- The U.S. Department of Labor's position on tip credits is entitled to deference, the 9th U.S. Circuit Court of Appeals determined in an en banc ruling Sept. 18. Reaching that conclusion, the court revived a lawsuit filed by restaurant employees claiming they had not been paid appropriate wages for non-tipped work.
- The Fair Labor Standards Act (FLSA), under certain circumstances, allows employers to take a credit for tips that employees receive, reducing the hourly wage employers must pay to as low as $2.13 in some states. The plaintiffs in the case, Marsh v. J. Alexander's LLC (No. 15-15791), claimed they were paid the tipped wage for time spent performing non-tipped tasks, including cleaning and maintenance, as well as non-incidental tasks in excess of 20% of their workweek.
- The court determined that DOL foreclosed this practice with its "dual jobs regulation" and subsequent guidance.
The FLSA's tip credit is well established, but tip practices in general have come under scrutiny in recent years. Similar to Marsh, industry stakeholders have challenged DOL's stance in another suit. The 8th Circuit also weighed in on the issue, reaching the same conclusion as the 9th.
The 9th Circuit's initial ruling in the case was considered a win for employers, leaving them free to assign nontipped work to employees "without being unduly concerned about recording how tipped employees devote their working time on a minute-by-minute basis," according to attorneys writing for Littler Mendelson. With the court's en banc ruling, it appears that is no longer the case.
Separately, the Trump administration has taken aim at Obama-era tip pooling regulations. The 2011 regulations prohibited businesses from creating tip pools that included nontipped employees, even when all workers in the pool were paid minimum wage and overtime — rules that saw major pushback from business groups in the form of several lawsuits. In July, the 10th Circuit found those regulations invalid, but that ruling conflicts with at least one other federal appeals court, meaning the issue remains unresolved nationally. So far the U.S. Supreme Court has declined to review the rule.
DOL also was working to create a new rule to render the old one moot, but that process became bogged down in controversy. In response, Trump included a provision in a spending bill that amended the FLSA to forbid employers from pocketing workers' tips in tip pooling arrangements, allowing DOL to move forward with its rulemaking with stakeholders' main concern addressed. Proposed rules were slated for August 2018 but did not materialize.