In April 2020, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that paying an employee a set amount for each day that he works (i.e., on a “day rate” basis) does not satisfy the “salary basis” component required to qualify as overtime-exempt under the Fair Labor Standards Act (FLSA), regardless of whether the employee earns the weekly minimum salary (currently, $684) required for the exemption. The full Fifth Circuit subsequently heard the case and, in a 12-6 opinion, reached the same conclusion. Hewitt v. Helix Energy Sols. Group, Inc., 15 F.4th 289 (5th Cir. 2021), cert. granted, No. 21-984 (U.S. May 2, 2022). The Sixth and Eighth Circuit Courts of Appeal previously had arrived at the same conclusion. The U.S. Supreme Court has now granted certiorari and, presumably during next Fall’s term, will determine whether the analysis of Fifth, Sixth, and Eighth Circuits regarding the FLSA’s salary-basis requirement was sound.

The FLSA Regulation

The relevant U.S. Department of Labor (DOL) regulation provides:

[A]n employee will be considered to be paid on a “salary basis” within the meaning of this part if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.

29 C.F.R. § 541.602(a). The regulation further provides that “an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or  hours worked.” Id. § 541.602(a)(1). Furthermore,

[a]n exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.

29 C.F.R. § 541.604(b) (emphasis added).

The Lawsuit

In Hewitt, the plaintiff worked on an offshore oil rig for periods of about a month at a time, known as “hitches.” The company paid the plaintiff a set amount for each day that he worked, and he received bi-weekly paychecks. Despite earning over $200,000 during each of the two years he was employed, and admittedly being paid at least $455 for each week in which he worked (the minimum salary required for exempt status under the FLSA during the time of his employment), the plaintiff filed suit, claiming he was entitled to overtime for each week he worked in excess of 40 hours.

Citing the DOL’s regulations, the en banc Fifth Circuit concluded that “respect for text forbids us from ignoring text. As a matter of plain text, we hold that, when it comes to daily-rate employees like Hewitt, Helix must comply with § 541.604(b).” Because the Company admitted that it paid the plaintiff strictly on a day-rate basis without a weekly guarantee, it failed to satisfy the “salary basis” requirement of the FLSA’s overtime exemption provisions. The Court of Appeals added that Helix easily could have complied with this requirement by guaranteeing the plaintiff $4,000 or so weekly, which reasonably would have equated to the $963 daily rate it actually paid. The Fifth Circuit noted that the Sixth and Eighth Circuit Courts of Appeal, as well as the U.S. Department of Labor and most federal district courts, likewise have concluded that Section 541.604(b)’s weekly guarantee must be satisfied, even for highly paid employees like the plaintiff.

The Takeaway

Because “day rate” pay is a longstanding common practice in the energy industry, the Supreme Court’s decision on this issue is particularly important. We will continue to provide updates on this case but in the meantime, if you have any questions about this decision, exemptions under the FLSA, or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Business development managers, whose job was to convince corporate customers to purchase General Motors vehicles for their corporate fleets, qualified for the administrative exemption from the overtime provisions of the Fair Labor Standards Act (FLSA), the Eleventh Circuit Court of Appeals recently held. Brown v. Nexus Bus. Solutions, LLC, 2022 U.S. App. LEXIS 8777 (11th Cir. Apr. 1, 2022). While not establishing new law, the decision nonetheless is an excellent primer on the FLSA’s administrative exemption. The Eleventh Circuit has jurisdiction over the federal trial courts in Alabama, Florida, and Georgia.

Background

The FLSA generally requires that employees be paid overtime, at a rate of at least one and a half times their regular rate of pay for all hours worked beyond 40 in a week. 29 U.S.C. § 207(a)(1). However, there are some exceptions to that general rule and one of those is the “administrative” exemption. The requirements of the administrative exemption are easy enough to recite but often difficult to apply. To qualify for the exemption, an employee must (1) be paid, on a salary basis, at least $684 per week; (2) perform office or non-manual work directly related to the employer’s general business operations; and (3) have as a primary duty “the exercise of discretion with respect to matters of significance.” 29 C.F.R. § 541.200(a).

