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National Restaurant Association - Court's failure to consider tip-credit case will increase confusion over tip-credit law, NRA says

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Court's failure to consider tip-credit case will increase confusion over tip-credit law, NRA says

The U.S. Supreme Court this week refused to consider an appeal by Applebee's in a class-action case filed by more than 5,000 servers and bartenders over the company's tip-credit practices.

The National Restaurant Association, which had filed a brief supporting Applebee's petition to the Supreme Court to take the case, believes the court's refusal to hear the case will increase confusion over an impractical and bureaucratic Department of Labor interpretation of federal tip-credit law.

The servers and bartenders who filed the 2006 case allege that they spent more than 20 percent of their time performing work that didn't directly produce tips, such as cleaning tables and general prep work, and should have been paid the full minimum wage rate for that time.

The Supreme Court's refusal to take the case sends Applebee's International Inc. v. Gerald A. Fast, et al., back to a lower court to rule on the case's merits, including whether the Applebee's employees who filed the case spent more than 20 percent of their time on non-tip-producing duties.

DOL gets a green light

The high court's refusal to take the case has broader implications for the restaurant industry. In effect, the Supreme Court's failure to consider the case gives the DOL a green light to more aggressively enforce the agency's controversial interpretation of the law.

By not taking the case, the Supreme Court let stand earlier rulings in this case by a federal district court and the 8th Circuit Court of Appeals. Both courts deferred to U.S. Department of Labor internal guidelines that deny employers a tip credit when tipped employees spend a certain portion of time on general preparation work or maintenance as part of their tip occupation duties.

Specifically, in a brief filed in support of the Applebee's employees, the DOL argued that to the extent a tipped employee spends more than 20 percent of his or her time on activities that the DOL says are not “directed toward producing tips,” the employer may not apply a tip credit for any of the time the employee spent in such activities. If the time spent does not exceed 20 percent of an employee’s workweek, the DOL says the employer may take a tip credit for the time spent in such incidental duties.

The DOL's interpretation is outlined in the agency’s Field Operations Handbook, which guides DOL inspectors in wage-and-hour investigations. The National Restaurant Association, Applebee's and other federal courts say the DOL's interpretation is inconsistent with the federal statute and the DOL's own tip-credit regulations.

DOL interpretation "a nightmare from a practical standpoint" 

In its brief supporting Applebee’s petition to the Supreme Court, the NRA argued that allowing the DOL to proceed with its interpretation would "create a nightmare from a practical standpoint" for restaurateurs by forcing operators to track the exact amount of time each tipped employee spends on each duty -- ranging from duties such as serving guests to incidental duties such as setting up tables, making coffee or occasionally washing dishes and glasses, etc. -- in order to verify that the time spent by tipped employees on non-tip-producing activities during a workweek does not exceed the arbitrary '20 percent' rule that DOL's internal guidelines specify for employers to be able to take a tip credit for such time.

As pointed out in the NRA's brief, requiring bartenders and servers to keep a record of such time is simply unworkable and impracticable in the restaurant business. Also, the distinction between tip-producing and non-tip-producing activities performed by tipped employees is unclear. The DOL's Field Operations Handbook provides little guidance in this area.

The 8th Circuit Court of Appeals covers seven states: Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. The DOL will likely now enforce its interpretation in these states and nationwide.

More aggressive enforcement of this interpretation across the country could result in further court challenges. The NRA will continue to monitor developments as the DOL applies its '20 percent' guideline in tip-credit cases, and will consider weighing in on future court challenges. The NRA will also continue to press the DOL to enforce wage-and-hour laws responsibly and with full guidance for employers.

Because the DOL's interpretation of the law is complex and nearly impossible for restaurateurs to implement, the NRA believes more aggressive enforcement is likely to add to the confusion. 

"Since we anticipate that the DOL will enforce this approach nationwide, employers both in and outside of the jurisdiction of the U.S. Court of Appeals for the 8th Circuit should examine their tip credit practices to see if the DOL’s '20 percent rule' may cause a problem if they are audited," said Peter Kilgore, general counsel for the NRA.

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