Seventh Circuit Upholds Tip Credit Pay for Related, Non-Tipped Duties
2 min read
Jul 19, 2016
As those in the restaurant industry know well, federal and state law allow employers to pay tipped employees less than the required minimum wage with the expectation they will receive enough tips to make up the difference. This is referred to as a "tip credit." There has long been a battle within wage and hour suits over whether and when an employee paid under the tip-credit can still be paid the below minimum wage rate while performing "side-work" or non-serving duties that do not directly result in tips from customers. In a decision issued on July 15, 2016, the Seventh Circuit helped clarify the line, finding that an employer did not violate wage laws by paying its servers under the tip credit for side work those servers performed.
Walker Bros. Enterprises, Inc. operates six Original® Pancake House restaurants in Illinois. A server who worked at three of the defendant's restaurants filed suit, alleging he and other servers spent much of their time engaged in non-tipped work taking between 10 and 45 minutes per day. The employee claimed that he should have been paid the full minimum wage for this "side-work" time.
The Seventh Circuit disagreed, and in doing so, relied on two key points from Department of Labor ("DOL") sources:
DOL regulations on "dual jobs" vs. "related duties." Generally speaking, the latter may be paid at the lower wage rate without running afoul of state and federal law. An employee works in a "dual job," for example, where he is both a waiter and maintenance man for a hotel. He is employed in two occupations, only one of which is tipped. Therefore, no tip credit can be taken for hours of work he performs as a maintenance man. However, where a server who spends part of his time "cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses" those duties should be considered "related" to tipped work even though they are not, themselves, directed toward producing tips. 29 C.F.R. § 531.56(e).
The DOL's Field Operations Handbook. The handbook provides that where tipped employees spend a substantial amount of time (in excess of 20%) performing preparation work or maintenance, no tip credit may be taken. Emphasizing the non-tipped activities in this case constituted well under 20% of the servers' regular 8 hour shift, the court held the servers performed "related duties," not dual jobs. That said, the court suggested duties such as wiping down the burners and woodwork and dusting picture frames were "problematic," as those tasks were unrelated to the servers' tipped work. Nevertheless, the court concluded the servers' time spent in those activities was "negligible."
The sources relied upon by the Court can be helpful to employers setting out payroll policies associated with their servers/tipped staff. However, given the highly factual nature of wage and hour claims, employers should carefully assess whether the worker's non-tipped duties are really "related duties" and the percentage of time workers spend performing non-tipped duties. In assessing the former, focus on the nature of the tasks performed.
If you have any questions relating to the compensation of tipped workers, please contact your regular Hinshaw lawyer.
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