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Ninth Circuit Rejects DOL’s “80/20 Rule” On Sidework And Tipped Employees

Earlier today, the Ninth Circuit issued its opinion in cases involving the Department of Labor’s (“DOL”) “80/20 Rule” regarding what is commonly referred to as “sidework” in the restaurant industry.  Agreeing with the arguments made by our new colleague Paul DeCamp, among others, the Ninth Circuit issued a decidedly employer-friendly decision.  In so doing, it disagreed with the Eighth Circuit, potentially setting the issue up for resolution by the United States Supreme Court.

As those in the restaurant industry are aware, restaurant workers and other tipped employees often perform a mix of activities in the course of carrying out their jobs.  Some tasks, such as taking a customers’ orders or delivering their food, may contribute directly to generating tips.  Other tasks, such as clearing tables, rolling silverware, and refilling salt and pepper shakers—activity generally known in the industry as “sidework”— arguably generate tips indirectly.

In 1988, the DOL issued internal agency guidance purporting to impose limits on an employer’s ability to pay employees at a tipped wage, which under federal law can be as low as $2.13 per hour, if employees spend more than 20% of their working time on sidework.  This guidance, commonly known as the “80/20 Rule,” has led to a wave of class and collective action litigation across the country, including a 2011 decision from the U.S. Court of Appeals for the Eighth Circuit deferring to the Department’s guidance as a reasonable interpretation of the Fair Labor Standards Act (“FLSA”) and its regulations.

Today, the Ninth Circuit issued a 2-1 decision in Marsh v. J. Alexander’s LLC, concluding that the Department’s attempt to put time limitations on how much sidework an employee can perform at a tipped wage is contrary to the FLSA and its regulations and thus unworthy of deference by the courts.

The Department adopted the 20% limitation as a purported clarification of the Department’s “dual jobs” regulation, which addresses employees who work in separate tipped and non-tipped jobs for the same employer.  The Ninth Circuit explained, however, that the 20% limitation on sidework was inconsistent with the statutory notion of an “occupation,” as well as the regulation’s focus on two distinct jobs.

Because the 80/20 Rule did not in reality stem from the statute or the regulations, the Court determined that it constitutes “an alternative regulatory approach with new substantive rules that regulate how employees spend their time” and thus amounts to a “‘new regulation’ masquerading as an interpretation.”

In reaching this conclusion, the Court disagreed with the Eighth Circuit’s analysis and conclusion, noting that “the Eighth Circuit failed to consider the regulatory scheme as a whole, and it therefore missed the threshold question whether it is reasonable to determine that an employee is engaged in a second ‘job’ by time-tracking an employee’s discrete tasks, categorizing them, and accounting for minutes spent in various activities.”

The plaintiffs in these cases may well seek rehearing en banc, and it remains to be seen what approach the Department will take regarding the 80/20 Rule in response to today’s decision. And the split between the circuits certainly suggests that this is an issue that may well be resolved by the Supreme Court.

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About this Author

Michael S. Kun, epstein becker green, los angeles, labor, employment
Member

Mr. Kun's practice includes:

  • Litigating more than six dozen class actions and collective actions in California, New York, Georgia and Maryland involving a variety of employment issues, including discrimination and wage-hour claims, and successfully defeating motions for class certification on such claims. The sizes of the putative classes have ranged from 75 to approximately 15,000 employees.

  • Litigating a wide variety of employment-related claims, including discrimination, harassment,...

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