A recent federal court decision involving Chili’s and its tipping practices points to courts’ willingness to allow employee challenges to employer tip pool practices to proceed past motions to dismiss. It also signals courts’ deference to the Department of Labor’s (DOL) interpretation of the Fair Labor Standards Act (FLSA) and related regulations concerning tip pools. Ultimately, the case shows that employers face the risk of having to defend against a lawsuit or enforcement action when the employer requires tipped employees to regularly perform nontipped work, either related or unrelated to the employees’ tipped job duties, but pays the employees below minimum wage and takes a tip credit for all work performed, regardless of whether the work is tipped or nontipped.
In Barnhart v. Chesapeake Bay Seafood House, No. JFM-16-01277 (D. Md. March 31), the plaintiff, who worked as a server, bartender and expeditor at two Maryland locations of Chili’s, asserted federal and state law claims that she and many other restaurant employees spent a substantial percentage of work hours, before open and close of the restaurants, performing duties unrelated to their tipped jobs that did not give them the chance to interact with customers and earn tips.
The plaintiff alleged she held “dual jobs” under the FLSA, and that any tip credits that the defendant employer took for her hours worked as a nontipped employee were illegal under the FLSA, and state minimum wage and wage payment and collections laws. The outcome allegedly resulted in the plaintiff being paid less than minimum wage for all nontipped work performed, which she asserted constituted 30 to 50 percent of her work hours. Further, the plaintiff asserted that the point-of-sale time-management system at the restaurants would have allowed the employees to record tipped versus nontipped time to make sure the proper wages were recorded, but the employer did not allow employees to use the system in this way.
The court denied the motion to dismiss filed by Chili’s, and found that the plaintiff made a plausible claim for relief under the FLSA “dual jobs” regulation, since many of the work tasks she and other employees were required to do—such as sweeping the deck and removing cigarette butts from the bushes outside the restaurant—would ordinarily be performed by janitorial staff, which is a nontipped position.
Additionally, the court found that other jurisdictions have properly given deference to the Department of Labor’s interpretive guidelines that state that employers are not permitted to take advantage of the tip credit when a tipped employee who holds only a tipped position spends more than 20 percent of their time performing related, nontip producing duties. Notably, the court stated that the guidelines weren’t unduly burdensome on employers, who could easily track the tipped versus nontipped hours of tipped employees, and could also hire minimum-wage workers to perform the bulk of nontip producing duties required of tipped employees.
In sum, employee challenges to tip-pool practices will likely survive early-stage challenges when litigated. In addition, litigants should be prepared for courts to give great deference to the DOL’s interpretative guidelines when engaging in litigation about tip-pool practices. •