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8th Cir.: DOL’s 20% Rule, As Applicable to Tipped Employees Entitled to “Chevron” Deference; Relaxed Evidentiary Burden on Employees, Where Employer Failed to Maintain Proper Records Distinguishing Between Tipped and Non-Tipped Duties
Fast v. Applebee’s International, Inc.
This case was before the Eighth Circuit on Applebee’s interlocutory appeal of the district court’s denial of its motion for summary judgment. The primary issue in the case was how to properly apply the “tip credit” to employees whom both sides agree are “tipped employees” but who perform both tipped and non-tipped (dual) jobs for the employer. Relying on 29 C.F.R. § 531.56(e), the district court applied the so-called 20% rule promulgated by the D.O.L., requiring an employer to pay a tipped employee regular minimum wage to employees who spend more than 20% of their work time in a given week performing non-tipped duties. Applebee’s challenged the ruling and asserted that the “dual job” regulations were inconsistent with 29 U.S.C. § 203(m) or the FLSA. Affirming the decision below, the Eighth Circuit held that the D.O.L.’s regulations were entitled to “Chevron” deference and explained:
“Applebee’s argues that neither the statute nor the regulation places a quantitative limit on the amount of time a tipped employee can spend performing duties related to her tipped occupation (but not themselves tip producing) as long as the total tips received plus the cash wages equal or exceed the minimum wage. The regulation, to which we owe Chevron deference, makes 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.” § 531.56(e). By 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. “Occasionally” is defined as “now and then; here and there; sometimes.” Webster’s Third New Int’l Unabridged Dictionary 1560 (1986); see also United States v. Hackman, 630 F.3d 1078, 1083 (8th Cir. 2011) (using dictionary to determine ordinary meaning of a term used in the commentary to the United States Sentencing Guidelines). The term “occasional” is also used in other contexts within the FLSA, such as in § 207, which allows a government employee to work “on an occasional or sporadic basis” in a different capacity from his regular employment without the occasional work hours being added to the regular work hours for calculating overtime compensation. See 29 U.S.C. § 207(p)(2). The DOL’s regulation defines occasional or sporadic to mean “infrequent, irregular, or occurring in scattered instances.” 29 C.F.R. § 553.30(b)(1). Thus, the DOL’s regulations consistently place temporal limits on regulations dealing with the term “occasional.”
A temporal limitation is also consistent with the majority of cases that address duties related to a tipped occupation. The length of time an employee spends performing a particular “occupation” has been considered relevant in many cases. For example, even when the nontip-producing duties are related to a tipped occupation, if they are performed for an entire shift, the employee is not engaged in a tipped occupation and is not subject to the tip credit for that shift. See, e.g., Myers v. Copper Cellar Corp., 192 F.3d 546, 549-50 (6th Cir. 1999) (noting that 29 C.F.R. § 531.56(e) “illustrat[es] that an employee who discharges distinct duties on diverse work shifts may qualify as a tipped employee during one shift” but not the other and holding that servers who spent entire shifts working as “salad preparers” were employed in dual jobs, even though servers prepared the very same salads when no salad preparer was on duty, such that including salad preparers in a tip pool invalidated the pool); Roussell v. Brinker Int’l, Inc., No. 05-3733, 2008 WL 2714079, **12-13 (S.D. Tex. 2008) (employees who worked entire shift in Quality Assurance (QA) were not tipped employees eligible to be included in tip pool even though servers performed QA duties on shifts when no QA was working; court “agrees that such work likely can be considered incidental to a server’s job when performed intermittently,” but distinguished full shifts). The same is true of nontipped duties performed during distinct periods of time, such as before opening or after closing. See Dole v. Bishop, 740 F. Supp. 1221, 1228 (S.D. Miss. 1990) (“Because [the] cleaning and food preparation duties [performed for substantial periods of time before the restaurant opened] were not incidental to the waitresses’ tipped duties, the waitresses were entitled to the full statutory minimum wage during these periods of time.”). Conversely, where the related duties are performed intermittently and as part of the primary occupation, the duties are subject to the tip credit. See, e.g., Pellon v. Bus. Representation Int’l, Inc., 528 F. Supp. 2d 1306, 1313 (S.D. Fla. 2007) (rejecting skycap employees’ challenge to use of the tip credit where “the tasks that allegedly violate the minimum wage are intertwined with direct tip-producing tasks throughout the day”), aff’d, 291 F. Appx. 310 (11th Cir. 2008).
