Here’s a Tip: Deciding if Dual Jobs Qualify for “Tip Credit”

The Issue

Working as a server requires an individual to handle a vast array of responsibilities, often for minimal compensation. Balancing a tray full of food, anticipating when drinks need to be refilled, serving as a liaison between the kitchen and customers, and performing all other duties as assigned can really wear on a person, especially when customers don’t realize that their tips make up a large percentage of a server’s income. Recently, the compensation for these “other duties” have been causing cases to come out of the frying pan and into the fire.

Under 29 USC §203(m), employers with “tipped employees” (employees who make $30 per month or more in tips) are allowed to count tips as a part of an employee’s salary, and thus can pay these employees a lower base salary. Tips are counted as “tip credit” towards the employee’s monthly salary. Cumbie v. Woody Woo, Inc. (9th Cir. 2010). As long as the base salary is adjusted so that, when combined with monthly tips, it evens out to the requisite minimum wage, and employer has met his or her legal duty.

The issue is that some employees serve “dual jobs” (performing the tasks of both a tipped and non-tipped employee). Under 29 C.F.R. § 531.56(e), there is a provision noting that time spent on “related duties” can be counted towards the tip credit. The Department of Labor, in FOH § 30d00(f) (2016), has stated that if an employee spends more than 20% of their time serving in the non-tipped position, then the work done in said position cannot be factored into tip credit and the employee must be paid the legal minimum wage. In Marsh v. Alexander LLC, (9th Cir., 2017), the Plaintiff alleged that he performed duties unrelated to generating tips during more than 20% of his work hours, but his employer claimed a tip credit for the work.

The Split

The Eighth Circuit

The Eighth Circuit addressed this issue in Fast v. Applebee’s Int’l, Inc., (2011), where they stated that the Department of Labor’s interpretation of FOH § 30d00(f) was ambiguous, but that the 20% margin was ultimately a reasonable interpretation, holding “[t]he 20 percent threshold used by the DOL in its Handbook is not inconsistent with § 531.56(e) and is a reasonable interpretation of the terms ‘part of [the] time’ and ‘occasionally’ used in that regulation.”

The Ninth Circuit

The Ninth Circuit, in Marsh v. Alexander LLC, (2017), states that the Eighth Circuit failed:

“…to grapple with the crucial question whether the FOH’s time sheet approach is a reasonable interpretation of ‘job’ (in the regulation) or ‘occupation’ (in the statute),”

and

“…that in order for an employee to be engaged in two different occupations there must be a clear dividing line between two different types of duties, such as when one set of duties is performed in a distinct part of the workday.”

In Marsh, the Ninth Circuit held:

“…no provision with the force of law permits the DOL to require employers to engage in time tracking and accounting for minutes spent in diverse tasks before claiming a tip credit.”

Looking Forward

The appropriate calculation for minimum wage has been hotly debated. The outcome of this circuit split will better define how tipped workers are to be compensated for their work. The courts will have to analyze whether the 20% rule is a justifiable standard for compensating tipped workers for non-tipped tasks.