LOS ANGELES (CN) – The en banc Ninth Circuit on Tuesday reversed a federal judge’s dismissal of consolidated labor violation lawsuits filed by servers and bartenders who said employers underpaid them for non-tipped tasks such as cleaning toilets and maintaining soft drink dispensers.
In a 79-page opinion written by U.S Circuit Judge Richard Paez, the en banc court said Labor Department regulations prohibit employers from taking tip credits for non-tipped tasks performed by tipped workers.
The ruling allows the lawsuits to continue as they contain minimum wage violation claims under the Fair Labor Standards Act.
Former server Alec Marsh said Tennessee-based chain J. Alexander’s took his tips, paid reduced wages and treated him as a tipped employee when he performed tasks unrelated to serving and bartending.
Thirteen former server and bartenders made similar claims in separate lawsuits filed against chain restaurants Denny’s, International House of Pancakes, P.F Chang’s, China Bistro and others.
The cases were consolidated on appeal as Marsh v. J. Alexander’s and remanded Tuesday for further proceedings.
The Fair Labor Standards Act of 1938 – which establishes minimum wage, overtime pay, record keeping, and child labor standards – allows employers to keep employees’ tip credits, in certain tipped occupations, in order to offset an employer’s obligation to pay the hourly minimum wage.
Employers can pay as little as $2.13 per hour to tipped employees under federal law, but if the employees’ wages and tips combined do not meet the minimum wage, the employer must make up the difference.
The dual jobs regulation establishes that an employee is entitled to the full minimum wage for any time spent in a non-tipped occupation.
The opinion said the defendants’ current tip credit practice “effectively makes tips – intended as gifts to servers for their service – payments to employers” who use the tips to evade paying a proper minimum wage for non-tipped work.
The opinion also stated that by directing servers to clean, cook and bus tables “employers can allegedly eliminate or significantly reduce their need to hire full-time janitors and cooks, who—as non-tipped workers—are entitled to the full minimum hourly wage and therefore cost more to employ.”
Paez wrote that federal tip credit regulation “clearly contemplates that a server who performs unrelated tasks, such as cleaning restrooms, is a dual job employee entitled to the full minimum hourly wage for her unrelated work.”
Paez also wrote that the regulation “also clearly lays out that a server is a dual job employee if her related tasks occupy more than 20% of her hours in a workweek.”
Marsh said in court papers that he worked thirty-two hours per week – spending half his time on non-tipped tasks such as cutting and stocking fruit – and was paid $4.65 per hour in 2012.
Marsh argued that the tasks qualified him as a dual job employee working in multiple occupations; one tipped, and the others not.
But a federal judge granted J. Alexander’s motion to dismiss Marsh’s complaint with prejudice, concluding that Marsh failed to state a labor violation claim.
Later, a divided Ninth Circuit panel vacated the district court’s ruling but agreed that the Labor Department’s interpretation of its dual jobs regulation was not entitled to deference.
Marsh’s en banc petition was granted after the panel remanded the case to allow for appeal.
The court concluded that the regulation is entitled to Chevron deference – a legal principle that compels federal courts to defer to a federal agency’s interpretation of their regulations – and therefore sufficient for making a labor violation claim.
Defendants submitted court papers arguing that Chevron deference was inapplicable to the regulation “because the dual jobs regulation was promulgated without adequate notice and an opportunity to comment,” the opinion said.
Circuit Judges Sandra Ikuta and Consuelo Callahan dissented, writing that that deference to the agency was improper because the Department of Labor’s interpretation “effectively eliminated an employer’s statutory right to take a tip credit.”
Judge Ikuta wrote that the Fair Labor Standards Act was passed “without compliance with the Administrative Procedure Act, resulting in an unfair and unexpected imposition of liability on employers.”
Paez wrote that the argument was “decades too late” and that the Labor Department’s distinction between tipped workers and dual job employees “squarely forecloses that line of argument.”
Circuit Judge Susan Graber wrote in her partial concurrence and partial dissent that she would affirm the district court’s dismissal of plaintiff’s claim that defendants denied him wages for non-tipped work related to his work as a server.
But Graber said she was reverse the district court “with respect to plaintiff’s claim that defendant denied him appropriate wages for non-tipped work unrelated to his job as a server.”
Graber added that the court should have spent time determining “whether an agency, in interpreting its own regulation, exceeded the bounds of its authority.”
Marsh’s attorney Clifford Bendau called the decision an important victory for tipped employees across the country.
“The [court’s decision] helps to ensure that employees receive fair pay for a fair day’s work and eliminates the payment of substandard wages to some of the nation’s most vulnerable workers,” Bendau said.
Attorneys for the defendants did not respond to a request for comment Tuesday afternoon.