Employer may violate minimum wage if tip credit was applied to hours that were not tip-credit eligible

By Ronald Miller, J.D — Although an employee did not allege that she failed to receive the minimum wage when including all the tips she received as a server, that deficiency did not preclude her from stating a claim for a minimum wage violation, ruled the Tenth Circuit.

The appeals court rejected a district court’s conclusion that “if [a] tipped employee makes enough [in tips] to meet the minimum wage,” then the employer has necessarily complied with Section 206(a) of the FLSA. To the extent an employee’s tips are relevant in determining whether an employer has satisfied its minimum-wage obligations under Section 206(a), the threshold question is whether the employer can treat those tips as wages under Section 203(m) (Romero v. Top Tier of Colorado LLC, March 7, 2017, Moritz, N.).

Failure to allege. In dismissing the employee’s minimum wage claim, the district court had relied on the undisputed fact that she never alleged that she earned less than the federal minimum wage of $7.25 an hour—at least after taking into account both (1) the cash wage that her employer paid her and (2) all of the tips that she received each week. However, the district court declined to address the employee’s argument that the employer impermissibly treated her tips as “wages.” The Tenth Circuit concluded that without first resolving whether the employer was entitled to treat her tips as wages under Section 203(m), the district court couldn’t have determined whether the employer paid the employee wages of at least $7.25 an hour under Section 6(a)(1)(C).

“Non-tipped” tasks. The employee worked as a server at one of the employer’s restaurants. The employer took advantage of the “tip credit” and paid her a “cash wage” of $4.98 per hour; it then used some of her tips to cover the gap between that cash wage and the federal minimum wage. But the tip credit only applies to “tipped employees,” and during some of the hours she worked, the employee performed “non-tipped” tasks, such as brewing coffee or tea, rolling silverware, wiping down tables, setting tables, cutting and stocking fruit, stocking ice, taking out trash and sweeping floors.

Dual jobs. Reasoning that she wasn’t a “tipped employee” under Section 203(m) for at least some of the hours she spent performing these tasks, the employee asserted that the employer should have paid her a cash wage of at least $7.25 an hour for those hours. She alleged that the employer was not entitled to take the tip credit for any of the hours she spent performing non-tipped tasks. She claimed that the employer wasn’t entitled to take the tip credit for those hours “in excess of [20 percent] of her regular workweek” that she spent performing non-tipped tasks.

20 percent rule. The tip-credit provision is not without its limits. The Department of Labor has “recognize[d] that an employee may hold more than one job for the same employer, one which generates tips and one which does not, and that the employee is entitled to the full minimum wage rate while performing the job that does not generate tips.” Moreover, Section 30d00(e) of the DOL’s Field Operations Handbook “provides that if a tipped employee spends a substantial amount of time (defined as more than 20 percent) performing related but nontipped work … then the employer may not take the tip credit for the amount of time the employee spends performing those duties.”

Arguments not addressed. Here, the employee alleged that she was employed in two occupations: one that generated tips and one that didn’t. She also alleged that she spent more than 20 percent of her workweek performing “related but nontipped work.” Thus, she concluded that her employer was not entitled to take the tip credit for (1) those hours she spent “performing the job that [didn’t] generate tips” and (2) those hours she spent “performing related but nontipped work.” Instead, she argued, she was “entitled … to the overall minimum wage” for those hours. But the district court explicitly declined to address either of those arguments.

The upshot of the employee’s argument was that the employer impermissibly treated a portion of her tips as “wages” for minimum wage purposes by taking the tip credit for hours that were not tip-credit eligible. The district court correctly stated the general rule that an employer satisfies the minimum wage so long as, after “the total wage paid to each [employee] during any given week is divided by the total time [that employee] worked that week, the resulting average hourly wage” meets or exceeds $7.25 an hour. But it could not apply the general rule to the employee’s claim without first determining what “total wage” the employer actually paid her. The district court could not make that determination without evaluating whether the employer took the tip credit for hours that weren’t tip-credit eligible.

Source:: Employer may violate minimum wage if tip credit was applied to hours that were not tip-credit eligible