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Tipped Wage Policy Rollback Could Put Labor Dept. at Legal Risk

Bloomberg Law

November 26, 2018

Agency reverted to prior position on wages for non-tipped work; Employers advised to proceed with caution.

The Trump administration’s recent policy change on compensation for tipped workers when they wash dishes or clean tables will likely cause legal trouble again, some attorneys and former Labor Department staff say.

The department reissued a 2009 opinion letter Nov. 8 that said waiters who rely on tips for wages, but have non-tip-producing duties that are incidental to their main job, don’t have to be paid full minimum wage for those other tasks.

Controversy and confusion still abound over the guidance, also referred to as “80/20.” The 80/20 rule, originally from the Reagan administration, required employers to pay tipped workers the full minimum wage for time spent on tasks that don’t generate tips, provided those side duties make up at least 20 percent of their weekly hours. The policy has been subject to repeated changes during the past three administrations and that, among other potential issues, could leave the department open to a legal challenge, sources say.

“This flip-flopping creates legal exposure for the department,” Michael Hancock, a plaintiff-side lawyer with Cohen Milstein in New York, told Bloomberg Law. Hancock was an assistant administrator for the DOL’s Wage and Hour Division in the Obama administration.

The opinion letter, which isn’t fact-balanced, perhaps should have been published through the regular rulemaking process to give the public a say, Hancock said.

“It looks a whole lot like a regulation rather than a statement or clarification of policy, and it’s vulnerable to a challenge,” he said.

. . .

What’s at Issue?

Courts tend to defer to agency regulations and policy with the understanding that the agency is the expert, Sharon Block, head of the Labor and Worklife Program at Harvard Law School, told Bloomberg Law. But that could be thrown out given perceived “flip-flopping” by the agency. Block was also the head of the Obama DOL’s policy shop.

“Although I don’t agree with the position in the opinion letter, I do think it’s important that agencies get deference, though that has limits,” Block said. “If there’s no basis for why the agency has changed the interpretation, even under a doctrine where the agency should get significant deference, they may not meet that standard here.”

Opinion letters must include fact-specific scenarios from the position of the employer named in the request. This letter as it stands is broad and states an all-encompassing policy change, arguably exactly what an opinion letter isn’t supposed to be, Hancock said.

A similar argument was also the basis of the federal lawsuit from the Restaurant Law Center. The RLC sued the DOL in federal court in July for maintaining the previous Obama stance on 80/20, asking that it be invalidated.

Douglas Werman, a labor attorney and partner of Werman Salas P.C. in Chicago, wondered whether, other than a change in administration, there was a good enough reason for the policy change. He and Block said no.

The U.S. Supreme Court recently indicated that interpretative changes by an agency must be addressed in a “thoughtful way” that articulates and recognizes that it’s departing from a long-standing precedent, Werman said. That wasn’t done here, he said.

In Hancock’s view, if enough courts come up with varying opinions on this policy, it’s not out of the question that a future case could be kicked up to the Supreme Court.

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