On September 18, the U.S. Court of Appeals for the Ninth District ruled that employers paying tipped credit wages should pay tipped employees minimum wage when performing work in which they cannot obtain gratuities.
An example of the possible effects of this ruling is best represented by a state such as Texas where many restaurants pay their tipped employees $2.13 an hour. Under this new ruling, employers would be required to pay minimum wage, which is $7.25 per hour, for any work conducted by employees (such as pre-service preparation) in which no gratuities are possible. Sixteen other states pay tipped employees a minimum wage of $2.13 per hour.
This ruling overturns a lower court’s decision that employers could pay less than minimum wage to tipped employees no matter what type of work was being performed—as long as the gratuities and wage added up to the required minimum compensation every week.
According to the opinion of Circuit Judge Paez, “Congress did not intend to give employers a blank check when it enacted the FLSA’s tip credit provision…a server’s tips serve as a gift to the server, as opposed to a cost-saving benefit to the employer.”
If this sounds slightly confusing, it is. Keep in mind, this is not “law” as some reports would have you believe. It simply allows the plaintiffs to return to the lower court and have their case heard again regarding this one facet of their lawsuits.
It does, however, provide a persuasive precedent for the Supreme Court, should these types of cases reach the highest court of appeal. And we expect they will as the door has now swung in favor of servers and bartenders receiving minimum wage for duties such as preparation, cleaning, and side-work. This ruling may even result in lawsuits for back wages—a numbing proposition for many restauranteurs.
This specific case involved 14 plaintiffs and 7 defendants that included Denny’s, P.F. Chang’s China Bistro, AMC Theatres Esplanade 14, Arriba Mexican Grill, International House of Pancakes, J. Alexander’s, and American Blue Ribbon Holdings. The last group operates four popular restaurants: O’Charley’s, 99 Restaurant & Pub, Bakers Square, and Village Inn.
There are, of course, some states that will not be affected. Currently, there are seven states that pay tipped employees full state minimum wage before tips. These are California, Hawaii, Nevada, Oregon, Washington, Montana, and Minnesota.
While some employees may be cheering the news, others are hesitant. Some employees are concerned that the restaurant they are employed by is already operating under tight margins and that this type of ruling could ultimately cause its closing.
The Wall Street Journal reported that when voters in Maine boosted the tipped minimum wage to an amount that would ultimately reach $12 per hour, complaints poured in from both sides—restaurants that were looking at almost doubling their labor costs and employees who said clientele were leaving less in tips. Six months later, state legislators withdrew the initiative.
Judge Ikuta was one of two who disagreed with the ultimate verdict in the recent ruling. She offered her dissent, concluding that it resulted in an “unfair and unexpected imposition of liability of employers…Alex Marsh (a plaintiff) claims he is entitled to minimum wage for the 17.33 hours he spent each week performing tasks related to serving, and for the 5.5 hours he spent performing unrelated tasks. Multiplying the alleged unpaid wages for these hours over the entire time Marsh was employed, and aggregating the claims of all similarly situated employees, it is reasonable to assume that large employers will face staggering damages claims.”
She concluded that the duties of servers may consist of cleaning tables, making coffee, toasting bread and even washing dishes. And that while engaged in these activities, they are performing the single-tipped occupation of serving…not janitor, barista and dishwasher.
Alec Marsh claimed that he spent about half of his work week in duties that did not directly lead to gratuities. These included brewing tea and coffee, cutting and stocking lemons and limes, cleaning soft drink dispensers, stocking ice, wiping tables, taking out the trash, scrubbing walls, sweeping floors, and cleaning restrooms.
The question then becomes, how is an employer expected to keep track of the various activities and times spent doing non-tipped work? Do servers clock in and out when wiping down tables? Do bartenders clock in and out when washing glasses?
The possible ramifications for employers are staggering, but what about the employees?
Ironically, it may mean a decrease in wages. According to a study conducted by research associates at the University of Washington, when Seattle’s minimum wage went to $13 an hour, low-wage employees’ pay fell by an average of $125 a month.
The truth is, in an industry that often runs on barely perceptible profit margins, those that stay afloat may have to cut back on labor or increase their prices. Some establishments may even consider later openings or early closings of the dining area, allowing guests to purchase meals at the bar. Rulings such as this may very well explain the recent investment of $21 million being doled out to Spyce—a one-unit, recently opened restaurant in Boston. Its draw? The robotic kitchen and self-ordering kiosks.