Lindsay Rafferty, a former server at Denny’s, claims the restaurant violated the Fair Labor Standards Act (FLSA) by requiring her to perform non-tipped duties, which detracted from her ability to earn tips, thus impacting her wages. She asserts that Denny’s not only mandated she engage in untipped work unrelated to serving but also failed to inform her of the FLSA-required tip regulations. Denny’s successfully obtained summary judgment on these claims. However, the appellate court identified genuine issues of material fact regarding Rafferty's non-tipped labor claims, leading to a partial reversal of the district court’s decision, while affirming the judgment on the notice claims. Rafferty reported spending 30% to 50% of her shifts on tasks such as preparing the salad bar, cleaning, and stocking, all of which were non-tipped duties that limited her interaction with customers and potential for tips. The case is remanded for further proceedings on the non-tipped labor claims.
Rafferty was employed by Denny’s as a server but was required to perform various tasks unrelated to customer service, including food preparation, cleaning, and handling orders, which she believed were outside her job scope. Denny’s compensated her as a 'tipped employee' under the Fair Labor Standards Act (FLSA), paying her below the minimum wage with the expectation that she would earn tips to make up the difference. Denny’s claimed a 'tip credit' for this wage arrangement, as permitted under 29 U.S.C. 203(m)(2)(A). Rafferty was mandated to report all cash tips accurately, and if her reported tips fell short of the required amount, Denny’s claimed it would automatically cover the difference. However, Rafferty alleged that Denny’s paid her below the minimum wage and improperly applied the tip credit for all hours worked, including those spent on non-tip-generating tasks. After leaving Denny’s in October 2018, Rafferty filed a lawsuit in the U.S. District Court for the Southern District of Florida, claiming FLSA violations and seeking to represent other similarly situated tipped employees. Although six additional plaintiffs joined the action, they were dismissed by the court as not similarly situated, leaving Rafferty as the sole plaintiff with three counts against Denny’s: failure to provide appropriate notice regarding the tip credit (Count One), improper application of the tip credit for untipped duties (Count Two), and inappropriate claims for the tip credit during excessive non-tipped work (Count Three). Denny’s successfully moved for summary judgment on all counts, with the district court finding no material fact issues regarding notice compliance for Count One. Rafferty’s appeal included an additional argument about notice updates tied to changes in the tip credit amount, but the court did not address it, citing that it was not part of her original complaint.
Denny's provided notice of required information through its online 'Workday' portal, satisfying 29 C.F.R. 516.28(a)(3), according to the district court. The court based its decision on a 2018 Department of Labor (DOL) Opinion Letter regarding dual-jobs regulations, concluding that Rafferty's claims were unsupported because she failed to demonstrate that any 'sidework' occurred independently of her tip-generating activities. Rafferty subsequently appealed. The appellate review will be de novo, maintaining the same legal standards as the district court and favoring the nonmoving party in interpreting evidence.
Material factual disputes regarding Rafferty's dual-jobs claims (Counts Two and Three) preclude summary judgment. In Count Two, Rafferty alleges Denny's improperly took a tip credit for hours spent on non-server duties, while in Count Three, she contends the tip credit was claimed for excessive untipped duties related to her server role. Before addressing these claims, the court will first outline the relevant statutory and regulatory framework. It will then assess the appropriateness of deferring to the 2018 Opinion Letter's interpretation and clarify the dual-jobs regulation. Lastly, the court will evaluate whether genuine issues of material fact exist regarding Rafferty's claims.
The Fair Labor Standards Act (FLSA), established to ensure fair wages, includes a tip-credit provision under 29 U.S.C. 203(m), allowing employers to pay tipped employees below minimum wage if their tips compensate for the shortfall. This provision applies only if the employer has informed the employee about it, and it was added to the FLSA in 1966, granting the Secretary of Labor the authority to implement relevant regulations.
The excerpt outlines the provisions regarding the cash wage and tips for tipped employees, as defined under the Fair Labor Standards Act (FLSA) and its implementing regulations. It specifies that the cash wage for employees must be at least equal to the cash wage required on August 20, 1996, plus an additional amount based on tips received, which cannot exceed the actual value of the tips. Employers must inform tipped employees of these provisions, and tips must be retained by the employee, although pooling among employees is permitted.
