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18 states call for keeping the 80/20 tip-credit rule

Their attorneys general say DOL’s proposed new guideline would be illegal and an intended solution to problems that aren’t evident.
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The attorneys general of 18 states and the District of Columbia have blasted a proposed change in the way restaurants determine when they’re obliged to pay servers and other tipped employees the full minimum wage instead of taking a tip credit, saying federal regulators’ planned discontinuation of the 80/20 guideline would be illegal.

In a letter to U.S. Department of Labor (DOL) Secretary Eugene Scalia, the chief legal officers contend that the agency has not shown the 80/20 rule to be an administrative burden on employers or a source of legal confusion, assertions that might surprise many full-service restaurants.  

The 80/20 guideline holds that restaurateurs are required to directly pay servers and bartenders the full minimum wage for nontipped side work that exceeds 20% of their time on the clock. The rationale is that the employees are not earning tips for those duties and hence are entitled to the same wage their nontipped co-workers are paid. Otherwise, employers in all but seven states can count servers’ gratuities as part of their minimum wage. In Massachusetts, for example, where the state minimum wage is $12 an hour, restaurateurs are required to pay bartenders and servers just $4.35 per hour if they collect at least $7.65 in tips. 

A number of restaurants have been sued for back pay by employees alleging they were entitled to the full wage because more than 20% of their shifts were spent refilling saltshakers and catsup bottles, rolling silverware in napkins or doing similar side work. Restaurateurs often counter that the plaintiffs are exploiting the difficulties of keeping minute-by-minute records of a server’s shift. They also argue that some side work figures into how much employees pocket in tips. By helping to bus and reset tables, for instance, they can serve more customers and increase their gratuities accordingly.

DOL sought to address those issues by proposing the 80/20 rule be replaced with what it framed as a more realistic guideline. It proposed that employers be permitted to take a tip credit for any side work done just before or after a bartender or member of the waitstaff is servicing customers, even if that time amounts to more than 20% of the shift. 

Under that guideline, the attorneys general wrote in their letter to Scalia, “employers could schedule servers to start work well before the restaurant opens and to stay long after closing to prepare food, clean, or perform any number of other nontipped duties, without any limit on how much nontipped work may be compensated at the lower service rate.”  In addition, “the proposed rule not only impacts workers, but creates uncertainty for employers while offering ample opportunities for increased wage theft.”

Advocates for the restaurant industry don’t agree. “At its core, the tip credit is about tips, not the duties of an occupation,” Angelo Amador, executive director of the National Restaurant Association’s Restaurant Law Center, said in a letter to the head of DOL’s Wage and Hour Division. “That is why the Department should take this opportunity to step back from trying to micromanage restaurant work at the level of task assignment and, instead, return its focus to what the Wage and Hour Division is designed to do: ensure that employees receive the wages” they’re due under federal law. 

In the letter, the attorneys general also argue that the new rule would be a violation of the Administrative Procedures Act, a law intended to prevent arbitrary changes in regulations based on legislation. The Act requires that any changes be based on a clear need for modification, yet “it is simply untrue that the 80/20 rule has engendered confusion,” the letter contends. 

Similarly, it asserts that DOL is aiming to “relieve employers of an oppressive administrative burden without providing any evidence that such a burden exists.

“We strongly urge the Department to withdraw this proposed change,” the letter concludes. It was signed by all 19 of the attorneys general, who were all described in media reports as being members of the Democratic Party. 

In contrast, “we encourage the Department to specify in the final rule that so long as side work occurs during the same shift or workday in which the employee engages in the main duties of their occupation, the tip credit is available for the entire shift so long as the other statutory criteria are met,” Amador wrote on behalf of the National Restaurant Association.

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