Tipped Workers Win “20% Rule” at 9th Circuit

There has been an important development for tipped workers at the 9th Circuit Court of Appeals. Tipped workers are currently allowed to be paid the reduced minimum wage rate under the tip-credit provisions of the Fair Labor Standards Act (FLSA). The tip-credit provisions of the FLSA permit an employer, under certain circumstances, to pay tipped employees less than the full minimum hourly wage and take a “tip credit” against its minimum wage obligations. However, an employer is not permitted to take a tip credit against its minimum wage if they require its tipped employees to perform non-tipped work that is unrelated to their tipped occupation or if they require them to perform non-tipped work that, although related to the employees’ tipped occupation, exceeds 20 percent of the employees’ time worked. The dual jobs regulation on this “20% Rule” established by the Department of Labor (DOL) states that an employee is entitled to the full minimum wage for any time spent in a non-tipped occupation. Last September, a three-judge panel of the Ninth Circuit Court of Appeals rejected this guidance established by the DOL, finding that it was not entitled to interpret the tip-credit provision this way. Just last week, the full Ninth Circuit reversed the earlier three-judge panel decision, and held that the guidance was rightfully interpreted and clarified by the DOL ultimately reinforcing the validity of the “20% Rule” in the Ninth Circuit.

What brought this decision about?

Several class action lawsuits arguing the “20% Rule” against restaurant chain goliaths like Denny’s, International House of Pancakes, P.F Chang’s, and China Bistro and J. Alexander’s were consolidated on appeal as Marsh v. J. Alexander’s.  These cases alleged that employers underpaid tipped workers for non-tipped tasks such as cleaning toilets, taking out garbage, sweeping floors, washing dishes and setting up work stations. Completing these job requirements took up more than 20 percent of a tipped worker’s shift time leaving them with less time to earn tips while getting paid at a lower rate.

In a 79-page opinion written by U.S Circuit Judge Richard Paez, the court stated the DOL’s regulations rightfully prohibit employers from taking tip credits for non-tipped tasks performed by tipped workers. Due to the ambiguity of the tip-credit regulation, the DOL’s interpretation was both reasonable and consistent with the regulation. The Ninth Circuit believes the DOL acted within reason when issuing the guidance and its accompanying regulation.

What does this mean for tipped workers?

Essentially, the ruling allows these lawsuits to continue as they contain minimum wage violation claims under the Fair Labor Standards Act. If you have been employed as tipped worker who was earning a reduced minimum wage rate known as a tip-credit, you may be owed wages.

What can be done?

If you are employed in the restaurant industry as a tipped worker who performs unrelated tasks, such as cleaning restrooms you may have a claim for unpaid wages. Tipped workers such as servers, bussers and bartenders may be considered dual job employee which could be entitled to the full minimum hourly wage. If you have any concerns about being paid properly, please call the employment lawyers of Fitapelli & Schaffer, LLP at (212) 300-0375 for a free phone consultation. You can also view additional information on our webpage here.