Executive Summary: On September 18, 2018, a year after a three-judge panel of the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of Marsh v. J. Alexander’s LLC, 869 F.3d 1108, a larger en banc panel of the court has overturned the previous decision, perpetuating uncertainty regarding timekeeping and minimum wage requirements for hospitality employers. The previous decision by a three-judge panel on September 6, 2017 had split with the Eighth Circuit over the U.S. Department of Labor’s (DOL) current position on the FLSA’s “dual jobs” regulation and what is commonly called the “80/20 rule,” which states that hospitality employers may not reduce a tip-earning employee’s hourly pay below the minimum wage when that employee spends more than 20 percent of his or her workweek on non-tip-earning tasks.

Marsh v. J. Alexander’s Winding Path:

The dispute thus far has been over a rather arcane legal issue of administrative law: to what extent the DOL’s interpretation of the “dual jobs” regulation, including its 80/20 rule, and its latest guidance on these issues, is entitled to “deference.” The Ninth Circuit’s three-judge panel had found the DOL’s most recent guidance interpreting the 80/20 rule inconsistent with both the dual jobs regulation and its prior guidance. The court also found the guidance operated as a de facto rule that had not gone through proper rulemaking channels and was, therefore, entitled to no deference. By contrast, the Eighth Circuit, in Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th Cir. 2011), deferred to the DOL’s guidance.

In light of its determination that the DOL guidance was not binding, the three-judge panel simplified the analysis to a determination of whether an employee is actually engaged in “dual jobs,” rather than tallying a percentage of discrete tasks, and found that the plaintiffs were not so engaged. This created a more workable roadmap for employers for when they can apply the “tip credit” to reduce their minimum wage obligations than the previous test, and could have significantly reduced employer uncertainty and liability. FordHarrison’s previous legal alerts on this case are available here and here.

On reconsideration, however, the en banc panel overruled the earlier decision. Noting that the dual jobs regulation was subject to the required notice and comment period, the court called the challenge to the rulemaking process “decades too late,” and noted that the defendants had failed earlier to challenge the DOL guidance as violative of rulemaking procedures. Ultimately, the court concluded that because the dual jobs regulation is ambiguous, the DOL guidance is valid and entitled to deference, consistent with the holding of the Eighth Circuit.

Procedurally, the decision does nothing more than allow the case to continue to the discovery phase. The defendants had previously won dismissal of the case, and the three-judge panel decision had upheld the dismissal. This en banc decision, by overturning the dismissal, simply returns the case back to the District Court to proceed. Whether the plaintiffs ultimately prevail on their claims is a matter for another day. Nonetheless, the en banc decision eliminates the split between the Eighth and Ninth Circuits, and represents a setback for employers in the hospitality industry.

Separately, the U.S. District Court for the Western District of Texas is currently considering a challenge brought by the Texas Restaurant Association to the DOL tip credit guidance, picking up the argument the Marsh defendants did not timely raise: that the DOL guidance itself was never promulgated through proper rulemaking, resulting in the DOL having “claimed for itself regulatory authority well beyond what Congress has conferred by statute.” The DOL’s response is expected on or before November 12. Meanwhile, employers remain in the precarious situation of uncertainty regarding what counts as “tipped” or “non-tipped” work This case will play out against a backdrop of courts within the Fifth Circuit having recently invalidated several DOL proposed rules. FordHarrison’s article about the lawsuit is available here: https://wagehouremploymentlaw.com/2018/08/23/the-fate-of-the-dols-80-20-rule-will-the-80-20-rule-survive/.

Finally, the DOL is said to be considering changes to its current position with respect to dual jobs and the 80/20 rule that could help alleviate the uncertainty faced by employers.

Employers’ Bottom Line:

The en banc Ninth Circuit opinion resolves a potential split with the Eighth Circuit, but reaffirms a difficult practical reality for employers, which continue to be susceptible to minimum wage claims based on how many minutes a day employees spent performing certain discrete tasks.

In order to mitigate liability as much as possible, we advise clients to implement the following procedures to ensure compliance with applicable law:

  • Continue following the 80/20 rule as currently interpreted by the DOL.
  • Ensure that tipped employees, such as servers and bartenders, are performing only tasks related to those jobs (such as making coffee or fetching ice), but not tasks that could arguably be associated with a completely different job, such as cleaning bathrooms.
  • Have tipped employees punch in and out at point of sale to designate the start and stop times for all non-tipped tasks, designated by different job codes.
  • Regularly audit time spent performing non-tipped tasks and rectify any possible underpayment prior to a lawsuit being filed.