The tipped-wage debate has been nothing if not contentious over the years. And it’s on the verge of adding another controversial layer. In one of President Donald Trump’s so-called “last-minute rule moves,” the administration’s Labor Department moved last week to finalize a pair of decisions some believe will cost top-earned workers and allow government contractors to discriminate against LGBT employees.
On the tipping topic, the DOL submitted a final rule to the White House Office of Information and Regulatory Affairs. It appeared on the agency’s website November 26. As Bloomberg pointed out, this is generally the final major step before the rule releases to the public.
UPDATE: DOL Eliminates 80/20 Rule, Opens Tip Pooling to More Workers
If finalized as it stands, the regulation would allow employers to pay tipped employees the lower minimum wage of $2.13 per hour, no matter how much time they spend on non-tipped duties. Often this is prep work—rolling silverware, cleaning, etc. But lately, it’s also encompassed a changing industry that cross-functions tasks with fewer employees and more business outside the four walls. Everything from punching third-party orders into POS systems (often referred to as “tablet hell”) or even just packaging, taking, and preparing these growing channels of business. Whether or not some of these come with tips or not is a restaurant-by-restaurant dilemma. But, without question, it’s a changed dynamic from the standard roles—serving customers at the table, getting a tip at the end.
The rule would withdraw the department’s previous interpretation that workers (this includes servers and bartenders) must be paid the full federal hourly minimum of $7.25 when spending at least 20 percent of their workweek on tasks that don’t yield gratuities from customers, rather than the base pay of $2.13 for tipped occupations.
It would clarify that workers earning the reduced tipped hourly minimum of $2.13 could complete some non-tipped work so long as it’s completed during or “for a reasonable time immediately before or after” their tip-earning work, per POLITICO. It would also allow restaurants to use “tip pools” to share tips with back-of-house employees, so long as all workers participating in the pool are receiving the full minimum wage.
Like many of Trump’s policies during the past four years, it’s viewed as a pro-business approach versus a pro-labor one.
Saru Jayaraman, executive director of One Fair Wage, a national nonprofit organization representing subminimum wage workers, said Trump was “managing to out-Grinch himself right before Christmas.”
“The Trump Administration’s plan to let multimillion-dollar restaurant corporations pay workers just $2.13 per hour, even when they’re doing work that does not allow them access to tips, will hurt the millions of restaurant and service workers in the United States who are already struggling amid his mismanaged pandemic,” Jayaraman said in a statement.
Nearly 10 million tipped and other service workers have lost their jobs since March. The majority of which, Jayaraman added, were unable to access unemployment benefits through their states due to the fact they earned the subminimum wage for tipped workers. As noted, it’s $2.13 an hour at the federal level and $5 or less in nearly 40 states.
For those still working, she said, tips are down roughly 50–75 percent during COVID-19.
“This is a shameful new low for a President who has already made it clear that he does not care about American workers. If implemented, President-elect Biden’s Administration should immediately reverse this decision upon taking office,” Jayaraman said.
The previous Obama administration policy required tipped employees spend at least 80 percent of their time on tipped-wage duties, like waiting tables, rather than untipped back-of-the-house functions, such as washing dishes and so on.
Bloomberg said the rule, if completed before President Trump leaves office January 20, “would represent a victory for the hospitality industry and management attorneys by shielding them from an increasingly common form of litigation in which workers allege they’re owed back pay for hours working on non-tipped duties when they didn’t earn at least $7.25.”
The litigation Bloomberg referenced surfaced throughout 2019 as restaurant chains lost at least seven decisions in which federal district court judges refused to give deference to a 2018 Labor Department opinion letter advising restaurants to pay a lower minimum wage to tipped workers for tasks that don’t yield gratuities.
In the decisions, judges said the DOL couldn’t turn its back on a standard that ruled for three-plus decades.
What this comes back to is a policy that covers dual tasks for tipped employees, referred to as the 80/20 rule. The Labor Department added it to its enforcement handbook in 1988. Basically, when tipped workers spend at least 20 percent of their workweek on duties that don’t generate tips, they’re entitled to the full minimum wage ($7.25 per hour) for that time, rather than the $2.13 base tip pay.
Back in January, the DOL proposed a rule to repeal the 80/20 model and permit restaurants to pay tipped workers $2.13 for unlimited time spent on related duties that don’t produce tips (what President Trump’s administration is trying to make good on now). It also called to prohibit supervisors and managers from participating in tip-pooling arrangements. Employers would be allowed to create tip pools in some instances to include dishwashers and other back-of-the-house workers who usually don’t get tips.
“The final rule is likely to reverse a decade-long trend in which dozens of casual-dining establishments have been on the receiving end of lawsuits by servers and bartenders who say they were underpaid,” Bloomberg said at the time.
