New DOL Guidance on Tip Credit: Elimination
of "80/20" Rule, Best Practices for Hospitality
Employers
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
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
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-866-258-2056 and enter your PIN when prompted. Otherwise, please
send us a chat or e-mail [email protected] immediately so we can address
the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
FOR LIVE EVENT ONLY
Continuing Education Credits
In order for us to process your continuing education credit, you must confirm your
participation in this webinar by completing and submitting the Attendance
Affirmation/Evaluation after the webinar.
A link to the Attendance Affirmation/Evaluation will be in the thank you email
that you will receive immediately following the program.
For additional information about continuing education, call us at 1-800-926-7926
ext. 2.
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the ^ symbol next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
FOR LIVE EVENT ONLY
Department of Labor Elimination of "80/20" Tip Credit Rule
Presented byMatthew R. Simpson, Fisher & Phillips, LLP
Cheryl A. Luce, Seyfarth Shaw LLPBetsy Davis, LeClairRyan
Strafford
Agenda• Overview of the Prior 80/20 Rule
• Analysis of Current Guidance on the Tip Credit
• Best Practices for Employment Counsel
Strafford
6
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 SimpsonFisher & Phillips, LLP
Strafford
7
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
Strafford
8
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 of 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.
Strafford
9
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.”
Strafford
10
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.
Strafford
11
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.”
Strafford
12
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.
Strafford
13
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.
Strafford
14
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.
Strafford
15
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
Strafford
16
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
Strafford
17
vs.
Dual Jobs
The Old Rule The New Rule
Strafford
18
How to Analyze Dual Jobs• What is tip producing? Doesn’t matter much
now
• What is inside versus outside the tipped occupation?
– See O*Net Summary Reports 35-3031.00 for Waiters and Waitresses and for 35-3011 Bartenders
– Broad definitions of those tipped occupations
Strafford
19
Broad Definitions for Tipped Occupations
All
ow
ed
Du
tie
s f
or
Se
rve
rs
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
Allo
we
d D
uti
es
fo
r B
art
en
de
rs
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
Strafford
20
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
Strafford
21
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 or 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
Strafford
22
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 outside, 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
Strafford
23
W W W . L E C L A I R R Y A N . C O M
Tipped Employees:Employer Best Practices
Betsy DavisLeClairRyan
Strafford
24
Why Do We Care?
Damages and Penalties
• FLSA private right of action for unpaid minimum wage and overtime
• Claims that an employer unlawfully kept employee tips (March 23, 2018)
• Individual claims
• Class action claims
Strafford
25
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
Strafford
26
Best Practices
Strafford
27
Best Practices Ensure that the employer, including its managers
and supervisors, do not keep any portion of employee tips
Strafford
28
Best PracticesEnsure tip credit requirements are satisfied by providing employees with the appropriate notice
Strafford
29
Best PracticesIf 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
Strafford
30
Best PracticesIf a tip credit is taken:
• Avoid unlawful deductions when the employer takes the maximum tip credit
• walk-outs
• breakage or
• cash register shortages
Strafford
31
Best PracticesCalculate 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 overtime pay
• Do not take a larger tip credit for overtime hours than for straight-time hours
Strafford
32
Best PracticesClearly communicate to customers the amount of any service charge that is:• Intended as an administrative fee• Retained by the employer to cover
overhead and other costs• Given to employees.Notify tipped employees of any required tip pool contribution amount.
Strafford
33
Best PracticesUnderstand 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.
Strafford
34
State Tip Credit and Tip Pooling Restrictions: OverviewJurisdiction 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).
Strafford
35
Final Questions
Matthew R. SimpsonFisher & Phillips LLP1075 Peachtree Street, Suite 3500Atlanta, Georgia 30309(404) [email protected]
Betsy DavisLeClairRyan919 East Main Street, 24th Floor Richmond, Virginia 23219 (804) [email protected]
Strafford
Presented by
Cheryl A. LuceSeyfarth Shaw LLP233 South Wacker Drive, Suite 8000 Chicago, IL 60606-6448 (312) [email protected]
36
Thank You
Strafford
Matthew R. SimpsonFisher & Phillips LLP1075 Peachtree Street, Suite 3500Atlanta, Georgia 30309(404) [email protected]
Presented by
Cheryl A. LuceSeyfarth Shaw LLP233 South Wacker Drive, Suite 8000 Chicago, IL 60606-6448 (312) [email protected]
Betsy DavisLeClairRyan919 East Main Street, 24th Floor Richmond, Virginia 23219 (804) [email protected]
37