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Tipped Workers Winning Wage Suits as Courts Scrap Trump Guidance

Jan. 31, 2020, 4:12 PM

Restaurant chains have lost at least seven decisions over the last year in which federal district court judges refused to give deference to a 2018 Labor Department opinion letter advising restaurants to pay a lower minimum wage to tipped workers for tasks that don’t yield gratuities.

In most of those decisions, judges held that DOL wasn’t justified in turning its back on a standard that’s been in place for more than three decades. But the tables could soon turn in management’s favor as the Trump administration works to complete a rulemaking to codify its informal guidance.

Attorneys for restaurant workers have been relying on a policy covering dual tasks for tipped employees, known as the 80/20 rule, that the Labor Department formally added to its enforcement handbook in 1988. The interpretation holds that when tipped workers spend at least 20% of their workweek on duties that don’t generate tips, they’re entitled to the full minimum wage of $7.25 per hour for that time, rather than the base pay of $2.13 for tipped occupations.

DOL’s proposed rule, which could be finalized and take effect later this year, would repeal the 80/20 rule and permit employers to pay tipped workers the $2.13 minimum for unlimited time spent on related duties that don’t produce tips. The final rule is likely to reverse a decade-long trend in which dozens of casual-dining establishments have been on the receiving end of lawsuits by servers and bartenders who say they were underpaid.

The transition from agency guidance to regulation is intended to carry more weight in court. Regulations are often given substantial deference by judges, unlike guidance and opinion letters, because they are subject to formal notice and comment rulemaking procedures.

Applebee’s, Buffalo Wild Wings Inc., Denny’s Corp., and P.F. Chang’s have all been sued by tipped employees in recent years under the 80/20 rule. The owner of Buffalo Wild Wings agreed last year to pay at least $855,000 to settle a lawsuit by tipped workers.

For restaurant advocates, the persistent trend of costly litigation underscores the need for the Trump administration to rapidly finalize the regulation to bolster the opinion letter, which was published in November 2018.

“To bring clarity to the situation, given that several district courts have not been persuaded by the change in the informal guidance, I think it dictates this change at the regulatory level,” said Daniel Boatright, an attorney at Littler Mendelson in Kansas City, who represents steakhouse chain Texas Roadhouse in a pending 80/20 lawsuit.

Restaurant industry lawyers, who have been fighting the 80/20 rule since at least the Obama administration, say the 20% threshold imposed an impossible burden on businesses. Servers and bartenders constantly switch from tip-based duties to tasks that don’t produce gratuities, such as cleaning workstations and restocking shelves and bar areas, they say, and it’s extremely challenging for management to keep track of that breakdown, especially during busy periods.

Douglas Werman, one of the chief 80/20 litigators who has sued on behalf of Applebee’s and Buffalo Wild Wings employees, said there are two main reasons this type of lawsuit has proliferated over the last decade.

“There’s a lot of exploitation of tipped workers having performed excessive amounts of non-tipped work, but then it became a lucrative area of practice, too,” Werman said, noting that restaurant servers call attorneys after growing fed up that they’re being asked to help clean bathrooms or wash dishes, taking time away from their ability to interact with customers and earn gratuities.

The Deference Question

The seven cases in which federal district court judges rejected the informal guidance in ruling for restaurant workers were decided from January 2019 through this month.

Those cases are: O’Neal v. Denn-Ohio, LLC; Berger v. Perry’s Steakhouse of Ill.,; Flores v. HMS Host Corp.; Belt v. P.F. Chang’s China Bistro, Inc.; Spencer v. Macado’s, Inc.; Esry v. PF Chang’s China Bistro Inc.; and Cope v. Let’s Eat Out, Inc.. In the most recent case, a federal judge in Ohio sided with a group of Denny’s servers in January.

The outcomes haven’t been completely one-sided, however. In at least two other cases over the same period—Shaffer v. Perrys Rests. and Matusky v. Avalon Holdings Corp.—courts were persuaded by the opinion letter and found in favor of restaurants.

The trend of judges refusing to give deference to the DOL opinion was furthered by the U.S. Supreme Court’s June 2019 decision in Kisor v. Wilkie, which narrowed the circumstances under which judges should defer to agency regulatory interpretations. The high court’s new deference guidelines can apply to the dozens of interpretive opinion letters DOL’s Wage and Hour Division has issued since the Trump administration restored the practice in 2017.

DOL opinion letters typically address legal ambiguities by responding to employers’ questions about fact-intensive compensation scenarios. The DOL under the Obama administration had discarded the practice.

A department spokeswoman, when asked to comment, didn’t specifically address the lack of deference judges have shown the guidance.

“Opinion letters allow the Department to look at a set of facts and offer a review for employers so they can better abide by the law and create safer working environments,” the spokeswoman said in a prepared statement. “They can be a valuable tool for employers and employees to understand their obligations and rights. The Department can’t comment on private litigation or open rulemaking.”

Repeal of 80/20

The Wage and Hour Division’s proposed rule, issued in October, would allow businesses to pay tipped workers the lower rate for all nontipped duties, provided the workers perform “related, non-tipped duties contemporaneously with or a reasonable time immediately before or after performing the tipped duties.”

Some plaintiff’s attorneys vow to bring new cases against restaurants to challenge the regulation once it takes effect. Democratic state attorneys general also have laid the groundwork for potential legal action against the rule.

WHD investigators and litigators are already enforcing the new interpretation pursuant to the 2018 guidance. But parties to private lawsuits are finding the federal bench to be more intransigent than the Trump administration when it comes to the 80/20 matter.

The multiple 80/20 claims percolating in the district courts will likely still be active when the department finalizes the rule. And although new rules are generally applied prospectively, not retroactively, restaurants facing lawsuits can use the final rule to bolster their arguments against 80/20. A restaurant could make a case that the Trump administration rule’s true effective date is November 2018, when the DOL opinion cast off the 80/20 rule, Littler Mendelson’s Boatright said.

The final rule will likely not be relevant to current cases, said Bridget Dooling, a research professor at George Washington University’s Regulatory Studies Center and former counsel at the White House Office of Information and Regulatory Affairs.

“The subsequent final rule should not allow the Department to get special retroactive deference for the prior document/action that was not, itself, due deference,” Dooling said in an email.

All Eyes on P.F. Chang’s

The debate may get resolved through a class action brought by servers against P.F. Chang’s . A federal judge in Pennsylvania held in August that servers may proceed in their claim that the restaurant wrongly paid them the lower minimum wage for untipped work.

P.F. Chang’s is represented by an attorney known as the principal advocate to kill the 80/20 rule: Paul DeCamp, an Epstein Becker Green partner and former DOL wage-hour chief under President George W. Bush. DeCamp sued the DOL over its 80/20 interpretation in 2018 on behalf of the Restaurant Legal Center, the litigation arm of the National Restaurant Association. The group dropped the lawsuit after the Labor Department published the opinion letter.

DeCamp welcomed the move to strengthen that opinion through regulation, even as he continues efforts to vanquish the 80/20 standard in court.

“DOL’s revision to the dual jobs regulation is a welcome clarification that should take care of the issue going forward, but it will take further circuit court rulings to resolve liability in the pending cases,” he said via email.

After pending lawsuits conclude, time will tell if the regulation stamps out future dual jobs litigation.

Werman said his firm has stopped pursuing 80/20 cases because of the upcoming final rule. He said he expects other attorneys to keep pressing 80/20 claims by contending the new rule doesn’t deserve deference. But if judges disagree and abide by the department’s rule, he said, “it’s going to essentially eliminate dual jobs litigation.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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