Employers Can Claim Tip Credit Even When Employees Perform 'Related Duties,' 7th Circuit Rules

Author: Michael Cardman, XpertHR Legal Editor

July 21, 2016

Restaurants and other employers that require wait staff, bartenders and other tipped employees to clean tables, make coffee or perform other similar duties can draw comfort from a new appeals court ruling.

In Schaefer v. Walker Bros. Enters., the 7th Circuit Court of Appeals followed federal guidance that allows employers to claim the minimum wage tip credit even when their employees spend as much as 20 percent of their time performing duties that are related to their occupations but do not explicitly produce tips.

The 7th Circuit, which covers employers operating in Illinois, Indiana and Wisconsin, is the second appeals court to follow this guidance, following a 2011 ruling from the 8th Circuit Court of Appeals, which covers employers operating in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.

The federal Fair Labor Standards Act (FLSA) and many state wage and hour laws allow an employer to pay certain employees a lower minimum wage (currently $2.13 at the federal level) as long as the employees earn enough in tips each hour to make up the difference between this lower minimum wage and the standard minimum wage for non-tipped employees (currently $7.25 at the federal level).

An FLSA regulation allows employers to claim this tip credit even if the tipped employees perform related duties such as:

  • Cleaning and setting tables;
  • Toasting bread;
  • Making coffee; and
  • Occasionally washing dishes or glasses.

This regulation does not place any particular limit on the amount of time an employee may spend performing these duties. But the US Department of Labor's Field Operations Handbook states that the FLSA tip credit may not be claimed when tipped employees spend more than 20 percent of their time performing general preparation work, maintenance or other such duties.

Although the Handbook is not a regulation, its 20 percent standard represents an interpretation of the FLSA that is owed deference under Supreme Court jurisprudence, the 8th Circuit ruled. Although the 7th Circuit did not explicitly state that the 20 percent standard is owed such deference, it did not object when the plaintiffs in the Schaefer case acknowledged as much.

Most of the tasks performed by the employees in Schaefer were "of the same general kind" as the related duties named in the regulation, the 7th Circuit noted, including:

  • Washing and cutting strawberries, mushrooms, and lemons;
  • Preparing applesauce and jams by mixing them with other ingredients;
  • Preparing jellies, salsas, and blueberry compote for use;
  • Restocking bread bins and replenishing dispensers of milk, whipped cream, syrup, hot chocolate, and straws;
  • Filling ice buckets;
  • Brewing tea and coffee; and
  • Wiping toasters and tables.

A few of the other duties--wiping down burners and woodwork, and dusting picture frames--"do not seem closely related to tipped duties," the 7th Circuit observed. Nevertheless, they did not jeopardize the employer's tip credit because the time employees spent performing them was negligible. The Supreme Court's Sandifer ruling shows that federal judges need not serve as "time-study professionals" and account for every minute, the 7th Circuit added.