Employers in the hospitality industry continue to face class and collective action lawsuits based on alleged violations of minimum wage requirements for tipped workers. Most of this litigation involves interpretation of the FLSA’s tip credit, which allows the employer to pay servers and bartenders a sub-minimum wage and claim a portion of the employees’ tips to make up the difference with the full minimum wage. Last month in an en banc decision, the Ninth Circuit Court of Appeals reversed a panel decision that rejected limitations placed on use of the tip credit for employees who perform non-tipped work.

In Marsh v. J. Alexander’s LLC, an employee filed a collective action FLSA lawsuit, claiming that servers spent a large portion of their time on non-tipped job tasks and therefore worked in dual jobs. The plaintiff claimed that the servers should be paid the full minimum wage for the non-tipped work, regardless of their total income, including tips. The Ninth Circuit panel rejected this claim, refusing to defer to Department of Labor regulations and an enforcement guidance that requires payment of the full minimum wage for work unrelated to tipped job tasks, and which limits related but non-tipped work to 20 percent of the employees’ time.

On appeal, the full Ninth Circuit reversed this decision, deferring to the DOL interpretations of the tip credit and therefore agreeing with an earlier Eighth Circuit decision on this issue. The court interpreted both the tip credit regulation and subsequent guidance as within DOL’s purview. Employers must separately account for the non-tipped work, and tips received by the servers cannot be used to comply with minimum wage requirements for such non-tipped work.

For hospitality industry employers, this decision could create administrative headaches. Affected businesses will need to carefully review any non-tipped job tasks assigned to employees for whom the tip credit is claimed. Employers will also need to maintain time budgets of such work in order to defend against claims that it exceeds the 20 percent limit. For work outside the tip credit, employers will need to pay the employees the full applicable minimum wage.