The excerpt also discusses the dual-jobs regulation (29 C.F.R. 531.56) established by the Department of Labor (DOL), which clarifies the definition of a "tipped employee." It states that if an employee holds dual jobs, such as a maintenance worker and a waiter, the tip credit can only be taken for the hours worked in the tipped position. The regulation distinguishes between roles where employees perform unrelated duties in a single tipped occupation (like a waitress setting tables) versus truly dual occupations, where tip credits are not applicable for non-tipped duties. Additionally, it mentions past guidance from the DOL, including a 1979 opinion letter that ruled against taking the tip credit for preparatory work done by servers before the establishment opens to the public.
The Department of Labor provided guidance on the applicability of the tip credit for restaurant employees engaged in preparatory activities. It noted that salad preparation is akin to chef duties, thus not eligible for tip credit. In 1980, the Department allowed tip credit for certain cleaning tasks performed by tipped employees after closing, but warned that routine maintenance assignments could alter this outcome. A 1985 opinion letter clarified that while employers might take tip credit for tasks related to tipped occupations, an employee regularly assigned substantial non-tip producing duties (30-40% of work) would not qualify. The Department emphasized that tip credit can be claimed only for incidental duties related to the tipped role. By 1988, this interpretation was formalized in the Field Operations Handbook, which established the "twenty-percent rule" (or 80/20 rule), stating that if tipped employees spend over 20% of their time on non-tip producing activities, the tip credit cannot be applied.
Employers cannot take a tip credit for time an employee spends on tasks unrelated to a tipped occupation. The 2016 Handbook clarifies that the tip credit is permissible only for hours worked in a tipped role, provided the employee earns over $30 in tips monthly. Related duties can be included in the tip credit as long as they do not exceed 20% of the employee's total hours in a workweek; duties performed beyond this threshold disqualify the employer from claiming the tip credit for those hours. Unrelated tasks, such as maintenance work, classify the employee as a dual job holder, entitling them to the full minimum wage for that time. For thirty years, the Department upheld the 20% rule regarding dual jobs, with a brief deviation in 2009, which was promptly rescinded. However, in a 2018 Opinion Letter, the Department revised its stance, removing the limitation on related duties as long as they are performed alongside direct customer service tasks and meet other legal standards.
The letter amended the Department's interpretation of the dual-jobs regulation, establishing that the Occupational Information Network (O*NET) database would determine whether certain duties are 'related to a tip-producing occupation.' The 2018 Letter reaffirmed that employers cannot claim a tip credit for time spent on unrelated tasks, defined as those not listed in the applicable O*NET task list, but acknowledged that some time spent on these tasks might be covered by the de minimis rule under the Fair Labor Standards Act (FLSA). This rule allows employers to disregard insubstantial periods of time beyond scheduled hours, although it does not permit arbitrary exclusion of any part of an employee’s regular working time. Despite these changes, courts largely rejected the 2018 Opinion Letter's deference under Auer v. Robbins.
Subsequently, on October 8, 2019, the Department proposed amendments to the dual-jobs regulation reflecting the 2018 changes, culminating in a final rule on December 30, 2020, with an intended effective date of March 1, 2021. However, this rule was delayed multiple times, with a final effective date pushed to December 31, 2021, due to concerns raised during notice-and-comment rulemaking. On June 23, 2021, the Department issued a Notice of Proposed Rulemaking (2021 NPRM) to withdraw parts of the 2020 Tip Rule and proposed clarifications regarding what constitutes being 'engaged in a tipped occupation.' The new proposed rule aims to return to the longstanding twenty-percent rule, stipulating that employers may only take a tip credit for work that is part of a tipped employee’s tipped occupation, which includes tasks that produce tips or directly support such work, provided these tasks are not performed for a substantial amount of time.
Work that assists tipped employees in performing their tip-generating tasks is classified as 'work that directly supports' their duties. Conversely, 'work that is not part of the tipped occupation' refers to tasks that neither generate tips nor support tip-producing work. The proposed rule defines 'substantial amount of time' as exceeding twenty percent of the workweek or more than thirty continuous minutes engaged in such supporting work. The 2021 proposed rule provides examples to clarify these definitions, stating that a server’s tip-producing work includes activities like waiting tables, while tasks such as preparing food or cleaning bathrooms do not fall under a server’s role.
