Labor & Employment Law Daily Servers at Denny’s franchisee may pursue minimum wage claims despite latest DOL tip guidance
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Monday, January 20, 2020

Servers at Denny’s franchisee may pursue minimum wage claims despite latest DOL tip guidance

By Ronald Miller, J.D.

Under Auer v. Robbins, courts are required to give controlling weight to an agency’s interpretation of its own regulations unless that interpretation is “plainly erroneous or inconsistent with that regulation.”

A Denny’s franchisee could not convince a court to dismiss a collective action brought by servers at its restaurants who alleged that its pay practices violated federal laws and regulations governing employee pay. The employer based its motion on a new Department of Labor interpretation of the “dual jobs regulation,” which it alleged was controlling. However, the federal district court in Ohio declined to give Auer deference to the DOL’s New Guidance. Rather, the court found that the interpretation advanced by the new tipguidance was unreasonable because it would lead to results inconsistent with the purpose of the dual jobs regulation (O’Neal v. Denn-Ohio, LLC, January 14, 2020, Helmick, J.).

Servers at Denny’s franchise locations in Ohio alleged that their employer violated federal and state statutes and regulations governing employee pay. According to the employees, the employer operated its franchise locations as a “single enterprise” because it performed related activities through unified operations and common control for a common business purpose.

New Guidance. The employer moved to dismiss based on new DOL interpretation of “dual jobs regulation,” 29 C.F.R. §531.56(e). The interpretation is found in two guidance documents: (1) WH opinion letter FLSA2018-27; and Field Assistance Bulletin No. 2019-2, which explain changes made to the Field Operations Handbook (FOH) §30d00(e), collectively the “New Guidance.” According to the employer, the interpretation of the dual jobs regulation advanced in the New Guidance is controlling, and under this interpretation, the employees’ claims in counts one and two must be dismissed.

Before deciding whether dismissal was warranted under this new interpretation of the dual jobs regulation, the court had to decide whether deference to the New Guidance was appropriate. The previous version of the FOH, FOH §30d00(f), permitted an employer to take a tip credit for time spent in duties related to the tipped occupation, even though such duties were not themselves directed toward producing tips, provided such related duties were incidental to the regular duties of the tipped employees and were generally assigned to the tipped employee.

Twenty percent rule. However, where tipped employee spent a substantial amount of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit could be taken for the time spent in those duties. Likewise, an employer could not take a tip credit for the time that a tipped employee spent on work that was not related to the tipped occupation.

However, the DOL took a different path in the New Guidance. Under the new approach there is no limit on the amount of related duties a tipped employee can perform, so long as those duties are performed contemporaneously with direct customer-service duties. To determine which duties are related to a tipped occupation, the New Guidance directs employers to the Occupational Information Network (O*NET), an online database of worker attributes and job characteristics.

Auer deference. Under Auer v. Robbins, courts are required to give controlling weight to an agency’s interpretation of its own regulations unless that interpretation is “plainly erroneous or inconsistent with that regulation.” But in Kisor v. Wilkie, the Supreme Court explained that Auer deference is only appropriate under certain circumstances. The Court set forth a three-step framework to determine whether Auer deference was appropriate in a given case.

First, the court must use all the traditional tools of interpretation to decide whether the regulation at issue is genuinely ambiguous. If so, the court moves to the second step, where it decides whether the agency’s interpretation of the regulation is a reasonable one. Finally, because not every reasonable agency interpretation is entitled to Auer deference, the court must “make an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight.”

Dual jobs regulation ambiguous. As an initial matter, the court determined that the dual jobs regulation is genuinely ambiguous. While it clearly provides that an employee can have two occupations, or a “dual job,” even though working at only one location for one employer, and it clearly states that when a tipped employee is engaged in two occupations, the employer can only tip for the time the employee is engaged in the tipped occupation, the regulation is less clear about when exactly the employee is engaged in dual jobs.

Here, the court found that the interpretation advanced by the New Guidance was unreasonable because it would lead to results inconsistent with the purpose of the dual jobs regulation. The court observed that the dual jobs regulation was intended to prevent employers from evading the requirements of the FLSA by having tipped employees perform non-tipped work that would otherwise be performed by higher paid, non-tipped employees. This purpose was undermined by relying on O*NET, which, at least in part, relies on data obtained by asking employees which tasks employers are asking them to perform. The O*NET definitions will erode the protections established by the dual jobs regulation, it concluded.

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