Ninth Circuit: DOL’s 80/20 Tip Credit Rule is Invalid

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September 6, 2017

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The Department of Labor (“DOL”) permits employers to give a tip credit to tipped employees who spend no more than 20% of their time performing non-tipped duties. In Marsh v. J. Alexander’s, LLC, the Ninth Circuit noted that this rule is only found in the Field Operations Handbook used by the DOL as guidance for investigations by field officers, rather than in a statute or regulation; as a result, the court stated it was not valid.

Moreover, the rule was not consistent with “the [Fair Labor Standards Act] regulation’s requirement to identify distinct jobs,” and “the [rule’s] minute-by-minute and task-by-task approach is contrary to the statute, which considers only whether an employee is engaged in a single job that generates the requisite amount of tips.” In short, the 80/20 measurement is not used to determine what may be considered a single tipped job.

This case created a split with the Eighth Circuit, which does give deference to the 80/20 rule, and which means that the issue may be taken up to the U.S. Supreme Court.  However, this issue does not affect states, like California, that do not allow employers to use tip credits to evade paying the required minimum wage.

Action Items

  1. Review and revise payroll practices consistent with this ruling, if applicable.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2017 ManagEase, Incorporated.

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