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Paul Zimmerman

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Tip Credits and the Multitasking Hospitality Employee

There is good news for employers in the hospitality space coming out of the Ninth Circuit. The court in Marsh v. J. Alexander’s, LLC recently ruled that tipped employees who also perform non-tip-generating work cannot state a claim for violation of the tip credit provision of the Fair Labor Standards Act. As otherwise stated, employees, such as servers and bartenders, who occasionally handle “discrete related tasks” over the course of any given shift that are intermingled with duties directed at earning tips remain subject to tip credits (at least in those states that allow tip credits – California is not one of them). This despite interpretive guidance issued by the Department of Labor setting forth the so-called “80/20” tip credit rule.

The employers in Marsh (a case involving nine consolidated actions) claimed employee tips as credit toward the required $7.25 federal minimum wage ordinarily paid to workers. This practice was premised on the FLSA, which authorizes employers to pay tipped employees a lesser hourly wage and claim such a tip credit to make up the difference between it and the minimum wage mandated by law. The Marsh plaintiffs argued that because they performed various non-tip duties in addition to their work that generated gratuities, the tip credit should not apply to them. By extension, these employees maintained that they deserved to be paid the minimum wage – for at least a portion of their work – plus tips earned, a position premised on the DOL’s interpretive guidance suggesting that when tipped employees spend in excess of 20% of their time performing non-tipped tasks (cleaning, setting tables, etc.), no tip credit can be taken for the hours dedicated to such work. The Ninth Circuit disagreed.

The court in Marsh ruled that the DOL’s interpretive guidance was owed no deference because it was not consistent with the FLSA or the regulations it purportedly clarified. Likewise, the court noted that the guidance was unreasonable because it required the determination of whether an employee was engaged in a second job by time-tracking discrete tasks, categorizing them, and accounting for minutes spent on various activities.

Ultimately, the view in Marsh was that the DOL’s dual job regulations related to employees having two jobs, not employees engaged in different tasks within a single job. That being said, the court failed to address what constitutes a “distinct job” for purposes of the regulations, leaving a great deal of uncertainty surrounding this very nuanced issue.  

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.