The U.S. Department of Labor (“DOL”) has officially curtailed another controversial interpretation of its dual jobs regulation that has plagued employers for more than decade – i.e. the 20% rule. This is welcome news for the hospitality industry and other employers who employ tipped employees, as the previous rule effectively forced employers to track and monitor the time that tipped employees spent on non-tipped tasks and “related duties.” Although the DOL issued an opinion letter rescinding its interpretation of the 20% rule in November 2018, the DOL’s recent revisions to its Field Operations Handbook has official dispelled lingering concerns about the DOL’s interpretation of the Fair Labor Standards Act’s dual jobs regulation and potential enforcement of the 20% rule.
The Tip Credit
Under the federal Fair Labor Standards Act (“FLSA”), employers must pay employees a minimum wage of $7.25 per hour. Various state wage and hour laws impose higher minimum wage requirements, but employers covered by the federal minimum wage may pay tipped employees just $2.13 per hour in cash wages and take a “tip credit” arising from the employee’s actual tips to cover the remainder of the federal minimum wage. The maximum permissible tip credit under federal law is currently $5.12 per hour. The inquiry of whether an employer was entitled to claim the tip credit for a certain employee focused primarily on 29 C.F.R. § 531.56(e), also known as the dual jobs regulation, and section 30d00(f) of the DOL Field Operations Handbook.
Prior to the November 2018 opinion letter rescinding the 20% rule, the DOL’s enforcement policy limited an employer’s ability to claim the tip credit for a tipped employee who spent more than 20% of his or her work performing “related duties” – i.e. duties that we not tip-producing or otherwise consumer-facing but nonetheless related to the tipped occupation, such as a waiter cleaning a table.
Dual Jobs Regulation
The FLSA regulations specifically address employees who may be employed in two separate occupations. See 29 C.F.R. § 531.56(e). Under this regulation, which is commonly known as the “dual jobs” regulation, when an employee is engaged in separate occupations, one tipped and one not tipped, the employer may take a tip credit only for the tipped occupation. The examples the DOL uses in the regulation are instructive:
In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $ 30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man. Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.
29 C.F.R. § 531.56(e) (emphasis added). These examples illustrate that the distinction is based on occupations, as opposed to minute-by-minute tasks throughout a shift. As the plain, unambiguous language of the regulation demonstrates, there is a significant difference between an employee in two distinct jobs (such as an individual who works both as a maintenance man and a waiter) and an employee who works in a single tipped job but whose duties may also include “non-tipped work” (such as occasionally washing dishes or glasses). The DOL regulations do not divide the duties of workers in a single tipped occupation by whether they are tip-producing or non-tip producing, let alone impose any percentage limitations. However, this understanding of the regulation was muddied by a controversial interpretation of the regulation that dates back to 1988.
Emergence of 20% Rule and the DOL Field Operations Handbook
The emergence of the 20% rule has a long, complicated history that has been contradictory and confusing for employers. As originally enacted in 1938, the FLSA did not expressly address the effect of an employee’s tips on the amount of wages paid by the employer. In 1966, however, Congress amended the FLSA to extend its coverage to workers employed in the hotel and restaurant industries. 73 Fed. Reg. 43654, 43659 (July 28, 2008). The 1966 amendments added sections 203(m) and 203(t), which respectively allowed an employer to take a credit against the minimum wage for employees who were already compensated by tips and provided a definition of “tipped employee” as meaning “any employee engaged in an occupation in which he customarily and regularly receives” the requisite amount of tips. See Fair Labor Standards Amendments of 1966, Pub. L. No. 89-601, § 101, 80 Stat. 830, 830. The 1966 amendment also authorized the DOL “to promulgate necessary rules, regulations, or orders with regard to the amendments made.” Id. § 602, 80 Stat. at 844. Pursuant to this grant of authority, the DOL promulgated regulations in 1967 to clarify the FLSA’s tip credit provisions. 32 Fed. Reg. 13575-13581 (Sept. 28, 1967).
