December 9, 2018

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DOL Reverses Course on “80/20” Limitations for Tipped Employees

On November 8, 2018, the Department of Labor (DOL) issued 4 new opinion letters providing both employers and employees further insight into the agency’s views regarding compliance with federal labor laws. 

While the letters touch on a variety of issues, perhaps the most notable change involves the DOL’s about-face regarding the amount of “non-tipped” work an employee can perform while still receiving a lower “tip-credit” wage. Essentially, this new guidance does away with the previous “80/20” rule regarding tipped employees. Under the 80/20 rule, businesses were barred from paying employees traditionally engaged in tip-based work, like servers and bartenders, a lower minimum wage and taking a tip credit for the other portion of the employee’s wage up to applicable state and federal minimum wage requirements when those employees’ side work, like napkin folding or making coffee, accounted for more than 20 percent of the employee’s time.  

In recent years, there has been an explosion of litigation across the country over the 80/20 rule, questioning whether the tipped employee’s “side work” amounted to more than 20 percent of the employee’s duties and time. Likewise, in many of those same suits, plaintiffs would challenge individual tasks associated with their side work, attempting to claim that those tasks were not so closely related to their tipped duties, but rather rose to the level of a completely different or “dual job,” meaning that the employer should not be permitted to take the tip credit for hours worked performing those tasks. What followed was case after case of lawyers, courts, and employers quibbling over minutes spent folding napkins, wiping counters, slicing lemons, and painstakingly calculating and arguing as to whether those tasks added up to 20 percent and whether those tasks were not closely related enough to be included in the 20 percent calculation.

In these kinds of cases, we’d see arguments over circumstances like the server that moonlights as a “maintenance man” versus the server that changed the lightbulb or helped sweep underneath the tables. The ultimate result: confusion, chaos, and frankly a treasure trove for plaintiff’s attorneys who had another arrow in their quiver in which to seek additional purported wages for clients from employers that would find it difficult, if not impossible, to account for all minutes and tasks employees were performing in busy restaurants.

Following the DOL’s opinion letter, the landscape will change. Recognizing that the existing guidance and case law had created “some confusion,” the DOL expressly stated that they “do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties. . .”

However, in attempting to provide additional clarity, the DOL may have instead opened up the proverbial Pandora’s box of uncertainty. In identifying the list of duties that the DOL would consider “core or supplemental,” the DOL refers to the Tasks section of the Details report in the Occupational Information Network (O*NET). It goes without saying that no document can provide an exhaustive list of tasks in today’s changing marketplace. While the DOL attempted to recognize the changing nature of today’s environment in a savings-type footnote, one does not have to look too far ahead to foreshadow the response from the plaintiff’s bar arguing over the related duties listed on O*NET. 

While the DOL’s new position on the 80/20 rule will certainly come as a relief to many employers with tipped employees, employers should still be mindful in evaluating tipped employees’ job duties on a regular basis. Employees that are engaged in “dual jobs” are entitled to the full minimum wage, without the tip credit. 

© 2018 Foley & Lardner LLP

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About this Author

Christina M Kennedy, Employment Attorney, Foley Lardner Law Firm
Senior Counsel

Christina Kennedy is an associate and litigation attorney at Foley & Lardner LLP, where her practice focuses on complex commercial litigation, class and collective actions, and employment litigation. She is a member of the firm’s Business Litigation & Dispute Resolution and Labor & Employment Practices.

Ms. Kennedy has successfully represented clients in all phases of commercial disputes ranging from pre-litigation dispute resolution, litigation or arbitration of complex commercial claims and defenses, and negotiation of favorable...

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