Regarding legal deference, Rafferty contests the district court's reliance on the Department of Labor’s 2018 Opinion Letter, arguing it should not receive deference under Auer or Skidmore standards. Rafferty asserts that the court should adhere to the pre-2018 interpretation of the dual-jobs regulation, and highlights a lack of waiver regarding this argument, citing consistent judicial reluctance to defer to the newer guidance. Rafferty references several district court decisions that have favored earlier DOL guidance, and the district court acknowledged that Rafferty preserved this argument. The court addressed the deference issue, starting with Auer deference, which applies when a regulation is genuinely ambiguous, allowing for the agency’s interpretation to prevail unless it is plainly erroneous or inconsistent with the regulation. A specific three-part framework is used to determine the appropriateness of Auer deference.
A regulation is deemed "genuinely ambiguous" only after a court has utilized all traditional interpretive tools, as established by Kisor, 139 S. Ct. at 2415, and cited in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. The court must analyze the text, structure, history, and purpose of the regulation without relying on agency interpretations. If a regulation is found to be genuinely ambiguous, the agency's interpretation must be reasonable and fall within the identified zone of ambiguity. Additionally, the court must assess the agency's interpretation based on its character and context to determine if it deserves controlling weight.
If Auer deference is not appropriate, Skidmore deference may apply, which provides a lesser degree of deference based on the agency's thoroughness, reasoning validity, consistency with past interpretations, and overall persuasive power. Unlike Auer deference, Skidmore deference does not grant controlling weight to an agency's interpretation.
The 2018 Opinion Letter is argued by Rafferty to be ineligible for both Auer and Skidmore deference, a position contested by Denny's. The dual-jobs regulation (29 C.F.R. § 531.56(e)) is acknowledged to be genuinely ambiguous regarding the time a "tipped employee" may spend on untipped but related duties and which tasks are considered related. Both parties agree on this ambiguity. The regulation specifies that an employer can take a tip credit only for a waiter who spends "part of her time" on certain tasks, indicating a limit on the time that may be spent on untipped work. The terms "part" and "occasionally" suggest a non-habitual, infrequent engagement in such duties.
For an employer to claim the tip credit for all an employee's hours, the employee may perform non-tipped work, but such work must occur infrequently. The definition of "infrequent" is unclear, and there is no established line to differentiate between qualifying and non-qualifying time. The dual-jobs regulation provides examples to distinguish between related and unrelated duties, indicating that an employee working both as a maintenance worker and as a waiter constitutes two separate occupations, allowing the tip credit only for server hours. Conversely, examples involving a waiter performing tasks like cleaning and setting tables or a counter employee preparing orders illustrate related duties. However, the regulation lacks clear definitions or tests to determine what constitutes "related" duties, leading to ambiguity. Questions remain regarding the nature of relatedness—whether duties must be directly, closely, or logically related—and whether indirectly related duties can qualify. The regulation does not clarify whether various tasks, such as food preparation or cleaning, qualify as related duties under the dual-jobs framework. Overall, the text and structure of the regulation do not provide definitive guidance on these issues, and the intent behind the Fair Labor Standards Act (FLSA) to ensure minimum wage for workers is acknowledged but does not resolve the ambiguity at hand.
The dual-jobs regulation is intended to align with the Fair Labor Standards Act (FLSA) but lacks clarity regarding non-tipped duties. The regulation was established following Congress's amendment to define "tipped employee" and introduce a wage calculation formula. Although the Notice of Proposed Rulemaking (NPRM) aimed to expand 29 CFR Part 531 in response to the FLSA, it did not specifically reference the dual-jobs regulation, complicating the interpretation of its intent. The regulation is deemed ambiguous concerning terms like "part of [the] time" and "occasionally," as noted in case law. A disagreement exists regarding whether the regulation is ambiguous or merely vague, with the Concurrence arguing that ambiguity requires multiple reasonable meanings. The analysis asserts that despite differing definitions of ambiguity, the common understanding of the term suggests it encompasses vagueness, contradicting the Concurrence's stance. A final note emphasizes that reinterpretation of Kisor's wording by the Concurrence does not reflect the Supreme Court's original intent.
Kisor mandates that courts must exhaust all methods of statutory construction before labeling a regulation as ambiguous, but it does not redefine the term "ambiguous" as used in Seminole Rock/Auer jurisprudence. The Supreme Court reiterated its longstanding interpretation of "ambiguity," emphasizing that before declaring a regulation ambiguous, a court must utilize all available interpretative tools to clarify its meaning. The Concurrence's assertion that Kisor altered the meaning of "ambiguity" is challenged, as the Supreme Court cited 75 years of precedent to maintain its original definition. Kisor explicitly states it does not represent a departure from prior doctrine, instead reaffirming existing principles. Both Justice Kagan and Justice Gorsuch acknowledge that for Auer deference, "ambiguity" encompasses vague regulations. Justice Kagan points out that regulatory bodies are incentivized to draft clear regulations to ensure compliance and effectiveness, while regulated parties also seek precision to understand their obligations, highlighting the risks that ambiguities pose to agency policies.
