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Supreme Court Refuses To Hear Tip Credit Case

Published by on January 27, 2012

Servers and bartenders employed at Applebee International, Inc.’s restaurants brought a class action suit under the Fair Labor Standards Act (FLSA) based on Applebee’s use of the “tip credit” to calculate their wages for purposes of meeting the minimum wage requirements of the FLSA.  The Supreme Court denied certiorari on January 17, 2012, effectively ending […]

Servers and bartenders employed at Applebee International, Inc.’s restaurants brought a class action suit under the Fair Labor Standards Act (FLSA) based on Applebee’s use of the “tip credit” to calculate their wages for purposes of meeting the minimum wage requirements of the FLSA.  The Supreme Court denied certiorari on January 17, 2012, effectively ending this appeal.  USA Today has a story about the case here.  More after the break.

The FLSA allows employer to pay a minimum cash wage of $2.13 per hour to employees in a “tipped occupation” as long as the employee’s tips make up the difference between the $2.13 cash hourly wage and the current federal minimum wage. Plaintiffs claimed that Applebee’s required them to perform work that did not produce tips, such as cleaning, inventory, stocking, and preparing food, for significant portions of their shift while compensating them at the lower $2.13 tipped rate. It was undisputed between the parties that plaintiffs received in cash hourly wage and tips a sum at least equal to the required minimum wage per hour for all hours worked.

Pursuant to Department of Labor (“DOL”) regulations, for employees who hold more than one job for the same employer, one which generates tips and one which does not, the employee is entitled to the full minimum wage rate while performing the job that does not generate tips. The DOL’s interpretive Field Handbook states that if a tipped employee spends a substantial amount of time (defined as more than 20 percent) performing related, non-tipped work, then the employer may not take the tip credit for the amount of time the employee performs those non-tipped duties.

The district court denied Applebee’s motion for summary judgment, concluding that the DOL’s Handbook was reasonable, persuasive and entitled to deference. The district court also concluded that plaintiffs had to “make a prima facie showing which hours were not properly paid,” and if there were no records of the time spent on specific duties, then the burden would shift to Applebee’s to show that the employees’ calculations were not reasonable.  Applebee sought an interlocutory appeal from Eighth Circuit Court of Appeal, arguing the DOL’s Handbook is contrary to statute and regulations.

The Court of Appeals affirmed the district court’s order. The Court of Appeals concluded that the DOL’s interpretation was entitled to deference, and therefore, controlling because the interpretation was not plainly erroneous or inconsistent with statute or regulation. The Court of Appeals further concluded the district court applied the proper burden of proof in which the initial burden was on the employees to establish that they worked hours for which they were not properly paid. If Applebee’s did not maintain sufficient records from which the employees can differentiate between when they performed tipped duties and whey they performed non-tipped duties, then the employees may use the relaxed standard of proof by “produc[ing] sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.”

The Supreme Court denied certiorari of this case on January 17, 2012. Accordingly, employers who rely on the tip credit to satisfy the FLSA’s minimum wage requirements should both (a) ensure that they maintain records regarding the time each employee spends on tipped and non-tipped tasks; and (b) pay employees the minimum wage, without relying on the tip credit, for all time spent on non-tipped tasks if non-tipped tasks constitute a substantial amount (or more than 20 percent) of the employee’s time.

The Court of Appeals decision can be found here.

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