Twenty Percent Rule for Tip Credit is Key Issue in Lawsuit By Applebee’s Waiters and Bartenders

Under the Fair Labor Standards Act (“FLSA”), employers are allowed to take a “tip credit” and pay waiters, bussers, and bartenders below the federal minimum wage of $7.25 per hour.  For example, the “tip credit” for waitstaff in New York is currently $2.25 per hour, meaning that waiters, busboys, and bartenders can be paid an hourly minimum wage of $5.00 per hour.  The United States Department of Labor regulations provide, however, that a restaurant will not qualify for the “tip credit” for employees that spend more than 20% of their time performing non-tipped work. In Fast v. Applebee’s International, a group of servers and bartenders filed a lawsuit alleging that Applebee’s had violated the Department of Labor’s “twenty percent rule” by requiring employees to work more than 20% of their time performing non-tipped tasks such as cleaning the bathrooms, sweeping the restaurant, cleaning and stocking service areas, and rolling silverware, while still taking the “tip credit” for all of the time worked.  Applebee’s argued that the Department of Labor’s “twenty percent rule” was contrary to the terms of the FLSA and that once an employee is classified as a “tipped employee” their employer may take a tip credit for all hours worked, regardless of the actual tasks performed.  Alternatively, Applebee’s argued that all work done by their tipped employees contributed to the enjoyment of their customers and was, therefore, related to the occupation of server or bartender.  A federal district court in Missouri ruled for the employees.  However, the court’s Order was appealed to the Eighth Circuit Court of Appeals.  A decision from the Court of Appeals on this important workers’ rights issue is expected in the months ahead and will have a significant nationwide impact. Restaurant workers and employers in New York State should note that the twenty percent rule is already in effect for waiters, bussers, and bartenders in New York.  The New York State Department of Labor’s newly revised Hospitality Wage Order specifically provides a twenty percent rule for restaurants that take a “tip credit.”  Subpart 146-2.9 of the Hospitality Wage Order states:

On any day that a service employee or food service worker works at a non-tipped occupation (a) for two hours or more, or (b) for more than twenty percent (20%) of his or her shift, whichever is less, the wages of the employee shall be subject to no tip credit for that day.