Justice Kagan asserts that vagueness increases the likelihood of unfavorable judicial outcomes, particularly after courts have exhausted their interpretative tools, leading to further analysis under the Auer framework. Justice Gorsuch, in his opinion, aligns with this understanding, suggesting that both pre- and post-Kisor ambiguity can be interpreted as vagueness once judicial methods are fully utilized. He critiques the Auer framework for enabling agencies to create vague regulations that can be interpreted without formal rulemaking, thus enhancing their power. Gorsuch's opinion, supported by three other Justices, indicates a shared acknowledgment among at least eight Justices that “ambiguity” in the context of Auer deference encompasses vagueness left unresolved by judicial interpretation. The concurrence fails to engage meaningfully with Gorsuch's critique and instead reiterates Kagan’s remarks, arguing that vagueness and ambiguity are distinct concepts. However, it is suggested that the structure of Kagan's opinion reflects a strategic division due to Chief Justice Roberts' emphasis on stare decisis in relation to Auer deference, rather than a fundamental disagreement on the interpretation of ambiguity and vagueness.
Justice Gorsuch's critique of the Auer deference framework highlights his use of "vague" as synonymous with "ambiguous," indicating his belief that post-Kisor Auer ambiguity encompasses regulations deemed vague even after employing statutory construction tools. He argues that Auer deference allows agencies to interpret their own vague regulations without undergoing formal rulemaking. Justice Scalia, in his concurrences, similarly viewed Auer as permitting deference to imprecise or vague rules, contradicting the Concurrence's position that such rules are not ambiguous under Auer. Scalia's dissent in Pauley emphasizes that regulation complexity does not equate to ambiguity. The Kisor decision mandates that courts must exhaust all interpretative tools before declaring a regulation ambiguous, but it does not state that remaining vagueness precludes a finding of ambiguity for Auer purposes. The Concurrence's interpretation risks undermining Auer's goal of fostering certainty and predictability in administrative processes, as it could leave employers uncertain about compliance with regulations like the dual-jobs rule.
The Concurrence's interpretation of the Kisor decision, which suggests that a regulation remains vague even after exhaustive construction attempts cannot advance to the second step of the Auer deference, is deemed unfounded. In evaluating the 2018 Opinion Letter's interpretation of the dual-jobs regulation, it is determined that this interpretation is unreasonable. The letter asserts no limits on the time a tipped employee may perform non-tipped duties as long as they coincide with direct customer service duties, contradicting the dual-jobs regulation's specification that related duties should be "occasional" or "infrequent." The regulation imposes temporal restrictions on the performance of such duties, indicated by phrases like “part of [the] time.”
Furthermore, the 2018 Opinion Letter's reliance on O*NET to define related duties poses significant risks. It could reinforce unlawful practices in industries with high violation rates by allowing employers to categorize untipped duties as related simply by requiring employees to perform them. The Department of Labor recognized this concern, which influenced its decision to delay the implementation of the December 2020 Final Rule. Additionally, while promoting the 2018 interpretation, the Department refrained from using O*NET as a definitive source for determining related duties, indicating it was not designed to clarify employers' legal obligations under the Fair Labor Standards Act.
The 2018 Opinion Letter revises the dual-jobs regulation, creating barriers to its original intent without following the required rulemaking process under the Administrative Procedure Act. As such, its interpretation does not fit within the "zone of ambiguity" of the regulation and is deemed unreasonable, negating any deference to it. The letter fails to meet Auer’s third prong, lacking the character and context needed for controlling weight. Though the letter represents the agency's official position and touches on its substantive expertise, it does not reflect a “fair and considered” judgment. The Department merely reiterated a previously abandoned stance from the 2009 Opinion Letter, which it withdrew shortly after issuance. Furthermore, the Department's Notice of Proposed Rulemaking (NPRM) admitted a lack of data to support the costs and benefits of the 2018 policy, demonstrating an absence of expertise. The 2018 policy undermines the dual-jobs regulation's purpose and conflicts with the Fair Labor Standards Act’s goal of ensuring fair worker conditions, as it potentially leads to tipped workers performing more non-tipped duties.