The Lawsuit

In Brown, the business development managers did not actually sell vehicles – that was done by local dealerships – but were charged with connecting potential corporate buyers with the local dealers by generating leads and making sales presentations. A group of these managers filed a collective action under the FLSA, asserting that the company had misclassified them as exempt and therefore that they should have been paid overtime for the hours they worked in excess of 40 per week, which were considerable. The employer moved for summary judgment, contending that the business development managers were exempt under both the FLSA’s administrative exemption and its outside sales exemption. The trial court denied summary judgment with respect to the outside sales exemption but agreed that the managers qualified for the administrative exemption and granted summary judgment in favor of the company.

The Eleventh Circuit’s Decision

The employees appealed and the Eleventh Circuit affirmed the trial court’s dismissal. As is common in scenarios involving the administrative exemption, there was no dispute that the first two requirements were met, that is, that the managers were paid at least $684 a week on a salary basis and that they performed non-manual work related to the company’s general business operations. Thus, the focus of the appeal was whether the business development managers’ primary duties included the “exercise of discretion with respect to matters of significance.”

In concluding that the business development managers did, in fact, possess and exercise such discretion, the Court of Appeals looked to the regulations of the U.S. Department of Labor (DOL) for guidance. The DOL regulations provide when applying the administrative exemption, only those employees who engage in “the comparison and the evaluation of possible courses of conduct, and act[] or mak[e] a decision after the various possibilities have been considered,” qualify for the exemption. 29 C.F.R. § 541.202(a). Citing the DOL regulations, the Eleventh Circuit noted that the analysis is “ultimately a holistic determination, but several factors guide the inquiry,” including that:

  • the employee should have the “authority to make an independent choice, free from immediate direction or supervision,” even though their choices may still be subject to review, revision, or reversal;
  • the work must involve “more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources” and cannot be “mechanical, repetitive, recurrent or routine;” and
  • must relate to “matters of significance,” which “refers to the level of importance or consequence of the work performed.”

29 C.F.R. §§ 541.202(a) – (e).

Applying those principles here, the Court of Appeals concluded that the business development managers met the requirements for the administrative exemption because they “had a hand in choosing which leads to develop, performed customized research before meeting with selected leads, and delivered presentations that necessarily required some amount of customization.” Moreover, based on testimony from some of the managers, the Eleventh Circuit determined that the position’s primary role is to “develop business leads and opportunities for the dealerships,” with a focus on “developing those new relationships and bringing them to the dealer.” Unquestionably this was a matter of significance for the employer’s business, concluded the Court of Appeals, because the business depended on bringing in new customers for its financial success. Thus, in dismissing the case, the trial court had properly concluded that the administrative exemption applied.

If you have any questions about the administrative exemption or any other wage and hour question, please contact a Jackson Lewis attorney.

On April 6, 2022, Governor Mike DeWine signed Senate Bill (S.B.) 47, thereby formally adopting Sections 2 and 4 of the Portal-to-Portal Act (PPA) amendments to the federal Fair Labor Standards Act (FLSA). In addition, S.B. 47 incorporates the FLSA’s “opt-in” requirement for individuals seeking to join a class (collective) action based on state law claims for failure to properly pay overtime wages. The law becomes effective on July 6, 2022.

Because Ohio law (O.R.C. § 4113.03) expressly incorporates by reference Section 7 of the FLSA “as amended,” and because the PPA is an amendment to Section 7, Ohio federal courts routinely have assumed that the PPA applies to Ohio state law claims. See, e.g. Baughman v. KTH Parts Industries, 2021 U.S. Dist. LEXIS 62059 (S.D. Ohio Mar. 31, 2021). S.B. 47 now expressly recognizes that longstanding assumption.

