Employers Beware: Federal Court Ruling Conflicts With New DOL Guidance To Abandon “80/20 Rule”
How to qualify as a “tipped employee”?
Posted on 11-27-2019, Read Time: Min
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The United States Department of Labor (DOL) recently issued guidance to abandon the traditional “80/20 Rule,” which provided guidance to employers for when they must pay tipped employees minimum wage, rather than a tipped hourly wage. However, a recent federal court ruling highlights the need to not only be up-to-date on changing federal agency guidance but also continue to monitor how courts view those changes.
First published in a 1988 DOL Handbook, the 80/20 Rule states that where a tipped employee spends a “substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” A “tip credit” allows an employer to pay tipped employees $2.13/hour and receive credit for the employee’s tips to make up the difference between the $2.13/hour tipped wage and the federal minimum wage of $7.25 an hour.
To qualify as a “tipped employee,” the employee must earn more than $30 per month in tips. Under the 80/20 Rule, an employer can take the tip credit for up to 20 percent of a tipped employee’s “time spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips.”
On February 15, 2019, the DOL issued a revised handbook abandoning this 80/20 Rule, and instead stating that an employer is permitted “to take a tip credit for any time the employee spends in duties related to the tipped occupation.”
Despite the DOL’s new guidance abandoning the 80/20 Rule, a federal court in Lynchburg, Virginia, recently applied the rule to deny an employer’s motion to dismiss. In Spencer v. Macado’s, Inc.,1 the plaintiffs consisted of current and former servers and bartenders of Macado’s who alleged, among other claims, that they performed non-tipped “side duties” more than 20 percent of their time at only a tip credit wage instead of the applicable minimum wage.
Macado’s argued that the claim must be dismissed given the DOL’s abandonment of the 80/20 Rule because the side duties the plaintiffs performed fell within the job duties the DOL’s new interpretation maintains tipped employees may perform without limitation.
The court rejected Macado’s argument and refused to give deference to the DOL’s guidance. The court based this refusal on “the abrupt change in a longstanding agency interpretation, the extent to which the new interpretation’s timing suggests political motivations rather than any genuine interpretive change, and the extent to which the DOL offered no ‘evidence of any thorough consideration for reversing course’ on the twenty percent rule.”
In so ruling, the court concluded that the “new agency interpretation is no impediment to the Court applying the twenty percent rule in this case.”
In light of the Spencer ruling, as well as several cases that opinion cites which have also refused to abandon the 80/20 Rule, employers should proceed with caution when deciding whether to adopt new wage policies that align with the DOL’s 2019 Handbook. Considering that the DOL’s prior interpretation was in place for 30 years, numerous jurisdictions may be hesitant to discard the 80/20 Rule on to “the ash heap of history.”
The opinion highlights the critical point that employers must stay updated on the courts’ interpretation and application of agency opinions and refrain from blindly following non-binding guidance. If shifts in future administrations continue to significantly change agency guidance, courts may be increasingly hesitant to afford agency interpretations deference.
Notes
No. 6:18-cv-5, 2019 U.S. Dist. LEXIS 112966 (July 8, 2019)
First published in a 1988 DOL Handbook, the 80/20 Rule states that where a tipped employee spends a “substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” A “tip credit” allows an employer to pay tipped employees $2.13/hour and receive credit for the employee’s tips to make up the difference between the $2.13/hour tipped wage and the federal minimum wage of $7.25 an hour.
To qualify as a “tipped employee,” the employee must earn more than $30 per month in tips. Under the 80/20 Rule, an employer can take the tip credit for up to 20 percent of a tipped employee’s “time spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips.”
On February 15, 2019, the DOL issued a revised handbook abandoning this 80/20 Rule, and instead stating that an employer is permitted “to take a tip credit for any time the employee spends in duties related to the tipped occupation.”
Despite the DOL’s new guidance abandoning the 80/20 Rule, a federal court in Lynchburg, Virginia, recently applied the rule to deny an employer’s motion to dismiss. In Spencer v. Macado’s, Inc.,1 the plaintiffs consisted of current and former servers and bartenders of Macado’s who alleged, among other claims, that they performed non-tipped “side duties” more than 20 percent of their time at only a tip credit wage instead of the applicable minimum wage.
Macado’s argued that the claim must be dismissed given the DOL’s abandonment of the 80/20 Rule because the side duties the plaintiffs performed fell within the job duties the DOL’s new interpretation maintains tipped employees may perform without limitation.
The court rejected Macado’s argument and refused to give deference to the DOL’s guidance. The court based this refusal on “the abrupt change in a longstanding agency interpretation, the extent to which the new interpretation’s timing suggests political motivations rather than any genuine interpretive change, and the extent to which the DOL offered no ‘evidence of any thorough consideration for reversing course’ on the twenty percent rule.”
In so ruling, the court concluded that the “new agency interpretation is no impediment to the Court applying the twenty percent rule in this case.”
In light of the Spencer ruling, as well as several cases that opinion cites which have also refused to abandon the 80/20 Rule, employers should proceed with caution when deciding whether to adopt new wage policies that align with the DOL’s 2019 Handbook. Considering that the DOL’s prior interpretation was in place for 30 years, numerous jurisdictions may be hesitant to discard the 80/20 Rule on to “the ash heap of history.”
The opinion highlights the critical point that employers must stay updated on the courts’ interpretation and application of agency opinions and refrain from blindly following non-binding guidance. If shifts in future administrations continue to significantly change agency guidance, courts may be increasingly hesitant to afford agency interpretations deference.
Notes
No. 6:18-cv-5, 2019 U.S. Dist. LEXIS 112966 (July 8, 2019)
Author Bio
| Brett Carpenter is an Associate Attorney at Poyner Spruill LLP. He focuses on preventing and resolving employment issues for employers of varying sizes, based throughout the country, with matters in North Carolina and in federal court. Visit www.poynerspruill.com Connect Brett Carpenter Follow @poynerspruill |
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