Labor & Employment Law Daily DOL opinion letter, handbook update on tip credit not entitled to deference
Monday, July 15, 2019

DOL opinion letter, handbook update on tip credit not entitled to deference

By Ronald Miller, J.D.

Recent DOL interpretive guidance was not entitled to deference because it did not place a limit on the amount of time spent on non-tipped duties to which an employer may apply the tip credit, contrary to the tip credit regulation.

A restaurant employer’s motion to dismiss the “dual jobs” and “side work” claims of servers and bartenders on the basis of a recent Department of Labor opinion letter and Field Operations Handbook (FOH) update was denied by a federal court in Virginia. The court found the new agency issuances were not entitled to Auer or Skidmore deference, because they don’t place any limit on the amount of time spent on non-tipped duties to which an employer may apply the tip credit, which contradicted the tip credit regulation, and the new interpretation “reverses 30-year-old agency policy” (Spencer v. Macado’s, Inc., July 8, 2019, Moon, N.).

Understaffing policy. According to the employees, the employer staffed its restaurants with fewer employees than necessary. This policy of understaffing required employees (1) to perform unrelated non-tip-producing tasks, including cleaning bathrooms, cleaning dishes, and taking out trash, among other tasks, while clocked in as tipped employees (dual jobs); (2) to perform related non-tip-producing tasks, such as cleaning tables and chairs and refilling salt and pepper shakers and condiments, for more than twenty percent of their work time while clocked in as tipped employees (side work); and (3) to perform unpaid work off the clock before and/or after their scheduled shifts—helping other tipped employees serve customers, washing dishes, and assisting with food preparation—at least one to two hours per week. The servers brought a collective action alleging that the employer paid them below the minimum wage in these three distinct ways.

Dual jobs claim. With regard to the dual jobs claim, the servers alleged that they and putative class members routinely spend one to three hours each shift performing tasks entirely unrelated to their tip-producing duties. Following 29 C.F.R. § 531.56(e), “[c]ourts recognize ‘dual jobs’ claims where plaintiffs sufficiently demonstrate that while engaged by an employer as a tipped employee, they spent a portion of their time performing non-tip-producing tasks that were unrelated to their primary role and that more closely resemble tasks traditionally performed in [a] minimum wage occupation [] such as a janitor.”

Side work claim. As to their side work claim, the employees contended that they were required to engage in related, but non-tip-producing tasks for one to three hours per shift, in excess of twenty percent of their work time. This claim also had its roots in § 531.56(e), which provides that an employer can receive a tip credit towards meeting its minimum wage obligations when an employee performs some amount of side work.

But issues arise when an employee engages in these related tasks more than “part of the time” or “occasionally.” Because § 531.56(e) “does not address the impact of an employee performing related duties more than ‘part of [the] time’ or more than ‘occasionally,’” the DOL issued further guidance interpreting these regulations and attempting to clarify the ambiguity.

“Twenty-percent” rule. In 1988, DOL published a FOH which stated that no tip credit could be taken where a tipped employee spends a substantial amount of time (in excess of twenty percent) performing general preparation work or maintenance. Previously, the court declined to decide whether the “twenty percent” rule was entitled to Auer deference, because it concluded the rule was entitled to Skidmore deference. Skidmore deference was found appropriate because the DOL had applied the twenty-percent rule for most of the past 30 years and because the “twenty-percent rule is an eminently reasonable interpretation of the regulation on its own terms,” the court said. The Fourth Circuit has never weighed in on the level of deference courts should afford the twenty-percent rule.

Post-November 2018 developments. On November 8, 2018—during the pendency of this suit—the DOL issued an opinion letter changing the twenty-percent rule. Under the new interpretation, employers are instructed to consult the “Tasks” section of the Occupational Information Network (O*NET), an online job duty database. If a duty is listed as “core” or “supplemental” to the tipped occupation, then it shall be considered directly related to the tip-producing duties of the job, and no limitation is placed on the amount of these duties that may be performed . . . as long as they are performed contemporaneously with the duties involving direct service to customers. On February 15, 2019, DOL issued a revised FOH echoing the November 8 opinion letter.

The employer moved to dismiss the dual jobs and side work claims in light of the new opinion letter and FOH update abandoning the twenty-percent rule. According to the employer, the new DOL opinion letter and FOH update merit both Auer deference and Skidmore deference. The court first analyzed this threshold issue.

Auer deference. Under Auer, “the Court is required to give controlling weight to an agency’s interpretation of its own ambiguous regulations unless that interpretation is ‘plainly erroneously or inconsistent with that regulation,’” or unless the regulation does not “reflect the agency’s fair and considered judgment on the matter in question,” the court wrote. A court should not afford a new agency interpretation Auer deference if the new interpretation “creates unfair surprise to regulated parties.”

Here, the relevant regulation is plainly ambiguous as it does not specify which tasks are “related” to the tipped occupation. Nonetheless, the court declined to give Auer deference to the DOL’s new interpretation. The court found “significant signs” indicating that DOL’s new interpretation does not “reflect the agency’s fair and considered judgment on the matter in question.” The new interpretation “reverses 30-year-old agency policy” and coincided with a change in administration, suggesting that the change was a matter of policy, not an effort to determine the meaning of the regulation. Moreover, the new interpretation contradicted the regulation by eliminating the limit on the amount of related duties an employee can perform.

Skidmore deference. Skidmore deference only requires that a court give “the Department’s interpretation a measure of deference proportional to the ‘thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade.’” For the same reasons the court found it inappropriate to afford DOL’s new interpretation Auer deference, it also found Skidmore deference inappropriate.

No deference due; claims survive. Accordingly, the court declined to give either Auer or Skidmore deference to DOL’s new interpretation purporting to eliminate the twenty-percent rule, and denied the employer’s motion to dismiss the employees’ dual jobs and side work claims.

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