The Tipping Point:  DOL Rescinds 20 Percent Rule on “Side Work” for Tipped EmployeesIf you see your waiter or waitress grumbling during the holiday season, it could be due to the DOL’s Wage and Hour Division’s revision of the rules dealing with minimum pay due to “tipped” employees. Under the FLSA and accompanying regulations, employers can pay “tipped” employees (those who regularly receive not less than $30 a month in tips) not less than $2.13 per hour and take a “tip credit” for the difference they receive in tips up to the minimum wage. Waiters, bartenders, etc. are very familiar with this rule.

Dual Jobs vs. Side Work

Questions arise, however, when an employee may have “dual jobs.” For example, what if John, a hotel maintenance worker, also serves as a waiter in the hotel restaurant? In that situation, the employer can pay John as a “tipped employee” (i.e., $2.13/hour) only for the time he works as a waiter and must pay him at least minimum wage for the maintenance work.

What if, however, John is a server in the hotel restaurant and has regular “side work” that doesn’t generate tips (e.g., rolling silverware, wiping tables, or cleaning dishes)? Do you have to pay him minimum wage for the side work? Back in 1988, the DOL issued guidance stating that if 20 percent or more of a “tipped” employee’s work involved these non-tip-generating “side work” tasks, then the employer had to pay the full minimum wage for their time doing that side work. It’s not clear that this rule was ever aggressively pursued by the DOL, but it generated a lot of litigation. In January 2009, the Bush administration’s DOL explicitly rejected the 20 percent standard and instituted guidance stating that there was no limitation as long as the non-tip-producing duties were performed contemporaneously with the direct customer-service duties. Several months later, the Obama administration reversed course and re-instituted the 20 percent rule.

More litigation ensued over the 20 percent standard, including suits by restaurant advocacy groups claiming the guidance was unconstitutional. In November 2018, the Trump administration’s DOL went back to the 2009 Bush guidance and revoked the 20 percent standard. The DOL, in fact, simply re-issued the 2009 DOL letter on the guidance. Therefore, as it stands now, an employer can continue to use the “tip credit,” even if a server engages in more than 20 percent of their work in non-tip-generating work. However, that non-tip-generating work has to be contemporaneous with the customer-service work.

What Does All This Flip-Flopping Mean?

One of the reasons the 2009 letter (and now the 2018 letter) gives for changing the standard is to avoid all the confusion surrounding the rule. The letter cited a case where the court felt that the 20 percent rule could require “perpetual surveillance” or “precise time logs accounting for every minute” of an employee’s shift. However, even when the 20 percent rule was in place, it is unclear how much it was actually policed. The best takeaway for an employer faced with this situation is to evaluate the actual jobs being done by your employees. If you have a maintenance person who spends 85 percent of their time fixing things, but occasionally helps out with a shift behind the bar, you should not apply the tip rule to their maintenance duties. However, if you have your wait staff rolling silverware before their shift, you are probably OK continuing to apply the tip credit rule. Unless you have a HUGE amount of silverware.

Moving Up the Naughty List: Level of Progressive Discipline Can Be Non-Discriminatory Reason, Says Eighth CircuitMany employers have progressive discipline policies. Are they always followed? Probably not. Should they be? Absolutely, and Lindeman v. St. Luke’s Hospital of Kansas City, a recent case in the Eighth Circuit, demonstrates that being able to point to the use of a progressive discipline policy can help dispose of an ADEA/ADA case.

The Facts

Todd Lindeman worked in St. Luke’s Hospital of Kansas City where the progressive discipline policy had varying penalties for each infraction: verbal warning for the first; written warning for the second; suspension or second written warning for the third; and termination for any subsequent infraction. After a change in his supervisors, Mr. Lindeman quickly moved through the discipline system, incurring three infractions in a four-month period. Finally, Mr. Lindeman violated the patient confidentiality policy and was terminated as a result of this fourth infraction.

Mr. Lindeman, who was over age 40 and suffers from obsessive compulsive disorder, attention deficit disorder, and bipolar disorder, filed suit under the ADA and the ADEA. St. Luke’s moved for summary judgment stating that the reason for his termination—disclosure of confidential information in violation of hospital policies—was a legitimate, nondiscriminatory reason. The burden then shifted back to Mr. Lindeman to show that the reason was pretextual. Mr. Lindeman claimed that two other employees also revealed the confidential information but were not terminated. The district court granted summary judgment, noting that Mr. Lindeman had not shown that the other two employees were at the last stage of the progressive disciplinary policy, as he was. Mr. Lindeman appealed, and the Eighth Circuit affirmed.

Moral of the Story: Follow Your Policy

This may seem like a minor case on a minor issue, but it again points to the gospel that we preach over and over: If you have a policy—enforce it and enforce it consistently. You may find a disciplinary system beneficial, as the hospital did here, to show a non-discriminatory reason for treating employees differently. But it only works if you use it properly.

A Political Entity Can Be Liable, No Matter How Small: Supreme Court Holds ADEA Still Applies to Small County EmployerCan small municipalities make decisions based on age? Not according to the United States Supreme Court, which recently resolved a circuit split on the question of whether the Age Discrimination in Employment Act (ADEA) applied to state and federal political entities with fewer than 20 employees. In Mount Lemmon Fire District v. Guido, a unanimous court found that the ADEA applies to all federal and state entities, regardless of the size of those entities’ workforce.

Mount Lemmon Facts and the Supreme Court’s Rationale

To resolve a budget shortfall, Mount Lemmon terminated its two oldest firefighters, both of whom were over age 40. Those firefighters filed suit in federal court, alleging their termination violated the ADEA. Mount Lemmon moved to dismiss the lawsuit, arguing the ADEA did not apply to it because it had fewer than 20 employees. The district court agreed. The Ninth Circuit Court of Appeals reversed the district court, finding that the ADEA applied. Because the Sixth, Seventh, Eighth, and Tenth Circuits previously found otherwise, the Supreme Court granted review of the case, siding with the Ninth Circuit’s interpretation of the ADEA.

By way of background, the ADEA initially applied to private sector employers with 20 or more employees. In 1974, Congress amended the ADEA to cover state and local governments. The amended ADEA defined a covered “employer” as:

[A] person engaged in an industry affecting commerce who has twenty or more employees . . . The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State.

Prior to the Mount Lemmon ruling, smaller political entities were able to argue that the numerical threshold of 20 employees for ADEA claim exposure applied to them as it did private employers. The Supreme Court rejected that argument, finding that the ADEA’s:

“two-sentence delineation, and the expression ‘also means’ at the start of the second sentence, combine to establish separate categories: persons engaged in an industry affecting commerce with 20 or more employees; and State or political subdivisions with no attendant numerosity limitation.”

The Supreme Court also found that the ADEA’s 20-employee threshold did not apply to federal employers either. Therefore, all political entities, regardless of size, are subject to potential ADEA claims.

Seven justices joined the opinion, which was authored by Justice Ruth Bader Ginsburg, with Justice Brett Kavanaugh not participating.

Takeaways

Although this case applies to small political subdivisions, it is a good reminder for everyone to be careful about potential age or other discrimination claims related to reductions in force. We don’t have any information on what criteria Mount Lemmon used to pick these two firefighters to lay off, but it probably was not their age. The fact that the terminated employees were the oldest in the department was likely a coincidence. So, when looking to save some money and balance the budget, employers need to keep an eye on whether the decisions look like discrimination (age or otherwise) and be sure they can defend the decisions. Your employment counsel can help.