Portal-to-Portal Provisions

Under SB 47 (and the PPA), an employer is not required to pay overtime wages to an employee for time spent:

  • “walking, riding, or traveling to and from the actual place of performance of the principal activity or activities that the employee is employed to perform,” e., normal commuting time;
  • “performing activities that are preliminary to or postliminary to the principal activity or activities; or
  • “performing activities requiring insubstantial or insignificant periods of time beyond the employee’s scheduled working hours,” that is, de minimis

These provisions apply to activities “performed either prior to the time on any particular workday that the employee commences the employee’s principal work activity or after the time on any workday that the employee ceases performing the employee’s principal work activity.” In other words, the provisions do not apply to activities performed on a non-workday. With respect to the law’s provision declaring de minimis time as non-compensable, the law does not define what constitutes “insubstantial or insignificant” time but more importantly – and unlike its federal counterpart – does not state that the activity must be performed infrequently.

Consistent with the PPA, S.B. 47 clarifies that employers must still pay employees for preliminary or postliminary activity performed “during the employee’s regular workday or during prescribed hours” or “at the specific direction of the employer.” In addition, employers must pay for employee time performing activities “pursuant to an express provision of a contract in effect at the time the employee performed the activity” and activities “pursuant to a custom or practice, not inconsistent with a contract, in effect at the time the employee performed the activity.”

Opt-In Requirement

S.B. 47 provides that employees shall not join an Ohio overtime lawsuit as plaintiffs unless they first give written consent to become a plaintiff and file that consent with the court in which the action is brought. This requirement is consistent with the FLSA’s “opt-in” provisions for collective actions and eliminates the so-called “hybrid” collective/class wage lawsuits that combine both “opt-in” plaintiffs under the FLSA and “opt-out” plaintiffs under parallel state law claims.

The Takeaway

S.B. 47 provides clarity to Ohio employers and establishes consistency between federal and state overtime laws. Moreover, as more employers embrace virtual or hybrid workplaces, the law should assist employers and employees in better understanding when brief activities (e.g., reading e-mails) outside of the regular workday constitute compensable time.

If you have any additional questions or concerns about this development, please contact the Jackson Lewis attorney(s) with whom you regularly work.

On March 30, 2022, Governor Jay Inslee signed Senate Bill (SB) 5761, updating Washington’s existing pay transparency law. Previously, after an employer made an initial job offer to an external applicant, the employer was required to provide the minimum wage or salary to the applicant if the applicant requested the information. Under the revised law, an applicant’s request is no longer required.

Now, an employer must proactively disclose in each posting for a job opening not only the wage scale or salary range, but also a general description of all of the benefits and other compensation associated with the position. A “posting” is defined to include “any solicitation intended to recruit job applicants for a specific available position, including recruitment done directly by an employer or indirectly through a third party, and includes any postings done electronically, or with a printed hard copy, that includes qualifications for desired applicants.” Thus, presumably, a generic “now hiring” or “help wanted” advertisement would not be subject to the disclosure requirements.

While these new disclosure requirements apply to external applicants, the law retains disclosure requirements for internal job candidates. Upon request of an employee offered an internal transfer to a new position or promotion, the employer must provide the wage scale or salary range for the employee’s new position.

The revised law takes effect on January 1, 2023, and applies to employers with 15 or more employees. For an established violation of the law, an employer may be subject to civil penalties imposed by the Department of Labor and Industry, as set forth in RCW 49.58.060. In addition, an employee may bring a civil action pursuant to RCW 49.58.070 and may recover actual damages; statutory damages equal to the actual damages or five thousand dollars, whichever is greater; interest of one percent per month on all compensation owed; and costs and reasonable attorney’s fees. Recovery of any wages and interest for violations of the pay transparency requirements is calculated from the first date wages were owed to the employee.

Employers in Washington should begin taking steps now to ensure that their job posting methods comply with these new proactive disclosure provisions by the January 2023 effective date. If you have any questions about Washington’s pay transparency law or any other wage and hour issue, please consult a Jackson Lewis attorney.

