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Supreme Court Rejects Applebee’s Appeal in “Tip Credit” Wage Complaints

Posted on January 20, 2012

The United States Supreme Court recently announced that it will not hear an appeal from Applebee’s International Inc. in a wage-related case involving tipped employees. The decision frees bartenders, servers, valet drivers and other employees who rely on tips as part of their compensation to pursue legal action against their employers for unpaid wages in the performance of required, non-tipped work.

The Fair Labor Standards Act (“FLSA”) requires most private and public sector employers to pay covered employees who are not otherwise exempt at least the federal minimum wage and overtime pay of one-and-one-half-times the regular rate of pay. Section 3(m) of the FLSA, however, permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. The maximum tip credit that an employer can currently claim under theFLSA is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13). If an employee’s tips combined with the employer’s cash wage of at least $2.13 per hour do not equal the minimum hourly wage, the employer must make up the difference.

While not explicitly stated in the FLSA, the U.S. Department of Labor has ruled in the past that where a tipped employee spends a substantial amount of time (in excess of 20 percent in the workweek) performing assigned duties that do not result in tips, no tip credit may be taken for the time spent in such duties.

In their class-action lawsuit against Applebee’s, more than 5,500 servers and bartenders argued that the restaurant giant owes them back wages and damages for being required to spend more than 20% of their time performing non-tipped duties such as cleaning and stocking, taking inventory, and opening and closing the restaurant.

Applebee’s had turned to the Supreme Court in the hopes of reversing a Missouri federal court’s decision to allow the case to proceed to trial. The company argued that the lower court’s ruling would “impose crushing administrative and financial burdens on restaurants and other employers of tipped employees,” and added that the ancillary duties in question were a normal part of the employees’ tip-producing jobs as bartenders and servers. See article here.

Nonetheless, the Supreme Court opted not to intervene in the matter, meaning that Applebee’s must now defend its case in the U.S. District Court of Western Missouri.

Although the Missouri court’s decision in the Applebee’s case will not be binding on Pennsylvania employers, the Supreme Court has made clear that similar wage complaints may be pursued in other states as well. Therefore, restaurant and service industry employers should be aware that by requiring tipped employees to dedicate a “substantial” portion of their time (more than 20%) to non-tipped duties, they may be exposing themselves to increased wage-related liability.

For more information about the Applebee’s decision, or for general guidance about FLSA compliance, please contact a Knox Labor and Employment attorney at 814-459-2800.

Labor & Employment Department Attorneys

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