Page 19 - OhioRA 2012SpringFlipBook

www.ohiorestaurant.org 17 Spring 2012 Issue

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Tip-credit Becomes Muddied in

Conficting Federal Court Decisions

This article from Kastner Westman & Wilkins, LLC, aims to reduce the confusion around a recent U.S. Supreme Court action

Under the federal Fair Labor Standards Act (FLSA), providing a tipped employee is compensated at the statute’s $2.13/hr minimum wage, employers need not meet the statute’s payment of a minimum wage of no less than $7.25/hr. However, the United States Department of Labor, interpreting the FLSA and its implementing regulations, and the federal courts have recently arrived at different viewpoints as to how the statute’s tip-credit is to be applied when workers engage in what are known as “dual jobs.”

For example, what is the proper method of compensating a tipped waitress who also spends a portion of their work day performing non-tip work such as cleaning restrooms, preparing table settings or closing down restaurants after customer hours? The United States Court of Appeals for the Sixth Circuit, which sits over the State of Ohio, has for years taken the position that when such “dual jobs” are performed, the employer may take advantage of the FLSA’s tipped-credit proviso as long as the non-tipped duties and tasks performed by the employee are related to his or occupation, not necessarily whether they are related to producing tips. Myers v. Copper Cellar Corp., 192 F. 3d 546 (6 th Cir. 1999).

However, a recent decision by the Eighth Circuit Court of Appeals, which issues binding law in the states of Missouri, Minnesota, Nebraska, North Dakota, South Dakota, Iowa and Arkansas, came to an altogether different conclusion. Applebee’s Int’l., Inc. v. Fast. That federal appeals court ruled that when the non-tipped duties and tasks of the tipped employee exceed 20% of his/her work hours in a given week, then the employer must compensate that worker at the FLSA minimum wage of $7.25/hr for all non-tipped duties and tasks. The Eighth Circuit drew upon a 1988 Department of Labor Wage and Hour Division Field Operation Handbook, which provided that if a “substantial amount of time” by the tipped employee was

spent on non-tipped work, then the employer must pay the full minimum wage for the time tipped employees spend on related, but non-tipped activities. According to the Eighth Circuit, 20% was defned as meeting a “substantial amount of time”. Applebee’s International recently appealed the Eighth Circuit’s Decision to the United States Supreme Court, which declined to accept or review the Circuit’s ruling.

The Eighth Circuit’s ruling poses signifcant problems for nationwide restaurateurs. At this juncture, Ohio, Michigan, Kentucky and Tennessee restaurateurs can safely adhere to the Sixth Circuit’s position where “dual jobs” are performed by tipped employees. However, restaurateurs having establishments in the Eighth Circuit must follow that federal Court of Appeals ruling, and track non-tipped activities and tasks performed by tipped employees on a workweek by workweek basis. If those tasks exceed 20% of that employee’s aggregate work time for the week, then they must be compensated at the FLSA’s minimum wage rate of $7.25/hr., rather than the FLSA’s tipped minimum wage of $2.13/hr.

FLSA class actions are now fooding our federal courts as the plaintiff’s bar seeks to reap the reward of employers who incorrectly compensate employees and do not meticulously adhere to the FLSA statute. Given the recent court rulings interpreting the tipped-credit component of the FLSA, it would be wise for restaurant employers to re-examine their payroll practices.

This article was written for the Ohio Restaurant Association (ORA) by Keith L. Pryatel, Esq., of Kastner Westman & Wilkins, LLC. KW&W is committed to helping companies build the solid foundations they need for effective human resources management. KW&W’s practice is limited to representing management exclusively in the full range of workplace issues – labor and employment law, workers’ compensation, employee benefts and human resources consulting.