minimum wage.

The Eighth Circuit emphatically rejected Applebee’s argument and decided in favor of the class of employees, relying heavily upon the DOL’s interpretation of its own Field Operations Handbook. The Eighth Circuit noted that the DOL’s handbook 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.” However, the court specifically avoided deciding what duties are subject to the 20 percent limit for “related” duties and what duties are properly considered to be part of the tipped employee’s occupation. Because the court sidestepped this issue, hospitality employers are still free to argue, even under Fast v. Applebee’s, that certain preparation duties, such as a waiter’s setting of the table or a bartender’s occasional preparing of cocktail garnishes, are not subject to the 20 percent limit.

Employers need to be aware that additional requirements may apply in some states. For example, in New York, the Hospitality Industry Wage Order requires that when tipped employees work at a non-tipped occupation for two or more hours or for more than 20 percent of their shift, which ever is less, these tipped employees are ineligible for a tip credit for the entire day (not just the “un-tipped” hours, as is the case under the federal law as applied in the Applebee’s decision).

Given the DOL’s stated enforcement policies and the recent surge in wage and hour litigation against hotels and restaurants, hospitality employers should consider implementing preventive measures to assure compliance with the applicable regulations in their jurisdiction.

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