Labor & Employment Law Daily Court rejects latest DOL guidance, certifies FLSA collective challenging sub-minimum pay for untipped work
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Tuesday, May 26, 2020

Court rejects latest DOL guidance, certifies FLSA collective challenging sub-minimum pay for untipped work

By Marjorie Johnson, J.D.

The named plaintiff was denied her bid to pursue a class action under Pennsylvania law, however, since the issue of whether the class members spent more than 20 percent of their time on untipped side work was not susceptible to proof with common evidence.

A federal district court in Pennsylvania has granted conditional certification of a restaurant server’s collective FLSA action alleging that her employer failed to pay a minimum wage by using the tip credit for all time that servers spent performing untipped “side work,” ruling that she made a “modest factual showing” that she was similarly situated to other servers. However, her Rule 23 motion for class certification of her parallel claim under the Pennsylvania Minimum Wage Act (PMWA) was denied since she failed to establish predominance (Reynolds v. Chesapeake & Delaware Brewing Holding, LLC, Sanchez, J.).

In a separate order issued a week earlier denying the parties’ dueling motions for summary judgment, the court rejected the employer’s urging that it apply Department of Labor’s newest “dual jobs” guidance, which would have allowed it to pay the sub-minimum hourly wage to restaurant workers for all related, untipped work. Instead, the court applied the DOL’s prior 20-percent rule, and found that triable issues existed as to whether the server spent enough time performing the untipped side work each week to meet that threshold. A factual dispute also existed as to whether the employer knew or recklessly disregarded their obligations under the FLSA.

Nontipped “side work.” The employer required all servers at its 16 restaurants to perform both tipped work and nontipped side work, which included cleaning, filling condiments, rolling silverware, bussing tables, refilling napkins, preparing dressings and sauces, and running dishes. The restaurants did not track each server’s side-work responsibilities and there was no record of who performed which tasks and for how long. And while these tasks were not directed toward generating tips, the employer considered these duties to be tipped work. In her lawsuit, the server claimed that following her initial training, she was paid $2.83 per hour plus tips, even during the time that she performed excessive amounts of side work.

Tip credit. The FLSA requires employers to pay employees a minimum hourly wage, currently $7.25 per hour, but employers may pay their tipped employees less in wages ($2.13 per hour) and take a credit for tips actually received by the employees to make up the difference between the lesser hourly wage and the minimum wage. To take this tip credit, the employees must be “tipped employees,” which the statute defines as one who is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”

Dual job regulation. At issue was whether the server was “engaged” in a tipped occupation during the time spent performing untipped side work, which required application of the DOL’s “dual job” regulation. Under that regulation, an employee is a tipped employee even when engaging in related untipped duties “part of [the] time” or “occasionally.” However, if a tipped employee has dual jobs―one tipped and one untipped―an employer cannot take a tip credit for hours spent performing the duties of the untipped position.

Competing interpretations. Due to a recent change in the DOL’s own guidance on the dual jobs regulation, the parties disputed how the regulation should be interpreted. From 1985 until 2018, the Department consistently interpreted the regulation as placing a 20 percent limit on the amount of time a tipped employee can spend on untipped related work before the employee will be deemed to be employed in “dual jobs.” However, in late 2018, the agency reversed course and interpreted the regulation as allowing employers to pay the sub-minimum hourly wage for all related, untipped work no matter how much time a tipped employee spends performing the untipped work, if that work is performed alongside tipped duties.

Court applies 20-percent rule. Ruling that the DOL’s new interpretation of the dual jobs regulation was unreasonable, the court declined to defer to it. It adopted the another district court’s analysis in Belt v. P.F. Chang’s China Bistro, Inc. which concluded that the new interpretation was unreasonable because it removed any limitation on the amount of untipped related work, contradicting the dual jobs regulation’s “unequivocal temporal limitations and is internally inconsistent as to whether there is any limit on side work.”

Based on the “best and most reasonable” interpretation of the dual job regulation, the court concluded that the server was not engaged in a tipped occupation when performing untipped side work during any workweek in which she spent more than 20 percent of her time performing that untipped work. Accordingly, to the extent that she could prove that she spent more than 20 percent of her time performing untipped side work in a workweek, the employer was not entitled to take a tip credit for those hours of untipped work.

Triable issues. Whether the server could succeed on her claims thus depended on the amount of time she spent each week performing untipped side work, which was disputed. After thoroughly reviewing the record, the court determined that a reasonable jury could find that she spent more than 20 percent of her time performing untipped side work. However, there was also evidence supporting the employer’s position that she did not. A triable issue also existed on the issue of whether the employer acted willfully or innocently.

Conditional collective certification. Granting conditional collective certification of the server’s FLSA class, the court found that she made a “modest factual showing” of a nexus between the manner in which the employer’s compensation policy affected her, and the manner in which it affected the proposed collective action members. In particular, the record demonstrated that servers at all restaurant locations were paid under a server “job code,” and were all paid using a tip credit for all hours they were clocked in under that code, including the side work that they were all expected to complete.

Rule 23 certification denied. However, the employee was not entitled to Rule 23 certification of the state law class. The court first found that she had established Rule 23(a)’s requirements of numerosity, typicality and adequacy. However, she failed to meet Rule 23(b)(3)’s requirement of predominance since the issue of whether the class members spent more than 20 percent of their time on untipped side work was not susceptible to proof with common evidence.

Record didn’t show class members met threshold. To show liability to the class, the plaintiff would have to show that each class member met the 20-percent threshold. However, the record contained “little to no” evidence of how much time servers spent performing untipped side work. While it contained evidence of how much time she herself spent performing untipped side work—including her own testimony, her payroll records, and the side work she was typically assigned—the other class members could not rely on such evidence to show that the employer was liable to them.

There was no evidence showing other class members clocked in well before their shift, clocked out long after they closed their last customer check, or how much side work they performed throughout their shifts. Accordingly, the essential element of whether the class members spent more than 20 percent of their time on untipped side work was an individual question.

Uniform policies didn’t establish liability. Contrary to the server’s contention, these individual differences among the class members were relevant not only to damages, but to the employer’s liability. And even if servers all operated under the employer’s uniform policies, those policies only created liability if they required servers to spend more than 20 percent of their time on untipped side work, and there was no common evidence that would prove that they did. Thus, while the uniform policies were common to the class members, they did not change the class members’ burden to show they met the 20-percent threshold.

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