Applebee’s, Buffalo Wild Wings Inc., Denny’s Corp, and P.F. Chang’s faced lawsuits from tipped employees in the past under the 80/20 rule. Buffalo Wild Wings paid at least $855,000 to settle one in 2019.
Similar to a leading complaint of the “joint employer” rule, restaurants lamented the growing trend of costly litigation associated with the 80/20 regulation. The Trump administration first published an opinion letter on potential changes in November 2018.
Restaurant industry lawyers, Bloomberg said, pointed to the 20 percent threshold as “an impossible burden.” Servers and bartenders constantly switch from tip-based duties to tasks that don’t produce gratuities. Keeping track of that breakdown, especially during peak hours, presented a monumental ask of managers. And it could, in practice, bloat the overall take of the front of the house compared to the back, an age-old issue on its own.
And again, the rise of off-premises orders only complicated the labor breakdown of late.
Douglas Werman, a chief 80/20 litigator involved in the Applebee’s and Buffalo Wild Wings cases, told Bloomberg there are two key reasons lawsuits picked up over the last decade.
“There’s a lot of exploitation of tipped workers having performed excessive amounts of non-tipped work, but then it became a lucrative area of practice, too,” Werman said.
Much of it stems from workers upset they signed on to wait tables and earn tips, and ended up cleaning bathrooms or stocking shelves, etc.—tasks that take them away from their main earning potential.
Over 2019, seven cases (O’Neal v. Denn-Ohio, LLC; Berger v. Perry’s Steakhouse of Ill.,; Flores v. HMS Host Corp.; Belt v. P.F. Chang’s China Bistro, Inc.; Spencer v. Macado’s, Inc.; Esry v. PF Chang’s China Bistro Inc.; and Cope v. Let’s Eat Out, Inc.) saw judges reject the informal guidance in ruling for restaurant workers.
There were two, however, in favor of restaurants (Shaffer v. Perrys Rests. and Matusky v. Avalon Holdings Corp.)
Back to the present
President Trump’s Eleventh-Hour push for business-friendly policies includes a rule to ease employers’ ability to rely on independent contracts and to solidify religiously affiliated federal contractor exemptions from antidiscrimination requirements.
Bloomberg noted that even if the DOL’s Wage and Hour Division can release the tips rule in time for it to take effect before Biden is inaugurated, it would face a rocky future.
Democrat state attorneys general hinted they’d file suit arguing the rule violates the Administrative Procedure Act. And Biden’s reimagined DOL would likely embrace a return of the Obama-era interpretation.
Worker advocates and Democrats already argue the change would force tipped workers to lose income by spending most of their time performing duties where they are not earning tips. In other terms, a restaurant would institute the $2.13 figure and then ask the worker to complete tasks for back-of-the-house employees earning minimum wage.
There are a handful of labor-related shakeups expected under a Biden administration. Perhaps the biggest involves the gig economy and Trump’s labor department proposed rule that offered an expansive view of independent contracting under the Fair Labor Standards Act. While not finalized, it promised to shift the current worker classification test to emphasize employer control and worker entrepreneurship. Law360 previously said, given the timing, “it could be a prime target for the incoming Biden administration and congressional Democrats who may seek to impose a tougher classification standard either through the regulatory process or through legislation.”
MORE: What would restaurant labor under President-elect Biden look like?
Independent contractors generally aren’t protected by wage, discrimination, and other laws that apply to employees. Democrats in Congress introduced expansive legislation during the Trump administration that would codify a version of the ABC test into federal law. It’s a goal Biden supported during his campaign and would apply to wide swath of employment laws on top of the FLSA.
Ron Holland, with McDermott Will & Emery LLP, told Law360, “If independent contractors are going to become employees because of the ABC test, you should see a spike in union organizing and you should see a bump in the percentage of organized labor from where we are now.”
Biden has expressed support for the passage of the Protecting the Rights to Organize Act (PRO Act). Cameron Fox, of Paul Hastings LLP, told Law360 this would represent the biggest change in labor law in more than 75 years, if Democrats could pass it.
The PRO Act would make it easier for workers to form unions, push against state’s right-to-work laws, outlaw the use of class-action waivers in arbitration agreements, and put a more worker-friendly joint employer test into federal law.
On Biden’s “Build Back Better” transition website, he said there would be a Main Street restart recovery package designed to cover costs of operating during COVID, such as PPE. He also reiterated a plan to raise the nationwide minimum wage to $15 an hour and end tipped minimum wages and sub-minimum wages for people with disabilities.
He also outlined a proposal that backed up Law360’s predications by saying he’d pass the PRO Act and shared a Paycheck Fairness Act to ensure women receive equal pay for equal work. Another suggested work change would extend COVID-era crisis insurance for unemployed workers and universal paid sick days and 12 weeks of family and medical leave per year.
