Being a restaurateur usually means wearing more hats than a drag show troupe. One day they’re a CPA wannabee, pouring over numbers to see where expenses may be out of whack. The next they’re a plumber unclogging a sink drain during the dinner rush, or the tech geek who’s expected to bring the network back online ASAP. In between, they’re shouldering enough personnel responsibilities to daunt a wizened HR pro.
Technology holds the promise of winnowing down those supporting roles. But one unlikely to be crossed off the list is lawyer-by-default. Indeed, recent court developments may well have turned compliance with labor regulations into a more challenging aspect of the job.
About three weeks ago, a federal district court handed the industry a major victory by striking down the Biden administration’s so-called 80/20/30 rule on using the tip credit, the employer concession that allows restaurants to pay tipped employees a lower wage if gratuities bring their hourly pay up to the level mandated by law.
The limits on using the credit have been murkier than swamp water. A server might spend much of his or her shift rolling silverware or wiping dishwasher stains off glasses, just as a bartender might begin a shift by pre-cutting cocktail garnishes. They’re not earning tips during those times, so should they be paid the full minimum wage by their employer? Or can the restaurant still pay less because those duties are merely preliminaries to earning tips? After all, those secondary functions could figure into how much in gratuities the workers pocket.
The 80/20/30 guideline was intended to clear up the uncertainty to the benefit of employees. If more than 20% of a tipped worker’s weekly employment time was spent in activities for which they weren’t tipped, the employee would be entitled to the full minimum wage for those hours. Similarly, if they spent more than 30 consecutive minutes in any duty that didn’t generate tips, they’d also get the higher wage in full.
But what restaurateur keeps exact records of precisely what a server does minute by minute? Carolyn Richmond, a well-known labor lawyer for Fox Rothschild LLP in New York City, jokes that she’d advise customers to buy a stopwatch, hire a full-time watcher and record what every server was doing every minute of every shift.
“Clearly, that’s not feasible,” she says, deadpan.
Instead, many an operator retained Richmond’s firm because an employee had challenged the employer’s computations and records of how much time tipped workers spent on duties that wouldn’t directly earn them gratuities.
The rule set by the U.S. Department of Labor (DOL) spawned so much litigation from restaurant employees that it was challenged in court by the Restaurant Law Center, the legal arm of the National Restaurant Association, and the Texas Restaurant Association. They argued that DOL had gone so far beyond what Congress had intended in passing the Fair Labor Standards Act in 1938 that the department was in effect crafting new law instead of enforcing the one Congress had passed.
The U.S. Fifth District Court agreed, calling the 80/20/30 rule a gross overstep by DOL. It noted, for instance, that there was no mention of any slash-line-type formula in the 1938 statute that was the foundation of the regulation.
The court acted in accordance with a recent U.S. Supreme Court ruling that killed what had been known as the Chevron deference principle, or an assumption that whatever regulations a federal agency drafted to put a piece of legislation into effect were consistent with the law. With that standard vacated, courts like the Fifth Circuit would now be required to gauge what Congress intended in a piece of legislation and adjudge if the regulations that came out of it were in line with the intent.
But the three-judge panel that decided the 80/20/30 case essentially said it would have ruled the same way if the Chevron principle was still in force. The core issue, it stressed, was how grossly DOL overestimated its authority in drafting the tip-credit rule.
In any case, the 30-minute standard was killed, much to the industry’s relief.
But no injunction was issued by the court to halt DOL’s enforcement of tip-credit regulations. The issue left hanging was, what are they, now that 80/20/30 has been disallowed?
New York and about nine other states have their own 80/20 laws in effect, sans the 30-minute yardstick, so it’s largely the status quo for operators there, says Richmond. Another seven states don’t allow restaurants to use the tip credit, so it’s a moot point in those jurisdictions, which include California. But how about elsewhere?
The federal statute behind the 80/20 law is still in effect, says Angelo Amador, executive director of the Restaurant Law Center. If more than 20% of a server’s time is spent in ancillary duties, that individual is entitled to the full minimum wage from their employers for that portion of their shift. The trigger now in effect is the nature of the work, not the time spent in secondary functions.
“What I told our members is, it’s not the wild, wild West,” said Amador. “There’s still the statute.”
Employers should protect themselves by writing comprehensive job descriptions for tipped workers, spelling out all their responsibilities and what they are expected to do, Amador says.
“I’ve been pushing clients to put much more clarity into their job descriptions,” concurs Richmond, who chairs her firm’s hospitality practice.
“At the very least, follow the law and don’t give your employees duties that are not listed there,” Amador says. If they’re hired to wait tables, don’t have them paint the restaurant because business is so slow.
He notes that DOL once precisely specified when a server could be paid a lower direct wage and when they were entitled to the full freight. A waiter standing by a table already set for customers, waiting for guests to arrive, was doing tipped work, according to that specific guideline. If the table was bare, then the 20% tabulation should apply.
“I think we’re going to end up going back to the DOL’s old test, which looks at what types of duties tipped employees can be expected to perform,” Richmond says. “You’re going to go back to that list of everything that’s involved in taking orders.”
In the meantime, there’s uncertainty. DOL could appeal the court’s decision, or cases that pivot on the 80/20/30 rule could be heard by other circuit courts. There’s no guarantee they’ll validate the Fifth Circuit’s decision, which would likely elevate the matter to the U.S. Supreme Court.
Or, DOL could issue new guidelines. But the department is unlikely to even try until after the November elections, since a new administration would be in power. While Donald Trump was president, the DOL had issued regulations that were far more favorable to employers. Essentially, the tip credit could be used for most of the work a server or bartender shouldered, provided it supported their ability to earn tips.
Surprisingly, neither Richmond nor Amador expect the uncertainty to trigger a spike in litigation. For one thing, a lawsuit filed by an employee is going to be more difficult to win now because the limitations on applying the tip credit have been loosened.
“People who might have settled before this litigation came out, they probably wished they had not settled,” says Amador. “I think it will lead to settlements in those cases that are pending. You’re going to have to have a stronger case,” and that will likely leave employee-plaintiffs more eager to settle,
Indeed, he says, “my advice is if you have a strong case, fight it.” The chances of prevailing are now higher.
Richmond believes the uncertainty will temper the volume of tip-credit cases because other types of litigation could be easier to win. “Nationally, my guess is that the plaintiff’s bar is going to spend time looking for other litigation opportunities,” she says.
In any case, Richmond continues, “This is a big-deal issue. There’s a lot that could verge into it.
“This is by no means over,” she says.