Generally, the Fair Labor Standards Act (FLSA) requires employers to pay at least minimum wage (currently $7.25) for all non-overtime hours in a workweek. However, subject to any contradictory state laws, an employer may pay a “tipped employee” – one who customarily and regularly receives at least $30 per month in tips – a reduced minimum wage of $2.13 per hour, with the employee’s tips making up the difference. This difference commonly is known as the “tip credit.” But to claim the tip credit, the employer must comply with certain notice requirements, and failure to do so may result in a claim that the employer violated the FLSA by not paying the required minimum wage. A recent case involving a Houston, Texas pizza parlor exemplifies the potential perils of failing to satisfy those tip credit notice provisions, as well as for overcharging employees for the cost of uniform cleaning. Ettorre v. Russos Westheimer, Inc., 2022 U.S. App. LEXIS 7295 (5th Cir. Mar. 18, 2022). The Fifth Circuit has jurisdiction over the federal courts in Louisiana, Mississippi, and Texas.

The Law

When an employer elects to take a tip credit under the FLSA, it must inform tipped employees of its use of the tip credit, including (1) the amount of the employee’s cash wage; (2) the amount of the tip credit claimed by the employer; (3) that the amount claimed may not exceed the value of the tips actually received; (4) that all tips received must be retained by the employee except for a tip pooling arrangement limited to employees who customarily and regularly receive tips; and (5) that the tip credit shall not apply to any employee who has not been informed of all of these requirements. 29 U.S.C. § 203(m); 29 C.F.R. § 531.59(b). An employer may not take the tip credit for any period of time during which these notice requirements are unmet.

The Lawsuit

Plaintiff Chiara Ettorre was employed as a server at a Russos pizza restaurant in Houston from May 2016 until December 2018. Throughout that time, Russos paid her $2.13 per hour plus tips and claimed the FLSA tip credit. In addition, Russos deducted a mandatory $10 “linen fee” per pay period from Ettorre and other servers to cover the cost of cleaning their work aprons, which they were required to wear. That fee also covered the cost of providing unlimited soft drinks to the employees while they worked. Following her discharge, Ettorre sued Russos, alleging it failed to provide her the FLSA’s requisite notice before claiming the tip credit and that the linen fee was an improper pay deduction. The district court granted summary judgment to Ettorre, finding no evidence that Russos had ever satisfied the required tip credit notice provisions. The trial court further concluded that the linen fee was an unreasonable charge for merely laundering an apron and that Russos had failed to show the actual cost of providing free drinks, as opposed to the menu price it charged customers for such drinks. Accordingly, Russos was liable for the full amount of the tip credit and the linen fee for the time Ettorre was employed, as well as liquidated (double) damages and attorney’s fees.

Russos appealed and the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment for Ettorre in all respects. In response to Ettorre’s affidavit asserting that she was not informed of the tip credit notice provisions other than that she would be allowed to keep her tips, the company’s corporate designee admitted she did not know whether the restaurant informed Ettorre of the required tip credit notice provisions and further admitted there was no policy of informing employees about these provisions at the time of hiring. Rather, Russos demonstrated only that Ettorre was aware that her hourly rate was $2.13 and that she could retain her tips. Moreover, even if Ettorre was provided with an employee handbook (which she denied), the Court of Appeals ruled that there was no evidence that the tip credit notice provisions were included in it. In sum, the Fifth Circuit held that Russos had failed to produce sufficient evidence to survive Ettorre’s summary judgment motion.

