Class Action Wage Theft Lawsuit Against Denny’s For 80/20 Tip Credit Violations

A wage theft lawsuit against Denny’s restaurants alleging tip credit and minimum wage violations has been certified as a class action by a Pennsylvania federal court. The Court ruled that Denny's violated the Fair Labor Standards Act (“FLSA”) by paying servers at the tipped minimum wage rate even though they performed non-tipped duties for more than 20% of their workday and by not notifying servers of the tip credit taken against their wages.

Under the 80/20 tip credit rule of the FLSA, employers are prohibited from paying their tipped employees at the tipped minimum wage rate when they require tipped employees to perform non-tipped duties (also known as “side work”) for over 20% of the employees’ workday.  In this case, servers claimed that Denny's paid them at the state's tipped minimum wage of $2.83 per hour, even when tipped employees were required to perform additional duties that did not earn them tips, such as cleaning the restaurant, washing dishes and rolling silverware. One server claimed that she regularly spent about an 30% each shift doing side work.

The Court also found Denny’s had not sufficiently notified employees of the federal rules regarding wages and tips and when they would be paid at the lower rate for earning tips. The Court stated that in order for a restaurant to take a tip credit, it must provide the tipped employee notice of: (1) what their wages are, (2) the additional amount claimed by the employer as a “tip credit” (3) that the tip credit cannot exceed the amount the employee actually earned in tips, (4) that employees get to keep all their tips unless there's a "tip-pooling" arrangement, and (5) that the tip credit doesn't apply to workers who have not received notice of all this information. Denny's failed on the last requirement. Without this notice, Denny's could not take a tip credit against their servers’ wages and, thus, owed its servers the full minimum wage in Pennsylvania of $7.25 an hour.

This is the latest of a few recent decisions to disregard the Department of Labor’s 2018 guidance that threw out the 80/20 rule.  The Court noted, "Although the Department of Labor issued an opinion letter in 2018 purporting to supersede the 80/20 rule, courts in this circuit have generally declined to defer to DOL's recent interpretation of the dual-jobs regulation and continue to apply the 80/20 rule."

Other fast casual restaurant chains have also been hit with 80/20 tip credit lawsuits, including Red Robin Restaurants, that settled for $900,00, and TGI Friday’s, that settled for $19.1 million.  If you work as a server in the restaurant industry and believe you are spending more than 20% of your workday performing side work, you may be entitled to the full minimum wage.