Here We Go Again – DOL Issues New Guidance on When to Use the Tip Credit Rate

April 23, 2019

The United States Department of Labor has made its next move in the continuing policy battle concerning when restaurants can pay service employees the tip credit wage. While at first glance this may seem like a positive change for the restaurant industry, it remains unclear whether the Courts will give the new guidance deference. As a result, there is continuing confusion about when and how to pay tipped employees sub-minimum wage. Here is the latest:

Where did we leave off? You may recall from prior blog posts, that the DOL previously issued an Opinion Letter which purported to change prior DOL Guidance by eliminating the longstanding 20% Rule for how much time during a workweek that a tipped employee may perform side work while getting paid the tip credit wage. The Opinion Letter also purported to redefine what duties may constitute appropriate side work by, among other things, setting out a more expansive scope of duties for acceptable side work than what the courts and the DOL had previously allowed.

On February 15, 2019, the DOL announced that it had issued new Guidance concerning the application of the tip credit wage for tipped employees. The new Guidance adopts virtually wholesale the rules set forth in the prior Opinion Letter.

This means that whereas for decades prior DOL Guidance provided that tipped employees could be paid the tip credit wage while performing non-tipped duties only if those duties were “incidental” to service, “generally assigned” to tipped employees, and took up no more than more than 20% of a tipped employee’s work time during the week, under this new DOL scheme, an employer would not, under the new Guidance, be prohibited from taking a tip credit based on the amount of time an employee spends performing duties related to a tip-producing occupation. Rather, the new Guidance would expressly permit employers to take a tip credit for any amount of time that an employee spends on related, non-tipped duties and regardless of whether they involve direct customer service, so long as they are performed contemporaneously with the tipped duties—or for a reasonable time immediately before or after performing the tipped duties.

What are the specifics under the New Guidance? The new DOL scheme further provides that the duties listed as “core” or “supplemental” in the “Tasks” section of the “Details” tab in the Occupational Information Network (“O*NET”) for waiters and waitresses, will be considered related to a tipped occupation. Those tasks include:

  • Take orders from patrons for food or beverages.
  • Check with customers to ensure that they are enjoying their meals and take action to correct any problems.
  • Check patrons’ identification to ensure that they meet minimum age requirements for consumption of alcoholic beverages.
  • Collect payments from customers.
  • Write patrons’ food orders on order slips, memorize orders, or enter orders into computers for transmittal to kitchen staff.
  • Prepare checks that itemize and total meal costs and sales taxes.
  • Present menus to patrons and answer questions about menu items, making recommendations upon request.
  • Remove dishes and glasses from tables or counters and take them to kitchen for cleaning.
  • Serve food or beverages to patrons, and prepare or serve specialty dishes at tables as required.
  • Clean tables or counters after patrons have finished dining.
  • Prepare tables for meals, including setting up items such as linens, silverware, and glassware.
  • Explain how various menu items are prepared, describing ingredients and cooking methods.
  • Assist host or hostess by answering phones to take reservations or to-go orders, and by greeting, seating, and thanking guests.
  • Escort customers to their tables.
  • Perform cleaning duties, such as sweeping and mopping floors, vacuuming carpet, tidying up server station, taking out trash, or checking and cleaning bathroom.
  • Inform customers of daily specials.
  • Prepare hot, cold, and mixed drinks for patrons, and chill bottles of wine.
  • Roll silverware, set up food stations, or set up dining areas to prepare for the next shift or for large parties.
  • Stock service areas with supplies such as coffee, food, tableware, and linens.
  • Bring wine selections to tables with appropriate glasses, and pour the wines for customers.
  • Fill salt, pepper, sugar, cream, condiment, and napkin containers.
  • Describe and recommend wines to customers.
  • Perform food preparation duties such as preparing salads, appetizers, and cold dishes, portioning desserts, and brewing coffee.
  • Provide guests with information about local areas, including giving directions.
  • Garnish and decorate dishes in preparation for serving.

A word of caution before any restaurant decides to change its practices based on this new DOL Guidance. If the Guidance sticks, an employer may take a tip credit for any amount of time a server who is a tipped employee spends performing these related duties. If the duties are outside this list, they must be paid at the full minimum wage, unless the time spent in the task is de minimis. Employers remain prohibited from keeping tips received by their employees, regardless of whether the employer takes a tip credit under the Fair Labor Standards Act.

However (and it is a BIG however), as we have discussed in greater detail in prior articles, the Federal courts who have recently (albeit prior to the recent new Guidance issued on February 15, 2019) decided cases concerning the application of the tip credit wage have indicated an inclination to reject the new guidance in favor of the prior 20% Rule. One Court upheld the 20% Rule, finding that it had the force of law and would be enforced by the courts in part due to the over 30-year history of the DOL applying such rule consistently without challenge (Alec Marsh v. J. Alexander’s) and another rejected the DOL’s new standard set forth in its 2018 Opinion Letter for applying the tip credit and refusing to enforce it because the DOL issued the Opinion Letter hurriedly and without the necessary process required for changing longstanding legal precedent relied on by potential parties (Cope et al. v. Let’s Eat Out, Inc.). Whether such reasoning would apply to the new Guidance issued last month remains to be seen.

Where does this Leave Restaurant Employers? Unfortunately for restaurants, the applicable rule for determining what rate to pay tipped employees remains up in the air. While there is new, beneficial DOL Guidance that says employees may spend any amount of time on the listed duties performed contemporaneously with the tipped duties or for a reasonable time immediately before or after performing the tipped duties, there are federal court decisions that reject this scheme, at least when it was initially suggested in the DOL’s Opinion Letter of 2018. While it remains unclear how other federal courts will decide on these matters going forward under the new Guidance, future plaintiffs are likely to rely on Cope and Alec Marsh to try to convince other jurisdictions to apply the 20% Rule as opposed to the standard set forth in the DOL’s new Guidance. Moreover, even the new Guidance contains ambiguity. For example, there is the issue of what constitutes a “reasonable amount of time before and after direct service to customers to perform these duties remains.” This new standard has simply not been tested yet in the courts.

Restaurants must keep in mind that federal law is both uncertain and rapidly changing. The issuance of a new DOL Guidance does not immediately change what courts will consider to be reasonable. Indeed, the Courts, and not the DOL, are the final arbiters of federal law. Thus, even if shorter or longer times performing tasks before serving customers may be considered “reasonable,” continuing to abide by the 20% Rule may well give employers an additional defense to such claims. At this point, employers may decide to comply with both Guidance schemes to avoid challenges from the DOL on the one hand or plaintiffs’ lawyers on the other hand. Thus, while it might not have been the intent, the DOL’s action increases complexity rather than simplicity.

Moreover, restaurants should be aware that they must also comply with the state’s minimum wage statutes and regulations, including the rules concerning the tip credit. Please keep in mind that this article is provided for information purposes only and is not advice, and businesses should always raise their questions or concerns with their legal counsel about paying employee wages in compliance with federal law.