Esry ex rel. Situated v. P.F. Chang's China Bistro, Inc.
Docket: NO. 4:18CV00156-JLH
Court: District Court, E.D. Arkansas; March 22, 2019; Federal District Court
The case involves allegations against P.F. Chang's in Little Rock concerning its payment practices for servers, specifically regarding their tipped wage of $2.63 per hour. Plaintiffs, including Jacqueline Esry, claim they were unlawfully paid this tipped rate for non-tipped work, such as rolling silverware and cleaning tables, which should be compensated at minimum wage under the Fair Labor Standards Act (FLSA) and the Arkansas Minimum Wage Act. They seek backpay and liquidated damages, asserting that P.F. Chang's violated these laws. P.F. Chang's defends its practices, stating that it ensured servers received at least minimum wage when tips were insufficient to cover the tip credit.
The court highlights the FLSA's requirement for a minimum wage of $7.25 per hour, allowing employers to pay a lower tipped rate if employees earn sufficient tips. A "tipped employee" is defined as someone who typically receives over $30 a month in tips. The Department of Labor's "dual jobs" regulation clarifies that employees performing both tipped and non-tipped work must be paid minimum wage for non-tipped duties. The court notes a distinction between employees whose related duties do not need to generate tips and those in dual roles. It defers to this regulation under Chevron deference due to the statute's ambiguity regarding "occupation" and employees working multiple roles for the same employer. The Department of Labor's Field Operations Handbook further interprets these regulations but is not considered a device for establishing interpretive policy. P.F. Chang's motion for summary judgment on Esry's claims is denied.
The Handbook permits an employer to take a tip credit for time spent on duties related to tipped occupations, provided these duties are incidental and generally assigned to tipped employees. Examples include preparatory tasks like rolling silverware and cleaning tables. However, if tipped employees spend over 20% of their workweek on such duties, the employer cannot claim a tip credit for that time. Non-related duties, such as maintenance work, do not qualify for the tip credit and indicate the employee is effectively in a dual job. The Eighth Circuit, in the case of Fast, upheld the Department of Labor's interpretation of the regulation as reasonable and deserving of deference under Auer v. Robbins, due to its specificity and the Department's expertise. The regulation's ambiguity regarding the frequency of related duties further justified this deference. The court confirmed that the Handbook’s 'twenty-percent rule' establishes a temporal limit for related duties to maintain status as a tip-producing employee. The decision aligned with other court rulings, indicating that a server dedicated entirely to non-tipped tasks should not participate in a tip pool. Ultimately, the court found the twenty-percent threshold consistent with the regulation, but it did not define which specific duties qualify as related or tip-producing.
In February, the Department of Labor released a revised Handbook addressing the 'dual jobs' regulation under 29 C.F.R. § 531.56(e). This regulation allows employers to take a tip credit for time spent on duties related to a tipped occupation, even if those duties do not directly produce tips. The Handbook specifies that the Wage and Hour Division (WHD) will reference the Occupational Information Network (O*NET) and the regulation to assess the relevance of duties performed. Employers can apply a tip credit for time spent on related, non-tipped duties performed alongside tipped duties or shortly before or after them, regardless of direct customer service involvement.
Specifically, tasks such as cleaning tables, preparing dining areas, stocking supplies, and garnishing dishes are considered related duties for waitstaff, allowing tip credits for the time spent on them. P.F. Chang's contends that it complied with the Fair Labor Standards Act (FLSA) and the dual jobs regulation, disputing the plaintiff's reliance on an earlier Handbook and a previous case, Fast, which endorsed a twenty-percent rule limiting non-tipped duties to a maximum of twenty percent of a server's time. P.F. Chang's argues that the Department's revised guidance should not receive deference due to substantial changes over time.
In contrast, Esry argues that the Fast decision should prevail as it involved a binding interpretation of relevant statutes and regulations. She asserts that the court should not adopt the Department's new interpretation and should adhere to the prior twenty-percent rule. The Court is inclined to deny deference to the Department's new guidance, noting significant shifts in its interpretation of the dual jobs regulation, particularly the reversal of the previous stance that limited tip credits based on time spent on related tasks. The change in the Department's position weighs against granting deference to the revised Handbook, as highlighted in the Supreme Court case Christopher v. Smithkline Beecham Corp.
Auer deference may be applied to new interpretations of regulations if the agency's judgment is fair and considered, even if interpretations change over time. However, deference is inappropriate when an agency's interpretation of an ambiguous regulation is clearly erroneous or inconsistent with the regulation itself. In this case, the regulation 29 C.F.R. § 531.56(e) establishes a temporal limit on the related duties an employee can perform while still being considered engaged in a tip-producing occupation. The court noted that terms like "part of [the] time" and "occasionally" imply that if a server spends more than a minimal amount of time on non-tip-producing duties, they fall under the category of "dual jobs," necessitating a different pay structure.
P.F. Chang's contends that nothing in the dual jobs regulation sets a limit on the time spent on side work, arguing that tipped employees can still qualify for tip credits if they earn sufficient tips. However, the court found that the regulation's language and the interpretation in Fast suggest otherwise, indicating that there are indeed limits on side work. The revised Department Handbook claims no limits exist, which contradicts the regulation. The court will not defer to the Handbook's guidance due to its inconsistency with the regulation and its lack of persuasive reasoning, leading to the conclusion that the dual jobs regulation imposes limits on side work. Consequently, P.F. Chang's motion for summary judgment is denied.
The court addresses the legal question of when a server transitions from performing primarily tipped work to being effectively employed in dual roles, particularly when related duties, such as preparing food or washing dishes, exceed a certain threshold. The previously established twenty-percent rule from the case Fast indicates that if related duties surpass twenty percent of a server's time, they are no longer classified solely under a tipped occupation. Although the court acknowledges that Fast's endorsement of this rule is not binding due to the replacement of the Department's former Handbook, it agrees with the Cope court that this rule remains a reasonable interpretation of the regulation. The defendant's motion for summary judgment is denied, and an amended final scheduling order will be issued.
Additionally, the court dismisses opt-in plaintiff Ingram Murphy's claims with prejudice, as it is agreed that she never worked at a tipped rate for P.F. Chang's, rendering her claims invalid. The court treats the plaintiffs' claims under the Arizona Minimum Wage Act (AMWA) similarly to those under the Fair Labor Standards Act (FLSA). P.F. Chang's contends that the regulation should not receive Chevron deference due to a lack of notice and comment during its 1967 implementation. However, referencing the Fast case, the court notes that the regulation is ambiguous and deserves Chevron deference. Other district courts have likewise indicated a reluctance to grant Auer deference to the Department's new guidance. Ultimately, the court concludes that even with potential revisions from the Department, the twenty-percent rule remains applicable as a reasonable interpretation of the regulation. The term "occasionally" is defined to support this interpretation, indicating a sporadic engagement in related duties.