Tipped workers may lose income due to increased non-tipped duties, receiving cash wages below the minimum wage. The Department's 2021 rulemaking highlighted concerns that the 2020 Tip final rule could adversely affect both tipped and non-tipped employees, particularly in industries with many tipped workers. There is apprehension that unclear guidelines in the 2020 rule may allow employers to exploit the tip credit, resulting in reduced wages for tipped employees and potential job loss for non-tipped positions, especially during the COVID-19 pandemic. Additionally, the 2018 Opinion Letter's interpretation of the dual-jobs regulation contradicts the Department's longstanding interpretations, raising issues about Auer deference due to the lack of thorough study or analysis before this change. The court is not convinced by Denny’s argument that the Department intended the 2018 Letter to apply retroactively, as it represents a significant shift rather than a mere clarification of existing law.
The Department's 2018 Opinion Letter is deemed irrelevant for Auer deference because the longstanding interpretation of the dual-jobs regulation was applicable during Rafferty's employment at Denny’s. Rafferty's expectations during that time are the focal point. Additionally, the letter does not warrant Skidmore deference because it fails to meet the required criteria of thoroughness, reasoning validity, and consistency with prior rulings. Auer and Skidmore deference tend to overlap, and the letter does not pass the Auer evaluation.
The court interprets the dual-jobs regulation, concluding it prohibits employers from taking a tip credit for hours spent on unrelated duties or for related duties exceeding twenty percent of an employee's time. Given the ambiguity of the Fair Labor Standards Act (FLSA), the court utilizes traditional interpretation methods, starting with the FLSA's text. The definition of "tipped employee" indicates that employees must regularly earn tips to qualify for the tip credit, as outlined in 29 U.S.C. § 203(t). Moreover, 29 U.S.C. § 203(m) allows employers to pay tipped employees below minimum wage, relying on tips to cover the difference. The court emphasizes that the dual-jobs regulation interpretation must ensure employees receive at least minimum wage, aligning with the FLSA's purpose of protecting worker wages. The dual-jobs regulation states that an employee can simultaneously hold tipped and non-tipped positions if working in separate occupations.
An employer can only take the tip credit for employees in tipped occupations as defined by the Fair Labor Standards Act (FLSA). Employers are prohibited from using the tip credit when employees perform duties outside of their tipped roles. The dual-jobs regulation specifies that employees may engage in related nontipped duties only occasionally, meaning not on a habitual basis. A twenty-percent threshold for the time spent on these nontipped duties is established as a reasonable limit, aligning with common interpretations of "infrequently." This limit is supported by precedent from other cases and consistent with the Department of Labor's (DOL) interpretation over the past thirty years, which has been affirmed by multiple administrations. The DOL has analyzed and endorsed this twenty-percent cap in its proposed regulations, underscoring its importance based on expertise in the area. Additionally, the dual-jobs regulation provides examples of related versus unrelated duties, clarifying that tasks like setting tables and preparing food are considered related to a server's role, while maintenance tasks are not.
Tasks directly supporting a server's duties are categorized as related, while those that do not are deemed unrelated. The distinction is crucial for interpreting the dual-jobs regulation, which aims to ensure employers only take tip credits for hours worked in tipped occupations, thus preventing minimum wage circumvention. Material factual disputes exist regarding Rafferty's dual-jobs claims, specifically whether her non-tipped duties were directly related to her server role. Denny’s seeks summary judgment on these claims, but evidence, including Rafferty's sworn declaration detailing unrelated tasks (such as cleaning and maintenance), indicates a genuine dispute regarding her work activities. This supports her related-duties claim and challenges Denny's entitlement to summary judgment. Additionally, concerning Rafferty's assertion that she spent over twenty percent of her time on non-tipped related duties, Denny’s argues she failed to specify the relevant work weeks. However, the standard for proving Fair Labor Standards Act (FLSA) violations requires only that she demonstrate performance of uncompensated work, which may still be contested.
The Fair Labor Standards Act (FLSA) is designed to protect employees, mandating that employers maintain accurate records of wages, hours, and conditions of employment, as employers are better positioned to do so. Courts are cautious not to impose unreasonable burdens on employees, ensuring that claims are not denied solely based on an employee's inability to provide precise documentation of hours worked. An employee can still meet their burden by demonstrating they performed work for which they were improperly compensated and providing sufficient evidence to infer the extent of that work. If the employee meets this initial burden, the employer must then present evidence either detailing the work performed or disputing the reasonableness of the employee's claims. Failure to do so may result in the court awarding damages based on reasonable estimations.