Because the regulations do not define “occasionally” or “part of [the] time” for purposes of § 531.56(e), the regulation is ambiguous, and the ambiguity supports the DOL’s attempt to further interpret the regulation. See Auer, 519 U.S. at 461. We believe that the DOL’s interpretation contained in the Handbook—which concludes that employees who spend “substantial time” (defined as more than 20 percent) performing related but nontipped duties should be paid at the full minimum wage for that time without the tip credit—is a reasonable interpretation of the regulation. It certainly is not “clearly erroneous or inconsistent with the regulation.” Id. The regulation places a temporal limit on the amount of related nontipped work an employee can do and still be considered to be performing a tipped occupation. The DOL has used a 20 percent threshold to delineate the line between substantial and nonsubstantial work in various contexts within the FLSA. For example, an “employee employed as seaman on a vessel other than an American vessel” is not entitled to the protection of the minimum wage or overtime provisions of the FLSA. See 29 U.S.C. § 213(a)(12). The DOL recognized that seamen serving on such a vessel sometimes perform nonseaman work, to which the FLSA provisions do apply, and it adopted a regulation that provides that a seaman is employed as an exempt seaman even if he performs nonseaman work, as long as the work “is not substantial in amount.” 29 C.F.R. § 783.37. “[S]uch differing work is ‘substantial’ if it occupies more than 20 percent of the time worked by the employee during the workweek.” Id. Similarly, an employee employed in fire protection or law enforcement activities may perform nonexempt work without defeating the overtime exemption in 29 U.S.C. § 207(k) unless the nonexempt work “exceeds 20 percent of the total hours worked by that employee during the workweek.” 29 C.F.R. § 553.212(a). And an individual providing companionship services as defined in 29 U.S.C. § 213(a)(15) does not defeat the exemption from overtime pay for that category of employee by performing general household work as long as “such work is incidental, i.e., does not exceed 20 percent of the total weekly hours worked.” 29 C.F.R. § 552.6. The 20 percent threshold used by the DOL in its Handbook is not inconsistent with § 531.56(e) and is a reasonable interpretation of the terms “part of [the] time” and “occasionally” used in that regulation.”
Determining that the issue was not properly before it, the court declined to answer the question of what duties are incidental to the tipped employee duties and what duties are not, stating:
“We note that the parties dispute which specific duties are subject to the 20 percent limit for related duties in a tipped occupation and which duties are the tip producing part of the server’s or bartender’s tipped occupation itself. The regulation lists activities such as “cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses” as “related duties in . . . a tipped occupation.” § 531.56(e). The Handbook repeats these examples and states that the 20 percent limit applies to “general preparation work or maintenance.” (Appellant’s Add. at 32, DOL Handbook § 30d00(e).) Although the district court stated that “it was for the Court to decide what duties comprise the occupation of a server or bartender” (Dist. Ct. Order at 6 n.3), the order under review did not do so and concluded only that “[e]mployees may be paid the tipped wage rate for performing general preparation and maintenance duties, so long as those duties consume no more than twenty percent of the employees’ working time” (id. at 15). To the extent that questions remain concerning which duties the 20 percent rule applies to, those issues are beyond the scope of this interlocutory appeal, and we do not address them. We hold only that the district court properly concluded that the Handbook’s interpretation of § 531.56(e) governs this case.”
Lastly, citing the Supreme Court’s Mt. Clemens decision, the court held that the “recordkeeping rule” applies in situations where the employer fails to maintain sufficient records to distinguish between time spent performing tipped duties and non-tipped duties.
Click Fast v. Applebee’s International, Inc. to read the entire decision.
DOL Publishes New FLSA Rules, Rejecting Pro-Employer Changes to Fluctuating Workweek and Comp Time, Clarifying Tip Credit Rules
On April 5, the Department of Labor (DOL) published its updates to its interpretative regulations regarding the Fair Labor Standards Act (FLSA) in the Federal Register. to go into effect 30 days later. The Updating Regulations, revise out of date CFR regulations. Specifically, these revisions conform the regulations to FLSA amendments passed in 1974, 1977, 1996, 1997, 1998, 1999, 2000, and 2007, and Portal Act amendments passed in 1996.
