New DOL Guidance on Tip Credit: Elimination of "80/20" - - PowerPoint PPT Presentation

New DOL Guidance on Tip Credit: Elimination

• f "80/20" Rule, Best Practices for Hospitality

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TUESDAY, FEBRUARY 19, 2019

Presenting a live 90-minute webinar with interactive Q&A Mary Elizabeth Davis, Member, LeClairRyan, Richmond, Va. Cheryl A. Luce, Attorney, Seyfarth Shaw, Chicago Matthew R. Simpson, Partner, Fisher & Phillips, Atlanta

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Department of Labor Elimination

• f "80/20" Tip Credit Rule

Presented by Matthew R. Simpson, Fisher & Phillips, LLP Cheryl A. Luce, Seyfarth Shaw LLP Betsy Davis, LeClairRyan

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Agenda

• Overview of the Prior 80/20 Rule
• Analysis of Current Guidance on the Tip Credit
• Best Practices for Employment Counsel

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W W W . F I S H E R P H I L L I P S . C O M

Overview of the Prior 80/20 Rule

Matthew Simpson Fisher & Phillips, LLP

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FLSA Basics

• Minimum Wage of $7.25 per hour for all hours worked
• Overtime premium for hours worked over 40 in a

workweek

• Accurate time records for all non-exempt employees

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The Tip Credit

• The FLSA permits employers to satisfy minimum wage

requirements by paying a “tipped employee”:

• A cash wage of at least $2.13 per hour; plus
• An additional amount on account of the tips received by the

employee which equals the difference between the cash wage (at least $2.13 per hour) and federal minimum wage ($7.25 per hour).

• To take the tip credit, the employer must inform the employee
• f the tip credit provisions, and all tips received by the

employee must be retained by the employee, unless there exists a tip pool among employees who customarily and regularly receive tips.

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What Is a Tipped Employee?

A tipped employee is “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”

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Dual Jobs and Related Duties

• Where an employee works “dual jobs,” DOL states that

the employee may only take the tip credit for those hours worked in the job in which the employee is a “tipped employee.”

• For example, where an employee works as a waiter and

as a maintenance man, the employee may only take the tip credit for hours worked as a waiter.

• In contrast, where a waitress spends part of her time

cleaning and setting tables, toasting bread, making coffee, and occasionally washing dishes or glasses, she is merely performing “related duties” and may take the tip credit for all hours worked.

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DOL Enforcement Guidance

• In its Field Operations Handbook, DOL affirmed that an

employer may take a tip credit where a tipped employee performs “related duties,” “provided such related duties are incidental to the regular duties of the tipped employees and are generally assigned to the tipped employee.”

• DOL then stated that where the tipped employee spends

more than 20% of time “performing related duties, no tip credit may be taken for the time spent in those duties.”

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DOL Enforcement Guidance

• To comply with DOL enforcement guidance, employers

were therefore expected to ensure that “tipped employees” spent at least 80% of their time performing “tipped duties.”

• Time spent performing preparatory or closing activities,

rolling silverware and filling salt and pepper shakers, cleaning and setting tables, making coffee, and washing dishes or glasses could not exceed 20% of the employee’s total hours worked.

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Case Law Applying the 80/20 Rule

• District and circuit courts were split on application of DOL

enforcement guidance.

• In Fast v. Applebee’s, the Eighth Circuit adopted DOL

enforcement policy precluding tipped employees from spending 20% or more of their time on non-tip related duties.

• Most recently, in Marsh v. J. Alexander’s, the Ninth Circuit

adopted DOL enforcement policy precluding tipped employee’s from spending 20% or more of their time on non-tip related duties.

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DOL (Almost) Withdraws 80/20 Rule

• On January 16, 2009, DOL issued an opinion letter

rescinding the 80/20 rule.

• On March 2, 2009, the DOL withdrew the opinion letter

“for further consideration” and stated that it would “provide a further response in the near future.”

• No further response was given by DOL until 2018.

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W W W . S E Y F A R T H . C O M

Elimination of the 80/20 Rule and the Tip Income Protection Act

Cheryl A. Luce Seyfarth Shaw LLP

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The DOL Eliminates the 80/20 Rule

• DOL recognized that 20% rule is impracticable and bred litigation
• On November 8, 2018, DOL issued opinion letter taking position

that: “no limit is placed on the amount of [related but non-tipped duties that may be performed … as long as they are” either:

• 1. “performed contemporaneously with the duties

involving direct service” or

• 2. “for a reasonable time immediately before or after

performing such direct-service duties”

• Noted that revised FOH would be forthcoming
• On February 15, 2019 the DOL issued a Field Assistance Bulletin

noting that the WHD has a unified enforcement position that the 20% rule is laid to rest

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vs.