As for the linen fee, the Fifth Circuit noted that under Section 203(m)(1) of the FLSA, an employer may count toward wages “the reasonable cost . . . of furnishing [an] employee with board, lodging, or other facilities, if [they] are customarily furnished by [the] employer to his employees” but “reasonable cost” in this respect means “actual cost” absent any employer profit. 29 C.F.R. §§ 531.3(a)-(b). The Court of Appeals held that Russo’s failed to produce any evidence of the cost of providing unlimited drinks to an employee. Regardless, concluded the Fifth Circuit, if an item is “primarily for the benefit or convenience of the employer,” it is per se not a reasonable cost to impose on employees. 29 C.F.R. § 531.3(d)(1). In this case, the cost of providing and cleaning uniforms was primarily for the benefit of Russos and therefore could not reasonably be imposed on Ettorre or other employees. Moreover, even if some portion of the linen fee was reasonably imposed on employees, Russos failed to maintain and preserve adequate records to separate out that cost. Finally, the Court of Appeals held that Russos produced no evidence that it had reasonable, good-faith grounds to believe that its actions complied with the FLSA. Thus, an award of liquidated damages was appropriate.

The Takeaway

The Fifth Circuit’s holding serves as a cautionary tale for any employer that takes the FLSA tip credit or who imposes a uniform cleaning fee or similar charge on its employees. Employers must ensure that they regularly comply with the FLSA’s tip credit notice provisions (and state provisions, where applicable) and that they understand the legal limits on deducting fees from employee wages.

If you have any questions about this decision or any other wage and hour issue, please contact a Jackson Lewis attorney.

Earlier this year, the absence of Senator Rand Paul (R-Ky.) from a meeting of the Health, Education, Labor and Pensions Committee enabled David Weil, President Biden’s nominee to head the Wage and Hour Division (WHD) of the Department of Labor (DOL), to make it out of the committee, where his nomination had been languishing for months. That small victory for Dr. Weil’s nomination ultimately ended in defeat on March 30, 2022, when the full Senate voted not to proceed with his nomination. The vote was 53-47, with Senators Joe Manchin (D-W. Va.), Kyrsten Sinema (D-Az.), and Mark Kelly (D-Az.) joining all of the Republican Senators in rebuffing the President’s nominee.

Dr. Weil, who currently is a professor at Brandeis University, headed the WHD under the Obama Administration. During that time, the DOL published a Final Rule that would have more than doubled the minimum salary to qualify for the Executive, Administrative, and Professional overtime exemptions (a.k.a. the “white collar” exemptions). That Final Rule was struck down by a Texas federal judge shortly before going into effect in late 2017, and a new Final Rule was issued under the last administration, raising the minimum annual salary to a relatively more modest $35,568, where it currently stands. Nevertheless, the current DOL has signaled that it intends to issue another Final Rule that would increase the minimum exempt salary again, quite possibly to or near the same level that was sought to be enacted during the Obama Administration.

It remains to be seen who and when the Biden Administration will next nominate to head the WHD, a decision that certainly may be impacted by the midterm elections in November 2022. Jackson Lewis will continue to monitor and report any updates on both the next WHD nominee and the minimum exempt salary regulations. In the meantime, if you have any questions about these or any other wage and hour questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

During its latest legislative session, West Virginia passed Senate Bill 245, thereby enacting several changes to its wage payment provisions using payroll cards. These changes become effective on June 9, 2022, 90 days after passage of the Bill.

While payroll cards already were an authorized method of paying employee wages, both the employer and the employee had to agree to use of the pay method. That is no longer the case.  Under SB 245, which amends Sections 21-5-3 and 21-5-4 of the Wage Payment and Collection Act,  the employer may unilaterally elect to pay employee wages via payroll card, provided the employer discloses in writing any applicable fees associated with the payroll card.

In addition, the employee must have the ability to make at least one withdrawal or transfer from the payroll card per pay period without cost or fee, for any amount up to the amount contained on the card, and must be able to make unlimited in-network withdrawals or transfers from the payroll card without any cost or fee, for any amount up to the amount contained on the card. Finally, employers who use payroll cards must give employees the option of being paid by electronic transfer (i.e., direct deposit) instead.