In the case discussed, Rafferty provided testimony regarding her work hours and sidework responsibilities, although she could not recall specific weeks or exact hours worked. She estimated that during busy weeks, she spent 30-50% of her time on sidework and detailed specific duties that took significant amounts of time to complete. This testimony was deemed sufficient to show that she worked more than 20% of her time on untipped duties, countering Denny's assertion that her uncertainty about specific weeks undermined her claim.
Rafferty's testimony indicates an inability to specify weeks in which her related duties exceeded twenty percent of her work hours. For the purposes of analysis, related duties are considered as supporting tipped work, regardless of the Department’s interpretation of the dual-jobs regulation. Evidence of "triggering factors," such as busy holiday weeks and shorter shifts, can help a plaintiff infer underpaid time. Therefore, Rafferty's failure to identify specific weeks does not absolve Denny’s from potential violations regarding her classification as a tipped employee when she spent more than twenty percent of her time on untipped duties. Denny's must provide evidence to counter the inference that Rafferty worked more than twenty percent of her time on related duties at any point during her employment. Due to unresolved factual issues regarding whether Denny's required her to perform untipped duties beyond the twenty percent threshold, summary judgment was deemed inappropriate for Count Three.
In contrast, the district court correctly granted summary judgment to Denny’s on Rafferty’s tip-credit notification claim (Count One). The Fair Labor Standards Act (FLSA) mandates that employers notify employees of their tipped status and its implications. Rafferty claimed that Denny's did not comply with the regulatory requirements outlined in 29 C.F.R. 531.59(b) and 516.28(a)(3). Specifically, 29 C.F.R. 531.59 stipulates that an employer can only utilize the tip credit if the employee has been informed about the provisions of section 3(m)(2)(A) of the Act, including details about cash wages, the tip credit's impact on wages, retention of tips, and the necessity of prior notification for the tip credit to apply.
The regulation mandates that employers inform tipped employees of five key details: (1) the cash wage paid, which must be at least $2.13 per hour; (2) the maximum tip credit claimed, which cannot exceed $5.12; (3) the tip credit cannot exceed the actual tips received; (4) all tips must be retained by the employee unless in a valid tip pooling arrangement; and (5) the tip credit applies only if the employee is informed of these provisions. The primary issue in this case revolves around the fifth requirement. Denny’s contends that Rafferty waived her claim regarding a violation of this regulation by not including it in her initial complaint. The court disagreed, stating that Rafferty's complaint sufficiently notified Denny’s of the claim, alleging a violation of the Fair Labor Standards Act (FLSA) due to not providing required tip-credit information. The court reiterated that under Rule 8, only a short and plain statement is needed to show entitlement to relief, which Rafferty accomplished. The court upheld the district court's decision for summary judgment in favor of Denny’s, supported by an affidavit from the restaurant manager who trained Rafferty.
Demattio's affidavit indicated that she informed Rafferty that only servers, not other job positions, would receive payments based on tip credit and that all servers were consistently briefed about the tip credit process during their orientation. This satisfies the regulatory requirement that employees be informed of tip credit provisions (29 C.F.R. 531.59(b)(5)). Rafferty did not provide evidence to counter Demattio's claims and her argument regarding Denny’s lack of written materials before 2019 does not undermine Demattio's assertion, as she stated that the information was conveyed verbally. Consequently, the district court ruled that there was no genuine dispute of material fact and granted judgment in favor of Denny's regarding the tip credit notification claim under 29 U.S.C. 203(m) and 29 C.F.R. 531.59(b).
Rafferty also claimed a violation of 29 C.F.R. 516.28, which requires employers to maintain records of tipped employees’ wages and to provide written notice of any changes to the tip credit taken. Rafferty alleged that Denny's failed to update her on the tip credit amount each time the Ohio minimum wage changed. However, Denny's argued that this claim was waived because it was not included in her original complaint. The court agreed, emphasizing that a defendant is not obliged to interpret potential claims beyond what is stated in the complaint. Rafferty did not mention 29 C.F.R. 516.28(a)(3) in her complaint, so Denny's could not have reasonably understood that she was alleging a failure to update tip credit notices. Thus, Rafferty did not adequately plead a violation of this regulation.
