A divided panel of the Eleventh Circuit reversed summary judgment for the employer on an employee’s Fair Labor Standards Act (“FLSA”) claims in Rafferty v. Denny’s, Inc., 13 F.4th 1166 (11th Cir. 2021).
Lindsay Rafferty, who had been a Denny’s server, claimed that the restaurant violated the FLSA in paying her sub-minimum wage for time she spent doing non-tip-producing work. The district court granted the defendant’s motion for summary judgment, but the Eleventh Circuit reversed as to the non-tipped labor claim. All three panel members agreed that the district court should not have given deference under Auer v. Robbins, 519 U.S. 452 (1997), to a 2018 Department of Labor (“DOL”) Opinion Letter, but the panel divided as to whether the relevant regulation—the so-called “dual-jobs regulation”—is ambiguous.
The FLSA permits employers to pay less than minimum wage to “tipped employees,” defined to include “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips,” and to take a corresponding “tip credit.” Rafferty alleged that Denny’s required her to spend time on “non-tipped” duties, some but not all of them related to her tipped work. In her three-count complaint, she alleged that Denny’s violated the FLSA by (i) failing to provide employees the required notice of the tip credit Denny’s was claiming; (ii) taking the tip credit for employees’ time spent in untipped duties unrelated to their tipped work; and (iii) requiring more “related” untipped work than permitted under the statute. The district court granted the employer’s motion for summary judgment on all three claims, and Rafferty appealed.
The Eleventh Circuit affirmed summary judgment as to the notice claim, but reversed as to the other claims. All three panel members agreed that Rafferty had failed to raise a genuine dispute with respect to Denny’s evidence that Rafferty had been told about the tip policy, and all agreed that Rafferty’s argument that the notice should have been updated every time the relevant minimum wage changed was barred because she had not raised that claim in her complaint. All three judges also agreed that a 2018 DOL Opinion Letter was not entitled to Auer deference. But they disagreed about why.
Judge Rosenbaum wrote the majority opinion, in which Judge Martin joined. She began with a review of the FLSA’s “tip-credit provision,” which permits an employer to pay less than minimum wage to a “tipped employee” provided the tips the employee receives make the amount earned at least equal to the minimum wage. The next step in the analysis of Rafferty’s claims was the “dual-jobs regulation,” 29 C.F.R. § 531.56. Under that regulation, with respect to an employee with two jobs, one tipped and one untipped—server and janitor, for example—the employer may take the tip credit only with respect to the tipped job. The situation is more complicated, though, when an employee with a tipped job—like server—must spend some time doing non-tipped work—like cleaning tables. According to the regulation, a server “who spends part of her time cleaning and setting tables, toasting bread, [or] making coffee and occasionally washing dishes or glasses” is not in a “dual job,” and “[s]uch related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.” But how much related, untipped work is too much?
Beginning in the late 1960s, the DOL has issued guidance addressing that question, including a 1988 Field Operations Handbook establishing an 80/20 rule: “where the facts indicate that specific employees are routinely assigned to maintenance, or that tipped employees spend a substantial amount of time (in excess of 20 percent) performing preparation work or maintenance,” the Handbook said, “no tip credit may be taken for the time spent in such duties.” In 2018, however, the DOL issued an Opinion Letter that had been initially released, but then withdrawn, in 2009. The 2018 letter dropped the 20 percent metric and provided that the tip credit could be taken for time spent on untipped duties “so long as [those duties] are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” The substance of the 2018 letter was ultimately included in a final rule, but that rule never went into effect. Instead, the DOL has issued a 2021 notice of proposed rulemaking returning to the 80/20 rule.
The district court granted Denny’s motion for summary judgment based on its conclusion that the 2018 Opinion Letter was entitled to deference under Auer as an agency’s reading of its own genuinely ambiguous regulation, citing undisputed evidence that Rafferty completed “sidework” contemporaneously with her tipped work. Judge Rosenbaum and Judge Martin agreed that the regulation was “genuinely ambiguous,” but found that it failed the second requirement for Auer deference, which is that the agency interpretation be reasonable. In support of that conclusion, the majority cited the removal of any limit on the time a tipped employee may spend on non-tipped work and the fact that the 2018 Opinion Letter was merely a verbatim re-release of the withdrawn 2009 letter, without the benefit of any additional analysis. Having rejected the DOL’s interpretation, the majority evaluated the dual-jobs regulation itself and found that the 20 percent limit “best complies with the temporal limits the regulation places” on non-tipped duties. Under that standard, Rafferty raised genuine disputes of material fact.
Judge Luck, concurring, agreed that the 2018 Opinion Letter is not entitled to Auer deference, but for a different reason. In his view, the regulation is not “genuinely ambiguous”: “A regulation is ambiguous if (and only if), after exhausting the tools of construction, it ‘remains genuinely susceptible to multiple reasonable meanings,’” he wrote. “Not multiple reasonable applications—multiple reasonable meanings.” The words “related” and “occasionally” have settled and ordinary meanings, he continued; the fact that those words may apply to a range of different circumstances does not mean that they are ambiguous. Consequently, Judge Luck would remand for the district court to apply the “plain meaning of the regulation,” without instructions to apply the 80/20 rule.
Posted by Valerie Sanders.