Employers in West Virginia who are, or who are contemplating, using payroll cards to compensate their employees should ensure compliance with these new provisions by the June 2022 effective date. If you have any questions about this development or any other wage and hour issue, please consult a Jackson Lewis attorney.

Recently the Oregon legislature passed, and Governor Kate Brown signed, Senate Bill (SB) 1513, revising the Beaver State’s overtime rules for bakers. In addition, the legislature passed House Bill (HB) 4002, revamping the overtime entitlements for farmworkers. That bill is before Governor Brown, who is expected to sign it. As both laws first take effect at the beginning of 2023, employers in these industries should review their pay practices in the coming months to ensure future compliance.

Bakery Workers

Based on legislators’ stated concerns that bakery workers should not be penalized for refusing last-minute overtime obligations, the Oregon legislature passed SB 1513, limiting bakeries from imposing overtime on workers without at least five days’ notice. Effective January 1, 2023, any manufacturing establishment classified as a “bakery” by the North American Industry Classification System (NAICS) may not discipline an employee who refuses to work mandatory overtime unless the employer has provided at least five days’ advance notice. The advance notice must specify the anticipated shift’s date and time. The bill authorizes Oregon’s Bureau of Labor and Industries to investigate violations and enforce compliance.

Farmworkers

Traditionally, both federal and state law exempt agricultural workers from overtime requirements for work beyond 40 hours in a week, with only seven states providing for overtime pay for farmworkers. With the passage of HB 4002, Oregon would become the eighth such state if Governor Brown signs the bill into law. Proponents of the law assert that traditional overtime rules, typically excluding farmworkers, are outdated and unfair. Subject to certain exceptions, the bill extends overtime entitlements to agricultural workers, dairy employees, employees involved with raising livestock, bees, or fur-bearing animals, and some others. Overtime obligations are phased in under the new law, starting on January 1, 2023. During the first phase, which extends through 2024, covered employers must pay overtime at the rate of one and one-half an employee’s regular rate when the employee works over 55 hours in a week. For calendar years 2025 and 2026, the overtime requirement begins at 48 hours per week and, beginning in January 2027, the requirement will apply to all work in excess of 40 hours per week.

If you have any questions about these laws or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

A Miami restaurant’s mandatory 18% service charge did not constitute a “tip” under the Fair Labor Standards Act (FLSA) and therefore was properly applied toward satisfying the FLSA’s employee wage requirements, the U.S. Court of Appeals for the Eleventh Circuit recently held, affirming summary judgment in favor of the employer. Compere v. Nusret Miami, LLC, 2022 U.S. App. LEXIS 7293 (11th Cir. Mar. 18, 2022). The Eleventh Circuit has jurisdiction over the federal courts in Alabama, Georgia, and Florida.

The Law

Department of Labor (DOL) regulations defining what constitutes a “tip” expressly provide that mandatory service charges are not tips. The central characteristic of a tip is customer discretion: If the customer decides whether to leave a gratuity, and if so the amount of that gratuity, then it is considered a tip under FLSA regulations. Conversely, if the employer imposes a fee that the customer has no choice but to pay (unless, for example, the employer waives the fee to resolve a complaint about the service provided), the fee is not a tip and the employer may use it to satisfy its wage obligations.

The Lawsuit

Since its opening five years ago, Nusret Miami (“Nusret”), an upscale steakhouse in Miami, Florida, has added a mandatory 18% “service charge” to customer’s bills, after which it redistributes those charges to certain employees to cover the restaurant’s minimum and overtime wage obligations. The employees who receive a portion of the service charges are very well paid, sometimes earning in excess of $100,000 per year and, if the 18% fee constituted a legitimate service charge, then undisputedly the restaurant satisfied its minimum wage and overtime obligations to these employees.