Dual Jobs

The Old Rule The New Rule

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How to Analyze Dual Jobs

• What is tip producing? Doesn’t matter much

now

• What is inside versus outside the tipped
• ccupation?

– See O*Net Summary Reports 35-3031.00 for Waiters and Waitresses and for 35- 3011 Bartenders – Broad definitions of those tipped

• ccupations

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Broad Definitions for Tipped Occupations

Allowed Duties for Servers

Bus tables Clean tables or counters after patrons have finishing dining Prepare tables for meals, including setting up items such as linens, silverware, and glassware Perform cleaning duties, such as sweeping and mopping floors, vacuuming carpet, tidying up server station, etc. Roll silverware, set up food stations, or set up dining areas to prepare for next shift or for large parties Stock service areas with supplies such as coffee, food tableware, and linens Fill salt, pepper, sugar, cream, condiment, and napkin containers Perform food preparation duties such as preparing salads, appetizers, and cold dishes, portioning desserts, and brewing coffee Garnish and decorate dishes in preparation for serving

Allowed Duties for Bartenders

Clean glasses, utensils, and bar equipment Balance cash receipts Clean bars, work areas, and tables Stock bar with beer, wine, liquor, and related supplies such as ice, glassware, napkins, or straws Slice and pit fruit for garnishing drinks Arrange bottles and glasses to make attractive displays Create drink recipes Order or requisition liquor or supplies Plan bar menus Prepare appetizers such as pickles, cheese, and cold meats

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How will courts respond?

• The 20% rule was followed by the Eighth and Ninth Circuit

Courts of Appeals and several lower courts

• But valid because the DOL’s interpretation of its own

regulations was reasonable and entitled to deference

• In early January 2019, a federal district judge in the Western

District of Missouri attempted to resurrect the DOL tip credit guidance

• This case is likely an anomaly that was would have come out

differently had the litigation not been pending so long

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Tip Income Protection Act

“An employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of the employees’ tips, regardless of whether

• r not the employer takes a tip credit.”
• Managers and supervisors can never participate in the pool
• Can back of the house employees participate in the pool?
• If the tip credit taken, no
• If no tip credit taken, legally allowed, unless state law says no
• Creates a remedy for violating this provision “in the amount of the sum of any tip credit taken

by the employer and all such tips unlawfully kept by the employer, and an additional equal amount in damages” and imposes a civil penalty of up to $1,000 for each violation.

• Fundamentally changes the FLSA and creates a federal remedy for tips
• Makes it easier for tip retention cases to get nationwide certification

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Key Takeaways

• In general, more flexibility for hospitality employers, who no longer need to

track time spent on various tasks

• No longer a focus on what is a tip-producing activity if it occurs

contemporaneously or shortly before/after time when employees start performing tip-producing activities

• Monitor whether employees are inside or outside a tipped occupation, and if
• utside, making sure that they don’t participate in the tip pool, because there

are stronger remedies under TIPA

• Even though the DOL changed its enforcement position, plaintiffs’ attorneys may

still try to keep the 20% rule alive

• Beware of state law issues and service charge issues
• Make sure that the tip credit and tip pool requirements are met

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W W W . L E C L A I R R Y A N . C O M

Tipped Employees: Employer Best Practices

Betsy Davis LeClairRyan

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Why Do We Care?

Damages and Penalties

• FLSA private right of action for unpaid minimum wage and
• vertime
• Claims that an employer unlawfully kept employee tips

(March 23, 2018)

• Individual claims
• Class action claims

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Why Do We Care?

