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Tipped Workers to Get More Pay for Side Work in DOL Proposal (1)

June 21, 2021, 3:40 PM; Updated: June 21, 2021, 9:52 PM

The U.S. Labor Department proposed reinstating a longstanding policy, revoked late in the Trump administration, that would require restaurants to pay tipped workers a higher minimum wage when they’re performing work that doesn’t directly generate gratuities.

The proposed regulation published Monday holds that when tipped employees, such as servers and bartenders, spend at least 20% of their workweek on duties that support their occupation but don’t produce tips, they’d be entitled to the full minimum wage of $7.25 an hour, rather than the pay floor of $2.13 that’s reserved for workers who regularly earn tips.

When previously in effect, that interpretation, sometimes called the “80/20" rule, triggered a wave of plaintiff lawsuits and class actions alleging that restaurant chains owe employees back pay for time spent on side work, such as rolling silverware into napkins or cleaning workstations, that’s separate from serving customers, for which they were paid less than $7.25 per hour.

In what would be a crucial update to the prior 80/20 policy, the new DOL regulation proposed that tipped workers would also be owed the higher hourly rate when fulfilling side tasks for at least 30 continuous minutes, regardless of weekly hours.

The Trump-era rule, finalized in late December, was championed by the restaurant industry. It aimed to reverse the litigation trend by permitting businesses to pay $2.13 an hour on secondary duties for an unlimited amount of time, provided the tasks were related to the worker’s tipped occupation and performed “contemporaneously” or directly before or after customer-facing tipped activities.

Once President Joe Biden took office, the new administration paused the rule before it could take effect, leading to Monday’s action by DOL’s Wage and Hour Division to withdraw the business-friendly interpretation and restore the 80/20 policy.

Pandemic Effects

“Tipped workers are among those who continue to be hardest hit as we emerge from the pandemic, and the Wage and Hour Division continues to prioritize protecting these essential front-line workers,” Jessica Looman, the division’s acting administrator, said in a released statement.

“This proposed rule provides more clarity and certainty for employers while better protecting workers. It helps ensure that tipped workers are treated with dignity and respect, and that they receive wages appropriate for the work they perform,” she said.

But the restaurant industry, which once filed a legal challenge to try to overturn the 80/20 standard, also cited the pandemic to cast the proposed restoration as ill-timed.

Forcing restaurants to comply “with such an arbitrary rule again is going to open the floodgates of litigation,” said Shannon Meade, vice president of public policy and legal advocacy at the National Restaurant Association. She said it would create “enormous” costs and compliance burdens for restaurants that, “coming out of the pandemic, don’t really have the resources to manage that.”

More Litigation?

Although the 80/20 rule has been on the books in various forms since 1988, it has never—until now—undergone the regulatory notice-and-comment process.

If the department finalizes the regulation after considering public comments through Aug. 23, it would stand a better chance of receiving deference from federal judges ruling on plaintiff lawsuits.

That said, multiple courts have affirmed that interpretation, refusing to give weight to the Trump administration’s change in approach when ruling in favor of workers.

Sally Abrahamson, a partner at the plaintiff-side firm Werman Salas PC, applauded the proposed rule, saying it would bring clarity to a legal area that’s confounded courts and attorneys alike.

Employers frequently argue that it’s extremely difficult if not impossible to track the percentage of tipped employees’ hours per week that are spent on duties that generate tips and those that don’t. Introducing the 30-minute marker to the analysis should simplify the compliance process for businesses, she added.

Still, Abrahamson, who has filed lawsuits against restaurants that paid less than $7.25 an hour for time workers spent on side work, predicted that if DOL cements the rule, restaurant workers will continue to bring more complaints.

“What we’ve seen when we’ve litigated these cases isn’t that the companies are cleaning up their act,” Abrahamson said. “This is an industry that is rife with wage violations.”

(Updated with additional reporting throughout.)

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

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Travis Tritten at ttritten@bgov.com

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