The 20% Rule For Tips Is Back In The News


TipJar_cropped14346183.jpgWe’ve covered tips and tip credits at length in the past here, here, here, and here, and I could probably blog all day, every day just to keep up with the volume of tip-related cases and actions that are filed nationwide, some high profile and others not. I want to highlight one of them here.

Recently, the Southern District of New York, in Diombera v. The Riese Organization, approved a $2.86 million settlement between the Riese Organization and approximately 2,600 members of its waitstaff. Reise owns or operates 10 TGI Friday’s restaurants (the subject of this lawsuit) and more than 75 restaurants in total in New York City. The employees had filed an FLSA collective action in 2012 alleging that the TGI Friday’s restaurants failed to properly pay its tipped employees. The complaint, which also alleged state law violations, identified several classes of tipped workers including servers, bussers, runners, bartenders, and barbacks, alleged that the TGI Friday’s franchisee did not pay the proper minimum wage or overtime compensation because they instructed the tipped workers to spend more than 20% of their time engaged in non-tipped side work, failed to pay spread-of-hours pay or call-in pay, made unlawful deductions, encouraged workers to work “off the clock” when performing side work, and engaged in other violations of the restaurant workers’ rights under the FLSA and state law.

What’s the upshot for employers who have tipped employees?

The debate, and litigation, over whether and how to pay tipped employees is not going away. As a recent White House report—one I will discuss in my next post—mentioned recently, “One of the most prevalent violations is the failure to keep track of employee tips and therefore the failure to ‘top up’ employees if their tips fall short of the full minimum wage.”  We warned back in 2011 that this 20% rule was clearly ripe for further litigation. If an employer loses the ability to take a tip credit for work performed by tipped employees, this often results in a substantial increase in wages owed. In order to minimize that risk, you should consider taking the following general steps that we have outlined in the past:

  • Don’t require tipped (or any other) employee to “finish up their work off the clock” after their shift.
  • Ensure that tipped employees spend no more than 20% of their time on non-tip-producing duties.
  • Spread the non-tip-producing duties among all tipped employees; do not assign these duties to just a few tipped employees exclusively.
  • To the extent possible, assign non-tip-producing duties to non-tipped employees.
  • Keep accurate records of hours worked and time that tipped employees spend on non-tip-producing duties.

On that last point, as I recently explained to a client in another related situation, there is nothing wrong with having employees clock in and out for different tasks. That recordkeeping can be critical, and that’s even truer in situations like these.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Franczek Radelet P.C. | Attorney Advertising

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