The Fair Labor Standards Act has long provided that an employer may satisfy its federal minimum wage obligations for a tipped employee by applying the employee’s tips as a credit toward the minimum wage and, in doing so, directly pay such employee less than the general minimum wage. If the employer’s wages plus the employee’s tips do not equal or exceed the minimum wage, the employer must make up the difference.  Moreover, in order to take advantage of the tip credit, the employer is required to notify its tipped employees that it is taking the tip credit and to provide certain information pertaining to the credit.

In Schaefer v. Walker Brothers Enterprises, Inc., 2016 U.S. App. Lexis 12985 (7th Circuit July 15, 2016), the Seventh Circuit Court of Appeals addressed the duties an employer may require employees in tipped occupations to perform while still paying such employees using the tip credit.  The plaintiff, who worked as a server at several restaurants operated by the defendants, brought suit under the FLSA and Illinois state law on behalf of a class of servers, alleging that the extra duties servers were assigned converted their jobs into “dual jobs” requiring full cash wages for all non-tipped work performed.  Specifically, the plaintiffs alleged that, in addition to serving guests, they were required to wash and cut fruit and vegetables; prepare applesauce and jams; restock bread bins; refill a variety of dispensers; brew tea and coffee; wipe toasters, tables, burners, woodwork and picture frames, all of which took between 10 and 45 minutes per day.

Affirming the district court’s dismissal of the plaintiff’s claims, the Seventh Circuit distinguished between “dual jobs” and a tipped employee’s “related duties.”  The Seventh Circuit cited the Department of Labor’s relevant regulations, which provides as an example of a “dual job” a hotel employee who works both as a maintenance man and a waiter, only the latter of which produces tips.  Under these circumstances, the employer may take the tip credit only for the time the employee works as a waiter.  The regulation goes on to state, “Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. . . .  Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.”  The Seventh Circuit did not address the validity of the DOL’s 20% limitation on related tipped duties, set forth in its Field Operations Handbook, an issue which has divided courts.  Instead, the Court, assuming the 20% limitation was applicable, held the alleged duties performed were in fact “related” to regular server duties and less than 20% of their duties, and thus permitted the Defendant to utilize the tip credit.   As to some arguably unrelated duties, the court held that “the possibility that a few minutes a day were devoted to keeping the restaurant tidy does not require the restaurants to pay the normal minimum wage rather than the tip-credit rate for those minutes.”

The plaintiff further alleged that the employer failed to provide him and other class members with all of the statutory information about the tip credit, thereby precluding the employer from utilizing the tip credit.  In particular, the plaintiff argued that employers are required to inform employees of (1) the cash wage the employee will receive; (2) the difference between this amount and the minimum wage; (3) that the employer must make up the difference if the cash wage plus tips do not equal or exceed the minimum wage; (4) that the employee is entitled to keep all tips received, unless a valid tip pool exists; and (5) that the tip credit cannot be taken unless the employer provides notice of the previous four items.  The Seventh Circuit ruled that the combination of a leaflet provided to the plaintiff at the time of hire, combined with language regarding the tip credit set forth in the employee handbook and tip credit information included on federal employment posters that were on display in the restaurants, satisfied the employer’s notice obligations.  While the court noted that it would have been preferable for all of the information to have been assembled in one place, neither the statute nor the DOL’s regulations required that all of the information had to be in a single document and, further, the plaintiff did not contend that the class members were unable to “put two and two together” to understand the basics of the tip credit.

While the validity of the 20% limitation on related tipped duties is unresolved, Schaefer provides guidance to restaurant and hospitality industry employers in applying the limitation and identifying “related duties,” as well as applying the notice requirements under the FLSA for taking the tip credit.