Full Ninth Circuit to revisit DOL’s interpretation in tip credit case
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Thursday, February 22, 2018

Full Ninth Circuit to revisit DOL’s interpretation in tip credit case

By Pamela Wolf, J.D.

The Ninth Circuit Court of Appeals has agreed to revisit the contentions of former servers and bartenders in a consolidated appeal that their employers improperly claimed the tip credit, thereby failing to pay the required minimum wage. In a February 16 order, the appeals court ordered that the cases be reheard en banc and that the three-judge panel disposition in the cases “shall not be cited as precedent by or to any court of the Ninth Circuit.” Judge Murguia did not participate in the deliberations or vote in these cases.

De facto new regulation? In September 2017, a Ninth Circuit panel ruled for the employers, finding that the Labor Department’s interpretation in its Field Operations Handbook of 29 C.F.R. § 531.56(e) (addressing application of the FLSA’s tip credit provision to the situation in which an employee works for an employer in two different jobs) did not merit controlling deference. The DOL’s interpretation was inconsistent with the dual jobs regulation, the divided panel had found, concluding that it was an attempt to create de facto a new regulation. Although the appeals court agreed with the district court’s analysis of the deference question, it vacated the judgment of the district court to allow the employees an opportunity to propose amended pleadings in light of its holding. The district court had held that the DOL’s interpretation of the regulation was not entitled to deference and concluded that the employees failed to state claims for minimum wage violations.

Paying tipped employees. The FLSA creates a special rule for how an employer can compensate a “tipped employee,” defined as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Employers may pay tipped employees a cash wage of $2.13 and make up the difference between $2.13 and the federal minimum wage by taking a credit for the employee’s tips.

In the district court. In May 2014, the lead plaintiff filed a suit alleging that his employer violated the minimum wage provisions of the FLSA by failing to pay him an appropriate minimum wage. As part of his job as a server, the employee also brewed tea during the opening shift, cut and arranged lemons and limes, cleaned the soft drink dispenser, replaced soft drink syrup, and stocked ice. He was also assigned duties cleaning tables, scrubbing walls, taking out trash, sweeping floors, and cleaning restrooms.

The employer took the tip credit for the entire time the employee spent working, including the time he spent on duties that were not directly connected to generating tips. Because those “related duties” took up more than 20 percent of his working hours, the employee alleged that the employer improperly took a tip credit for the time he spent on “related duties.” The employee relied on the DOL’s interpretation of the dual jobs regulation in Section 531.56(e). According to the employee, he should have been paid a cash wage of $7.25 per hour for time spent on related and unrelated duties that were not directed towards generating tips.

The district court held that the employee’s complaint did not allege that he was working dual jobs, as defined in the dual job regulation, and rejected his reliance on the DOL’s interpretation of the regulation. Alternatively, the district court held that “no minimum wage violation occurs so long as the employer’s total wage paid to an employee in any given workweek divided by the total hours worked in the workweek equal or exceeds the minimum wage rate.” Because the complaint did not allege the employee’s average hourly wage was below the federal minimum wage, he failed to state a claim.

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