Employers Should Remain Wary When Claiming the FLSA’s Tip Credit.

Updated: May 17, 2021

By: Robert Morelli

January 1, 2020

The Fair Labor Standards Act (“FLSA”) has long allowed restaurants to pay servers and other tipped employees less than minimum wage and to let them make up the difference in tips. 29 U.S.C. § 203(m); 29 C.F.R. § 531.59. For roughly thirty (30) years, the Department of Labor (“DOL”) interpreted the FLSA as allowing an employer to claim the tip-credit for untipped work only if it constitutes less than 20% of their time. In 2018, the DOL released guidance in the form of an opinion letter that sought to do away with the 20% limit, provided the employee performs the untipped tasks at approximately the same time or after the tipped work.

In a slew of cases, federal courts have shot down the “withdrawal” of the 20% threshold. See, e.g., Kafka v. Melting Pot Rests., 2019 U.S. Dist. LEXIS 232407, at *9 (W.D. Mo. Apr. 30, 2019); Sicklesmith v. Hershey Entm’t & Resorts Co., 440 F. Supp. 3d 391, 402-404 (M.D. Penn. 2020); Cope v. Let’s Eat Out, Inc., 354 F. Supp. 3d 976, 986 (W.D. Mo. 2019)); O’Neal v. Denn-Ohio, LLC, 2020 U.S. Dist. LEXIS 5721 at *18-23 (N.D. Ohio Jan. 14, 2020); Reynolds v. Chesapeake & Del. Brewing Holdings, LLC, 2020 U.S. Dist. LEXIS 83633, at *13 (E.D. Pa. May 12, 2020); Berger v. Perry’s Steakhouse of Ill., 430 F. Supp. 3d 397, 412 (N.D. Ill. 2019); Rorie v. Wsp2, 2020 U.S. Dist. LEXIS 166080, at *12 (E.D. Ark. Sep. 9, 2020);Esry v. P.F. Chang’s China Bistro, Inc., 373 F. Supp. 3d 1205, 1211 (E.D. Ark. 2019); Belt v. P.F. Chang’s China Bistro Inc., 401 F. Supp. 3d 512, 532-534 (E.D. Penn. 2019); Williams v. Bob Evans Rests., LLC, 2020 U.S. Dist. LEXIS 145852, at *33 (W.D. Pa. Aug 13, 2020).[1]

Employers, thus, should remain wary when claiming the tip-credit for the time tipped-employees spend performing non-tipped work. Tip-credit lawsuits are challenging for employers to defend because of the level of near-constant micromanagement an employer would need to exercise to ensure tipped-employees do not cross the 20% threshold. Because of this, workers are often able to leverage large settlements, despite the relatively low dollar value of each claim. See, e.g., Carr v. Bob Evans Farms, Inc., et al. No. 1:17-CV-1875 (N.D. Ohio) ($3 million settlement to resolve FLSA tip credit collective action.) The safest and best practice, in the long run, may be avoiding claiming the tip-credit altogether.

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------------------------------------------------------------------------------------------------------------------------------- [1] In October 2019, the DOL issued a Notice of Proposed Rulemaking reiterating its new position on the FLSA’s tip credit provisions; the 60-day comment period expired in December 2019 and, as of this article, no regulation has been announced or implemented. If the DOL formally amends the regulation, it is possible that courts may cease applying the 20% threshold. Given the upcoming change in presidential administrations, it is uncertain what course the DOL will take.

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