As noted by several commentators, the final regulations are noteworthy for what was not included as much as for what was. Below is a brief description of the most significant changes and those changes originally proposed, that were not adopted:
Fluctuating Workweek Under 29 C.F.R. §778.114
The proposed regulations issued by DOL in 2008 under the Bush administration (73 Fed. Reg. 43654) would have amended regulations on the “fluctuating workweek” method of calculating overtime pay for nonexempt employees who have agreed to received pay in the form of fixed weekly payments rather than in the form of an hourly wage. The proposed regulations would have amended 29 C.F.R. §778.114 to permit payments of non-overtime bonuses and incentives (such as shift differentials) “without invalidating the guaranteed salary criterion required for the half-time overtime pay computation.” The DOL left out this proposed change from the final rules however, saying it had “concluded that unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime.” Explaining the decision not to amend the FWW reg, the DOL noted that “several commenters … noted that the proposal would permit employers to reduce employees’ fixed weekly salaries and shift the bulk of the employees’ wages to bonus and premium pay” contra to the FLSA’s intent. The DOL’s decision to decline the proposed amendment is consistent with virtually all case law on this issue, as discussed here and here.
The DOL has also decided to revise the proposed regulations’ interpretation of Congress’ 1974 amendment, section 3(m) of the FLSA, to require advance notice to tipped employees of information about the tip credit the employer is permitted to take based on its employees’ tips. The final rule combines existing regulatory provisions to assure such employees are notified of the employer’s use of the tip credit, and how the employer calculates it. This regulation too is consistent with case law on the subject, requiring advanced notice of the tip credit.
The final rules also do not include a proposed change that would have allowed public-sector employers to grant employees compensatory time requested “within a reasonable period” of the request, instead of on the specific dates requested. Instead, the final rule will leave the regulations unchanged, “consistent with [DOL’s] longstanding position that employees are entitled to use compensatory time on the date requested absent undue disruption to the agency.”
The new CFR regulations go into effect on May 5, 2011.
According to a DOL press release just issued:
A proposed rule that seeks to improve the H-2B temporary nonagricultural worker program and better protect American workers has just been promulgated. “The proposed rule, to be published in the Federal Register tomorrow, addresses the calculations used to set wage rates for H-2B workers.
The H-2B program allows the entry of foreign workers into the U.S. when qualified American workers are not available and when the employment of foreign workers will not adversely affect the wages and working conditions of similarly employed American workers. The H-2B program is limited by law to a program cap of 66,000 visas per year…
The previous administration promulgated H-2B regulations and did not seek comment in the rulemaking process on the data used to set wage rates. Since the 2008 final rule took effect, however, the department has grown increasingly concerned that the current calculation method does not adequately reflect the appropriate wages necessary to ensure American workers are not adversely affected by the employment of H-2B workers. On Aug. 30, the U.S. District Court for the Eastern District of Pennsylvania ruled that the regulations issued by the department in 2008 had violated the Administrative Procedure Act. The court ordered the department to promulgate new rules that are in compliance with the APA concerning the calculation of the prevailing wage rate in the H-2B program no later than 120 days from the date of the order. Today’s announcement begins the process of complying with the order and with achieving the department’s goal of fully protecting the job opportunities and wages of American workers. The department anticipates a future rulemaking that will address other aspects of the H-2B program.
The proposed regulation would require employers to pay H-2B and American workers recruited in connection with an H-2B job application a wage that meets or exceeds the highest of: the prevailing wage, the federal minimum wage, the state minimum wage or the local minimum wage.
Under the proposed rule, the prevailing wage would be based on the highest of the following:
- Wages established under an agreed-upon collective bargaining agreement.
- A wage rate established under the Davis-Bacon Act or the Service Contract Act for that occupation in the area of intended employment.
- The arithmetic mean wage rate established by the Occupational Employment Statistics wage survey for
that occupation in the area of intended employment.
The proposed rule eliminates the use of private wage surveys, as well as the current four-tier wage structure that differentiates wage rates by the theoretical level of experience, education and supervision required to perform the job, a system that is not relevant to the unskilled positions generally involved in the H-2B program.
Interested persons are invited to submit comments on this proposed rule via the federal e-rulemaking portal at http://www.regulations.gov.”
“Change is too slow coming for the nation’s one million home care aides. In 2007, the Supreme Court unanimously upheld a 1975 federal labor regulation that defines home care aides as ‘companions.’ That definition exempts home care employers — often for-profit agencies — from having to pay the federal minimum wage or time and a half for overtime.
In explaining their decision, the justices pointed out that the law gives the Labor Department, not the court, the power to change the regulation. Yet, more than two years later, the regulation still stands.
Last month, 15 senators sent a letter to Hilda Solis, President Obama’s labor secretary, urging her to eliminate the “companion” exemption. A month earlier, 37 House members sent a similar letter. But beyond a statement from Ms. Solis expressing concern and pledging to look into the matter, there has been no progress.”
Go here, to read the entire editorial piece appearing in the July 9, 2009, New York Times.