Trump Administration Rejects Side Work and 20% Rules for Paying Tip Credit Wage to Tipped Employees

November 27, 2018

The 20% Rule is dead. Or is it? Only last month, we wrote about the 9th Circuit’s decision in Alec Marsh v. J. Alexander’s, in which the Court of Appeals joined with other circuits and gave deference to and enforced the U.S. Department of Labor’s guidance concerning the amount of side work that tipped employees may perform before they must be paid at the full minimum wage. On November 8, 2018, the Trump Administration’s DOL revived an opinion letter from the waning days of the Bush Administration, which was subsequently withdrawn by the Obama Administration. By doing so, the Trump administration has called into question the continued validity of the 20% Rule and put in place a new standard that will likely raise new questions. What should you do?

For more than 30 years, the DOL’s Field Operations Handbook (“FOH”) provided guidance on the issue of when tipped employees could be paid the tip credit rate versus when they had to be paid the full minimum wage. Generally, under this guidance, tipped employees could be paid at the tip credit rate even for non-tipped duties so long as those duties were “incidental” to service and did not amount to more than 20% of the employee’s tip credit hours in a workweek. Over the years, the DOL and the courts have refined what it meant for duties to be considered “incidental” to service.

The November 8, 2018 Opinion Letter turns the 20% Rule on its head, while at the same time redefining what duties tipped employees may perform. The Opinion Letter further states that it supersedes the prior inconsistent statements in the FOH and that a revised FOH statement will be forthcoming. Until that revised FOH is published, the Opinion Letter sets out the following standards:

Time Standards under the Opinion Letter

In the Opinion Letter, the DOL states that it does not intend to place a limitation on the amount of duties a tipped employee may perform contemporaneous with direct customer-service duties. In addition to performing duties contemporaneous with customer service, tipped employees may also perform such duties for a “reasonable time immediately before or after performing such direct-service duties.”

One important caveat from the DOL is that, while there is no limit on the amount of time tipped employees can perform various duties while serving customers, employers must still comply with the requirements of Act. For example, tips plus wages must still equal or exceed the full minimum wage.

Allowable Duties under the Opinion Letter

Rather than the FOH’s non-exhaustive lists of types duties that are or are not “incidental” to service, the Opinion Letter points to two sources of duties that are allowable for tipped occupations. If the duties performed are found on these lists, they can be paid at the tip credit rate. If they duties are outside these lists, they must be paid at the full minimum wage, unless the time spent in the task is de minimis.

One of the sources cited by the Opinion Letter is a preexisting DOL regulation, 29 C.F.R. § 56(e), which provides that servers may clean and set tables, toast bread, make coffee and occasionally wash dishes or glasses.

The other source cited by the Opinion Letter is the duties listed in the appropriate tip-producing occupation found on the Occupational Information Network (“O*NET”) at O*NET lists the following tasks under the category “Waiters and Waitresses”:

  • 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.

It should be noted that this list is generally more expansive than what courts interpreting the regulations and the FOH have determined fall within the umbrella of tasks directly related to service or incidental to service.

Where does this Leave Restaurant Employers

At present, the law is in a transition mode. The DOL has indicated that the old guidance is superseded, has provided a preliminary view of what the new guidance will be, and has assured employers that more detailed guidance will be forthcoming. Moreover, given that the FOH and the Opinion Letter have not gone through the formal legislative or rulemaking process, neither are afforded the weight of law without judicial approval. Numerous courts, most the recently the J. Alexander’s Court, have endorsed the previous version of the FOH as being a reasonable interpretation of federal regulations that still exist today. On that basis, these courts has deferred to the DOL’s interpretation contained in the old FOH. This Opinion Letter and the DOL’s new interpretation of the regulations that will be set forth in an updated FOH will undoubtedly be challenged in Court

One issue that is ripe for dispute is: what is a reasonable amount of time to have servers perform tasks immediately before and after direct-service tasks? We would advise employers that, until the DOL or the courts further clarify this point, they continue to abide by the 20% Rule and restrict time worked before or after serving guests to less than 20% of the workweek. For more than 30 years, the 20% Rule was the standard and considered reasonable by the DOL and/or the courts. The issuance of an Opinion Letter does not immediately change what courts will consider to be reasonable. Thus, even if shorter or longer times performing tasks before serving customers may be considered “reasonable,” abiding by the 20% Rule will likely give employers an additional defense to such claims.

The above provides just a brief summary of only federal law on this point, which will undoubtedly continue to evolve. New Hampshire restaurants must keep in mind that they must also comply with the state’s minimum wage statutes and regulations, including the rules concerning the tip credit. While the industry is hoping to work with the New Hampshire DOL to establish specific guidelines, following Federal statutes, regulations and guidance concerning the application of the tip credit would to be good practice from a risk management perspective.