A group of tipped employees filed suit against the restaurant, asserting that Nusret failed to properly pay them minimum wage and overtime pay, and forced them to participate in an illegal tip pool with non-tipped employees, all in violation of the FLSA. The plaintiffs’ primary argument was that Nusret’s service charge was, in fact, a tip and therefore could not be used to satisfy the restaurant’s minimum wage and overtime obligations. In support of this argument, the plaintiffs asserted that Nusret failed to include the service charges in its gross receipts and failed to report the revenue for federal income tax purposes. The restaurant countered that the 18% fee was a legitimate service charge and that it properly had met its wage obligations under the FLSA. The district court agreed with the employer and granted it summary judgment.

The Appeal

On appeal, the Eleventh Circuit affirmed summary judgment for the restaurant. In support of its decision, the Court of Appeals cited 29 C.F.R. § 531.52(a), which explains that the critical feature of a tip is that the sole discretion lies with the customer as to whether it is to be given and, if so, in what amount. In this case, customers undisputedly had no say as to whether they had to pay Nusret’s 18% service charge. Moreover, DOL regulations specifically identify mandatory service charges as an example of a fee that is not a tip.

The Eleventh Circuit rejected the plaintiffs’ argument that the service charges had to be treated as tips unless Nusret included them in their gross receipts and reported them for tax purposes, finding this assertion to be “irrelevant.” The Court of Appeals likewise rejected the plaintiffs’ argument that the service charge was not mandatory because, for example, management could remove it as a means of resolving a customer complaint.  Reiterating that to constitute a tip, the discretion to pay it must lie with the customer and not the employer, in this case Nusret’s customers unarguably had no such discretion. Thus, the 18% fee was a legitimate service charge and the restaurant properly applied it to satisfying its wage obligations.

The Takeaway

The Eleventh Circuit’s ruling reaffirms that true service charges do not constitute tips under the FLSA and, in the case of retail or service establishments, may be used to satisfy an employer’s minimum wage and overtime obligations. Employers also should review state law, which may treat such charges as a form a tips regardless of who retains the discretion to impose or pay them, though such laws could be preempted by federal law.

If you have any questions about this decision or any other wage and hour issue, please contact a Jackson Lewis attorney.

Recently we reported on the efforts of the Restaurant Law Center (RLC), an independent public policy organization affiliated with the National Restaurant Association, to invalidate the Dual Jobs Final Rule published by the Department of Labor (DOL). To that end, in early February the RLC filed a motion for preliminary injunction in federal court in Texas to prevent the Final Rule from being enforced. Unfortunately for employers, on February 22, 2022, the court denied the motion. Thus, at least for the time being, the Dual Jobs Final Rule remains in effect.

The Dual Jobs Final Rule, which became effective in late December 2021, establishes limits on the amount of time tipped employees can spend performing work that is not “tip-producing” and still being paid at the reduced cash wage applicable to tipped employees under the Fair Labor Standards Act (FLSA). The new Final Rule revived the 20% (or “80/20”) Rule, with modifications, and added a “30-Minute” Rule, disallowing the tip credit when a tipped employee spends more than thirty continuous minutes performing work that is not considered tip-producing work. The previous administration had attempted to eliminate the 20% Rule.

In denying the RLC’s motion, the court concluded that the current Final Rule is not significantly different from the sub-regulatory guidance that the DOL had been applying for several decades, prior to the previous administration’s attempt to rescind its longstanding position, and further noted that several federal courts of appeal have upheld the validity of that previous guidance. The court also held that the RLC had failed to produce concrete evidence of the damages employers would suffer as a result of the Final Rule, proof of such damages being a necessary component to a motion for preliminary injunction. The RLC is contemplating whether it will file an appeal of the district court’s order. Such an appeal would be heard by the U.S. Court of Appeals for the Fifth Circuit.

Jackson Lewis will continue to monitor and report any further notable updates. In the meantime, employers with tipped employees should ensure that they are in compliance with the requirements of the Dual Jobs Final Rule, keeping in mind that state law may vary on this issue.

If you have any questions about the ruling, the Dual Jobs Final Rule, or any other wage and hour questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.