When should a tipped employee no longer be treated as a tipped employee?  Plaintiffs’ lawyers argue that restaurants cannot utilize the tip credit, or pay tipped employees a sub-minimum wage, if tipped employees perform any “non-tipped” duties, such as washing dishes or taking out the trash.  Earlier this week, a District Court in the Northern District of Indiana rejected this argument.  (See here)  Specifically, the court dismissed a former server’s claim that the FLSA was violated by restaurants paying servers, bartenders, and hosts a sub-minimum wage while they performed non-tipped duties.  This decision could be far reaching because restaurants across the country are being hit with similar class or collective action lawsuits.  

The FLSA’s tip credit provision allows employers to pay tipped employees a sub-minimum wage as long as the employer:  (1) pays a cash wage of at least $2.13 per hour; (2) informs its employees of the FLSA’s tip credit provisions; (3) permits its employees to retain all their tips (w/ some exceptions); and (4) ensures that the cash wage plus the tip credit equal at least the minimum wage each week.  The rub is that the FLSA does not permit an employer to utilize the tip credit for all time worked by employees, just for time spent in a tipped occupation.  An example the regulations use is the hotel worker who is both a maintenance man and a waiter.  In this dual job scenario, the tip credit can be taken for the time the worker spends as a waiter, but not as a maintenance person.  There is no clear demarcation between when waiter becomes the maintenance person, but the DOL takes the position that if a tipped employee spends “substantial time” (more than 20%) performing related, but non-tipped duties referred to as “general preparation work or maintenance,” then the entire tip credit is lost.  The problem for employers is no authority explaining what duties constitute “general preparation work or maintenance.” 

Here, the plaintiff alleged that servers, bartenders and hosts were improperly denied minimum wage for time spent performing allegedly non-tipped duties such as dishwashing, food preparation, kitchen and bathroom cleaning, trash removal and other similar duties.  The Court reasoned that plaintiff’s bare claim that employees must be paid a minimum wage for performing these duties is “based on a faulty legal conclusion” that duties like these are those of a separate and distinct non-tipped occupation.  While leaving open the possibility that employees may, at times, be entitled to minimum wage for these duties, the district court stated that “[s]ervers, bartenders, and hosts - who directly related with customers - are not also employed in the second occupation of a dishwasher, cook, or janitor simply because an unspecified amount of time during their shift is spent performing duties that may be performed by individuals in those occupations.”  In other words, some overlap between tipped in non-tipped duties, however they are defined, is ok.

Because it was not before it, the district court refused to decide if the 20% formulation set forth in the DOL Handbook is entitled to controlling deference, but cautioned plaintiff that an order of dismissal would be imminent if she did nothing more than amend her complaint to include an allegation that the defendants required her to spend more than 20% of her time on duties that did not generate tips or that were outside her tipped occupation.  Rather, she must provide factual support for any such claims, such as the non-tip producing duties she performed, how many minutes or hours they took to perform, and place that time in the context of the hours worked during the entire shift.  

This decision potentially raises the bar as to the level of specificity that must be pled to support a tip credit claim.  Moreover, the decision underscores why tip credit cases are not susceptible to collective or class action treatment.  Because there is no clear line between tipped and non-tipped duties, tip credit claims must be determined on an individual-by-individual basis. 

by Arthur J. Rooney and Jeremy W. Stewart