The district court's summary judgment in favor of Denny’s on Count One is affirmed, while the summary judgment on Counts Two and Three is reversed and remanded for further proceedings. Rafferty's argument that the district court improperly separated her claims regarding violations of 29 C.F.R. 516.28(a)(3) and 29 U.S.C. 203(m) is addressed. The court acknowledges that while a violation of 29 C.F.R. 516.28(a)(3) constitutes a violation of 29 U.S.C. 203(m), the plaintiff is still required to adequately notify the defendant of the alleged violations, which Rafferty failed to do.
In a concurring opinion, Circuit Judge Luck agrees with the reversal of summary judgment for Denny’s but believes the district court incorrectly applied Auer deference to the Department of Labor’s 2018 Opinion Letter on the dual jobs regulation, 29 C.F.R. 531.56(e). He asserts that the dual jobs regulation is not ambiguous and that the district court should apply its clear text rather than the Department's opinion letters. The Fair Labor Standards Act mandates minimum wage payment for non-exempt employees but allows employers to pay tipped employees less under certain conditions, provided their total earnings meet the minimum wage requirement. The dual jobs regulation addresses situations where an employee may perform dual roles, such as a maintenance worker also serving as a waiter.
An employee who regularly receives at least $30 a month in tips as a waiter is classified as a tipped employee only for that role and cannot receive a tip credit for hours worked in a separate position, such as maintenance. This situation differs from other roles, like a waitress performing ancillary tasks related to her tipped position or a counterman preparing short orders. Recent changes to the dual jobs regulation by the Department of Labor state that there are no limits on the amount of related duties that can be performed concurrently with customer service, and employers should use the Occupational Information Network (O*NET) to assess whether specific tasks are linked to tip-producing duties. The case questions whether the district court's decision to grant Auer deference to the 2018 Opinion Letter was erroneous. Under the Supreme Court's Kisor v. Wilkie ruling, Auer deference is warranted only if the regulation is genuinely ambiguous, the agency's interpretation is reasonable, and a court's thorough examination of the agency's interpretation confirms it merits controlling weight. Courts must utilize traditional canons of construction before declaring a regulation ambiguous and may not assume ambiguity solely due to complex interpretations.
Regulations deemed "impenetrable" can often be clarified using legal tools, revealing their unambiguous meanings. A regulation is considered ambiguous only if, after thorough construction efforts, it remains genuinely open to multiple reasonable interpretations, not just applications. This definition aligns with established legal terminology and is supported by legal dictionaries, which define ambiguity as a term capable of more than one meaning based on objective analysis by an informed individual. The Kisor decision marked a significant shift in the application of Auer deference, which previously allowed broader interpretations without rigorous scrutiny. Post-Kisor, courts have shown a decrease in deference to agency interpretations—only 50% of the time compared to a 71% rate before Kisor—highlighting a change in judicial approach to administrative law. The Kisor Court aimed to clarify past ambiguities in the application of Auer deference, acknowledging a lack of thorough analysis in earlier cases.
Auer deference, as articulated by the Supreme Court, requires that an agency's interpretation of a regulation is only afforded deference if the regulation is genuinely ambiguous, meaning its meaning is unclear rather than its application to specific situations. The Court emphasized that courts must employ traditional methods of interpretation to ascertain the plain meaning of regulations. Following the Kisor decision, any prior reliance on cases like Seminole Rock may be misguided, as Kisor mandates a focused inquiry into whether a regulation possesses multiple reasonable meanings. If a regulation has a clear meaning but is vague in its application, the agency can address this through the rulemaking process, as currently being done by the Department of Labor with the dual jobs regulation. The agency cannot issue interpretative letters for unambiguous regulations without following the necessary procedures established by the Administrative Procedures Act. Furthermore, ambiguity should not be conflated with vagueness; ambiguity pertains to multiple reasonable meanings, while vagueness refers to a clear meaning that is uncertain in its application to various factual scenarios.
Subsuming ambiguity and vagueness under the same term can obscure their distinct legal implications. Ambiguity denotes multiple meanings due to equivocation, while vagueness reflects uncertainty in application without equivocation. Notably, even respected legal scholars often conflate these concepts. A regulation may be vague if it is difficult to apply, but that does not render it ambiguous. The Supreme Court in Kisor clarified that Auer deference should only apply to genuinely ambiguous regulations. It referenced Seminole Rock, emphasizing that Auer deference is warranted only when the meaning of statutory language is uncertain. Justice Scalia consistently focused on whether terms have differing meanings rather than merely varying applications, arguing that context is essential for determining true ambiguity. He maintained that an ambiguous statutory provision often becomes clear when viewed within the broader statutory framework. The Kisor Court refined Auer deference by stressing the necessity of "multiple reasonable meanings," aligning with Scalia's views. Although the Court addressed the meaning of words, it did not specifically reference "vagueness" when discussing genuine ambiguity in the context of Auer deference.