Specifically, the DOL promulgated the “dual jobs regulation, which contemplates that an employee can be “employed in a dual job” – i.e. two different occupations. 29 C.F.R. § 531.56(e). The regulation provides that if the employee is engaged in one occupation in which he “customarily and regularly receives at least $30 a month in tips,” and is also engaged in a second occupation in which the employee does not receive the required amount of tips, then the employer can take a tip credit only for the first occupation. Id.
Following the promulgation of the dual jobs regulation, employers requested guidance from the DOL regarding how to determine whether employees are engaged in a single occupation in which they receive more than $30 a month in tips, or instead have two occupations. Between 1979 and 1985, the DOL issued a series of opinion letters to provide a workable standard. While these opinion letters provided case-by-case guidance as to when an employee is engaged in two separate occupations, the DOL issued revised guidance in its updated Field Operations Handbook (“FOH”) for its field officers in 1988 to help determine when an employee was engaged in two different occupations. Without prior notice to the public or comment, the DOL inserted the alleged 20% rule into § 30d00(f) of the FOH.
This guidance was a significant departure from the earlier opinion letters. Instead of determining whether an employee was engaged in two jobs by looking for a clear dividing line, as it did in the opinion letters, DOL’s revised FOH required an employer to 1) sort the employee’s tasks into two different categories (tip-generating tasks and related but not tip-generating tasks); 2) determine whether the related tasks take up more than 20 percent of the total time worked; and, if so, 3) take a tip credit only for the time spent on tip generating tasks. Id. In 2011, the DOL doubled down on its time sheet approach to the dual jobs regulation and presented the FOH as its official interpretation of the dual jobs regulation in an amicus brief to the U.S. Court of Appeals for the Eighth Circuit in Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th Cir. 2011).
This FOH retained the rule that an employer cannot take a tip credit for time the employee spends performing “related duties” if those duties exceed 20 percent of the hours on the job, and added a new rule that an employer cannot take a tip credit for time spent in duties that are “not related” to generating tips. Id. at 1121 (citing FOH §§ 30d00(f)(3)-(f)(4)). However, the DOL has not consistently followed this addition to the FOH, and the DOL’s interpretation of the dual jobs regulation shifted several times throughout the years.
Notably, on January 16, 2009, the Administrator of the DOL Wage and Hour Division signed an Opinion Letter, explaining that FOH § 30d00(e) should not be construed to “limit . . . the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties.” See DOL Opinion Letter Jan. 16, 2009. The Letter stated that “[t]hese principles supersede our statements in FOH § 30d00(e)” and that “[a] revised FOH statement will be forthcoming.” Less than two months later, and under the new Obama Administration, the DOL formally rescinded the January 16th Opinion Letter on March 2, 2009. See DOL Opinion Letter Mar. 2, 2009. As a result, the DOL returned to applying its interpretation of the dual jobs theory as stated in the FOH § 300d00(f)(3). What ensued was a decade of confusion and expensive litigation.
Litigation and Circuit Split
While the DOL continued to issue fact-specific Opinion Letters and contradictory directions attempting to clarify how the dual jobs regulation applies, federal courts were routinely asked to interpret and clarify the dual jobs theory and sort through its tumultuous history. To date, courts have taken different approaches in evaluating cases where workers contend that their tipped job consists of both tip-producing and non-tip-producing duties.
The weight of appellate authority has rejected the 20% rule, including most recently the Ninth Circuit in Marsh v. J. Alexander’s LLC, 869 F.3d 1108 (9th Cir. 2017) (rejecting DOL’s 20% rule and holding that it was not entitled to deference, was unworkable, and completely ignores the FLSA’s requirement to identify distinct jobs). However, a minority view of courts deferred to the FOH. For example, in Fast v. Applebee’s International, Inc., 638 F.3d 872, 877-81 (8th Cir. 2011), cert. denied, 565 U.S. 1156 (2012), the court afforded controlling deference to the DOL’s interpretation of the dual jobs regulation in the FOH.