Employers that violate the tip retention provision “shall be” liable for:

• All tips unlawfully kept by the employer

plus the amount of any tip credit taken

• Liquidated damages
• Equitable relief

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Best Practices

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Best Practices

• Ensure that the employer, including its managers

and supervisors, do not keep any portion of employee tips

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Best Practices

Ensure tip credit requirements are satisfied by providing employees with the appropriate notice

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Best Practices

If a tip credit is taken:

• Restrict participation in any mandatory tip

pool to tipped employees

• Apply the tip credit to only those hours

spent in the tipped occupation if a worker performs dual jobs

• Make up the difference in additional cash

wages if an employee’s cash wages plus actual tips received equal less than the minimum wage per hour

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Best Practices

If a tip credit is taken:

• Avoid unlawful deductions when the employer

takes the maximum tip credit

• walk-outs
• breakage or
• cash register shortages

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Best Practices

Calculate overtime pay correctly:

• Include in regular rate any portion of service charges

distributed to employees

• Use the full minimum wage (not cash wage) to calculate
• vertime pay
• Do not take a larger tip credit for overtime hours than for

straight-time hours

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Best Practices

Clearly communicate to customers the amount of any service charge that is:

• Intended as an administrative fee
• Retained by the employer to cover
• verhead and other costs
• Given to employees.

Notify tipped employees of any required tip pool contribution amount.

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Best Practices

Understand applicable state and local law, including those that:

• Impose a higher minimum wage;
• Reduce or eliminate the available tip credit; or
• Limit or prohibit deductions for credit card fees.

Regularly audit tip credit, tip pooling, employee notice, and service charge policies and practices to ensure ongoing compliance.

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State Tip Credit and Tip Pooling Restrictions: Overview

Jurisdiction Definition of “Tipped Employees” Mandatory Tip Pools Maximum Hourly Tip Credit/Minimum Hourly Cash Wage Federal Employees in occupations where they customarily and regularly receive more than $30 a month in tips (29 U.S.C. § 203(t)). Mandatory tip pooling is limited to tipped employees if the employer takes a tip credit (29 U.S.C. § 203(m); 29 C.F.R. § 531.54; see also Practice Note, Tipped Employees Under the FLSA: Mandatory Tip Pooling). Minimum cash wage is $2.13. Based on a federal minimum wage of $7.25, the maximum tip credit is $5.12. Actual tips per hour must equal at least the tip credit

• amount. Actual tips plus cash wages must equal at

least the federal minimum wage. (29 U.S.C. § 203(m); 29 C.F.R. § 531.59.) Georgia Not specified. Not specified. Not specified. Illinois Employees in occupations where tips are customarily and usually part of an employee’s compensation for hiring purposes (820 Ill. Comp. Stat. § 105/4(c); see also Driver v. AppleIllinois, LLC, 917 F.

• Supp. 2d 793, 799-800 (N.D. Ill. 2013)).

Not specified. Illinois courts have allowed mandatory tip pooling arrangements (without analysis), provided the employer does not retain any portion of the tips (see, for example, Driver, 917 F. Supp. 2d at 795-96; Williams-Green v.

• J. Alexander’s Rests., Inc., 277 F.R.D. 374,

376-79 (N.D. Ill. 2011)). Maximum tip credit is 40% of the minimum wage. Employers must provide “substantial evidence” that actual tips equal at least the tip credit taken and no tips were returned to the employer. Employers must notify employees in writing if the tip credit changes from the amount taken in the previous pay period. (820 Ill. Comp. Stat. 105/4(c); Ill. Admin. Code tit. 56, § 210.720; see also Driver, 917 F. Supp. 2d at 800; Williams-Green, 277 F.R.D. at 378-79.) Virginia Not specified. Not specified. Maximum tip credit is employer-determined, as long as actual tips equal at least that amount (and subject to the federal maximum tip credit) (Va. Code. Ann. §§ 40.1-28.9(D), 40.1-28.10).

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Final Questions

Matthew R. Simpson Fisher & Phillips LLP 1075 Peachtree Street, Suite 3500 Atlanta, Georgia 30309 (404) 231-1400 msimpson@fisherphillips.com Betsy Davis LeClairRyan 919 East Main Street, 24th Floor Richmond, Virginia 23219 (804) 783-2003 betsy.davis@leclairryan.com

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Presented by

Cheryl A. Luce Seyfarth Shaw LLP 233 South Wacker Drive, Suite 8000 Chicago, IL 60606-6448 (312) 460-5000 cluce@seyfarth.com

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Thank You

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Matthew R. Simpson Fisher & Phillips LLP 1075 Peachtree Street, Suite 3500 Atlanta, Georgia 30309 (404) 231-1400 msimpson@fisherphillips.com

Presented by

Cheryl A. Luce Seyfarth Shaw LLP 233 South Wacker Drive, Suite 8000 Chicago, IL 60606-6448 (312) 460-5000 cluce@seyfarth.com Betsy Davis LeClairRyan 919 East Main Street, 24th Floor Richmond, Virginia 23219 (804) 783-2003 betsy.davis@leclairryan.com

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