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The “Tip” of the Iceberg: How Side Tasks can Complicate Tipped Employees’ Pay and What the Law has to Say About It

June 6th, 2017 by David Minces

Gray area

While employment law would be much less complicated if everything were black and white, there is quite a bit of gray area. One of these gray areas is how employees like waiters, bartenders, baristas, and other tipped staff can be paid.

The black letter law

Ftx-min-wage-posterederal law mandates that employees be paid at least $7.25 for every hour of work they do.  States and cities can increase the minimum wage in their  own spheres of influence, as many have done, but they cannot lower this minimum.  However, there are certain exceptions for tipped employees.  Employers can claim tip credit for these workers, allowing them to pay just $2.13 per hour as long as the employee’s wage and tips equals or exceeds $7.25 per hour on average. This payment system becomes a little confusing when tipped employees are tasked with performing duties that are not tipped.  For example, waiters often must spend time cleaning, wrapping cutlery, and performing other prep work, and their employers still claim tip credit for this time even though the waiter is not being tipped. But at what point does an employer need to pay a tipped employee standard minimum wage for side work and not piggyback off of tip credit? The Department of Labor has attempted to informally answer this question by providing guidance to employers across the country on how to pay their tipped staff. Unfortunately, this guidance is not binding law, and courts across America have yet to decide whether the Department’s suggestion should be enforced as law.  This ambiguity has led to a recent lawsuit filed in Florida against OS Restaurant Services, LLC, also known as Outback Steakhouse of Florida, LLC. Suits like these are common occurrences across the countries as more employment lines blur and employees are asked to take on more varied tasks.

Trouble out back

Robert Eldridge was a server and bartender at an Outback Steakhouse in St. Petersburg, Florida.  Eldridge sued his employer, OS Restaurant Services (OSRS), because he alleged that more than twenty percent of the time he worked was spent on untipped duties, even though OSRS was claiming tip credit.  These tasks included bar setup, table setup, maintenance and janitorial duties, and more.  Eldridge claimed that this was a violation of the Fair Labor Standards Act (FLSA).  According to the Department of Labor (DOL), if a tipped employee spends more than twenty percent of his time on tasks that are not tipped, his employer should compensate him with the standard minimum wage ($7.25 per hour) for the time spent on these side tasks.

The company’s response

OSRS responded to the lawsuit by moving to dismiss the claims.  They argued that the DOL’s twenty percent rule is not binding authority.  However, this motion was rejected by a federal district court last month.  The Tampa Division of the United States District Court acknowledged that the Eleventh Circuit, which encompasses Florida, has not yet addressed the twenty percent rule.  However, the court said that, since the Eighth Circuit, which covers seven states, and numerous district courts, have applied the twenty percent rule, the court would side with the majority view.

The future of this case

Eldridge and his employer have not reached a settlement or court decision yet.  However, the recent update to the lawsuit seems promising for Eldridge.  The rejection of the motion to dismiss the lawsuit suggests that the court is willing to support the DOL’s twenty percent rule. OSRS is now faced with the dilemma of continuing litigation costs or settlement. This can be a tough spot for employers, and with the uncertainty of litigation costs and outcomes, many choose to settle.  After this case is settled, employers should be mindful of assigning side tasks to tipped employees, as the twenty percent rule permeates to other circuits.

What does this mean for employers in Texas?

Following the recent update to the Eldridge v. OS Restaurant Services, LLC lawsuit, employers in Texas should be cautious with regard to the twenty percent rule.  Admittedly, the twenty percent rule is nonbinding and the Fifth Circuit Court has not formally acknowledged it yet.  However, as more and more district courts begin abiding by this rule, district courts in Texas will likely be pressured to side with their peers, as was the case in Eldridge v. OS Restaurant Services, LLC.  Furthermore, seeing the success of this lawsuit and others, more employees may begin suing their companies for violations of the twenty percent rule.  Rulings and settlements on these cases may harm employers greatly by forcing them to pay much more for labor and legal costs than they expected.

If this gray area is still fuzzy for you, do not hesitate to contact us.  Minces PLLC offers advice to businesses and workers on wage issues and can help keep you on the right side of the law.

  • Posted in FLSA, Tips, Uncategorized, Wage and Hour
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