November 2019 Opinion Letter and Revised Field Operations Handbook
On November 8, 2018, the DOL Wage and Hour Division reissued the January 16, 2009 opinion letter that withdrew the enforcement guidance providing for the 20% rule. See DOL Opinion Letter Nov. 8, 2018. The opinion letter provides that DOL does not intend “to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” The related, but non-tip-producing, duties may also be performed “for a reasonable time immediately before or after” a tipped employee performs his or her direct-service duties without imperiling the credit. For employers, this means no more monitoring and tracking tipped employees’ work activities.
Two months after the issuance of this opinion letter, DOL followed through on its promise to revise its Field Operations Handbook by eliminating its investigation and enforcement position on the 20% rule. See DOL Field Operations Handbook (2019). The DOL’s position is now more manageable for employers – if an employee is performing duties related to a tipped occupation, the employer may take the tip credit for “any amount of time” that a tipped employee spends performing that duty.
29 CFR 531.56(e) permits the employer to take a tip credit for any time the employee spends in duties related to the tipped occupation, even though such duties are not themselves directed toward producing tips
The FOH’s only restriction, or perhaps clarification, of the new rule is that related duties must be performed contemporaneously with the tipped duties or for a reasonable time immediately before or after performing tipped duties. Employers are instructed to consult the Occupational Information Network website for guidance on what is considered a related, non-tipped duty for a certain position. For example, the core tasks currently listed in O*NET for waiters and waitresses include: cleaning tables or counters after patrons have finished dining; preparing tables for meals, which encompasses setting up items such as linens, silverware, and glassware; and stocking service areas with supplies such as coffee, food, tableware, and linens. The FOH explains that an employer may take the tip credit for any amount of time a waiter or waitress who is a tipped employee spends performing those related duties.
In addition to issuing the revised FOH, the DOL Wage and Hour Division issued a Field Assistance Bulletin on the same day it issued the revised FOH to provide further guidance on the revisions to section 30d00(f) and the DOL’s interpretation of the dual jobs regulation. The Bulletin explains that, under the revised FOH 30d00(f), the DOL staff will determine whether a tipped employee’s non-tipped duties are related to the tipped occupation by using the following principles:
- Non-tipped duties listed as examples in 29 C.F.R. § 531.56(e), and non-tipped duties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section of the Details report in the Occupational Information Network (O*NET) [https://www.onetonline.org/], are related duties.
- An employer may take a tip credit for any amount of time that an employee spends on related, non-tipped duties performed contemporaneously with the tipped duties—or for a reasonable time immediately before or after performing the tipped duties—regardless whether those duties involve direct customer service.
- Employers may not take a tip credit for time spent performing any tasks that are not contained in 29 C.F.R. 531.56(e), or in the O*NET task list for the employee’s tipped occupation, or—for a new occupation without an O*NET description—in the O*NET task list for a similar occupation. We note, however, that some of the time that a tipped employee spends performing these tasks—which are unrelated to the employee’s tipped occupation—may be subject to the de minimis rule in 29 C.F.R. § 785.47.
The new enforcement policy and guidance from the DOL went into effect immediately. In fact, the Bulletin instructs WHD staff to apply the new principles in investigations involving non-tipped duties performed by tipped employees on or before November 8, 2018.
Ultimately, the FOH revisions require employers to consider the nature of a tipped employee’s additional duties, as well as the timing, but not the detailed inquiry required under the former 20% rule. Employers should, however, continue to carefully analyze whether an employee is engaged in a dual job, as provided under 29 C.F.R. § 531.56(e) and current guidance. It is unclear how the DOL will interpret duties that are performed “for a reasonable time immediately before or after performing the tipped duties.” While the new rule is certainly welcome news for employers, employers must remain vigilant in analyzing employee duties and the extent that they perform duties “related” to a tipped occupation.