Vagueness was addressed six pages into section III-A, where Justice Kagan countered the petitioner’s assertion that Auer deference promotes vague regulations that agencies can later reinterpret. Kagan argued that vagueness tends to result in adverse judicial outcomes and allows future administrations to reshape rules according to their preferences. The distinction between vagueness and ambiguity was emphasized, with vagueness not appearing in the ambiguity section of Kisor but later in a different context within the plurality opinion. Justice Gorsuch, in his concurring opinion, differentiated between vagueness and ambiguity by discussing vagueness concerning regulatory applications rather than meanings. He noted that many regulations can be interpreted in various ways, especially with new applications, and emphasized that ambiguity should be addressed through established legal interpretation principles rather than relying on regulators’ post-promulgation views. Gorsuch criticized the notion that resolving regulatory ambiguities is a matter of policy suited for executive officials, asserting that legal interpretation should be grounded in fixed written laws. He illustrated genuine ambiguity with the case of Raffles v. Wichelhaus, where a contract was complicated by two ships named Peerless departing from Bombay.
Ambiguity in legal language is exemplified by two instances where parties ascribed different meanings to the same text due to reasonable interpretations. The first example involves two ships with identical names leaving Bombay, leading to divergent understandings of the same legal reference. The second example comes from Frigaliment Importing Co. v. B.N.S. International Sales Corp., where a dispute arose over the definition of "chicken," with the buyer expecting young chickens suitable for cooking and the seller providing older birds. The court resolved this ambiguity by examining the parties’ negotiations, performance history, and trade usage, emphasizing that genuine ambiguity arises only when language can have multiple reasonable meanings.
In interpreting regulations, the plain language is the primary tool used to clarify any apparent ambiguity. The dual jobs regulation permits tipped employees to occasionally perform non-tipped duties related to their tipped occupation. The terms “related” and “occasionally” have clear, ordinary meanings, with "related" indicating a connection between duties and the tipped occupation. Examples provided clarify that a task is considered related if there is a connection, as with a cook washing pots. Conversely, a maintenance worker serving as a waitress does not perform a related duty, as there is no connection to her primary occupation.
Distinctly related, directly related, and indirectly related are recognized as separate terms with unique meanings, not interchangeable definitions of "related." States managing risk adjustment programs must maintain detailed records of all financial activities associated with risk adjustment payments and administrative functions for each benefit year. Regulations prohibit employees from rendering services, compensated or not, to organizations or governments directly or significantly indirectly related to their official duties if such relationships might cause conflicts of interest.
The legal principle emphasizes that statutory language must be interpreted to give meaning to every word and clause, as highlighted in Duncan v. Walker. Different terminologies in regulations imply distinct meanings. For instance, there is no connection between maintenance tasks, such as plumbing, and a waitress's duties, which include serving customers. However, tasks like cleaning tables or preparing coffee are considered "related" to the waitress's primary role, even though they do not directly generate tips.
The term "occasionally" is defined as happening "now and then" and does not imply a specific percentage of occurrence. It conveys that such activities occur part of the time but not frequently or rarely. Courts interpret statutory language based on ordinary meanings unless context dictates otherwise. The dual jobs regulation permits tipped employees to engage in related non-tipped duties occasionally, provided these duties do not dominate their work time. Employers cannot require servers to spend the majority of their shifts on non-tipped tasks while still claiming a tip credit. The regulation does not allow for multiple reasonable interpretations.
The regulation in question has a clear and singular meaning, making it inappropriate to interpret it in multiple ways. The term "occasionally" lacks a precise quantitative definition, as it does not naturally equate to specific percentages of time, such as nineteen, twenty, or twenty-one percent. Given that the dual jobs regulation is not ambiguous, there is no need to proceed with further steps of the Auer deference analysis. The case should be remanded to the district court to apply the regulation's plain meaning to Rafferty's claims under section 531.56(e). The district court is tasked with determining whether there is a genuine dispute regarding Rafferty’s performance of duties that are "unrelated" to her role as a server for her second claim, and whether her non-tipped duties related to her tipped occupation were performed more than "occasionally" for her third claim.
