A Tip for Employers: Be Aware of How the Department of Labor Interprets Its Regulations

moneyThis story applies directly only to the restaurant industry, but it is a cautionary tale for every employer in Connecticut subject to the Department of Labor’s authority to write and interpret its regulations.

The federal Fair Labor Standards Act and almost all state wage-hour laws recognize “tip credit” – which means that the employer of an employee receiving tips can, within limits, take credit for the tips in meeting the minimum wage requirement. The employer can pay these employees less than the statutory minimum wage because including tips in the employees’ pay brings their earnings above the minimum wage.

By statute in Connecticut (Connecticut General Statute section 31-60), tip credit is allowed for persons employed in the hotel and restaurant industry “who customarily and regularly receive gratuities.”  We probably think we know who would be included as customarily getting tips in the restaurant industry: waiters, waitresses, bartenders, and servers at the counter in a diner, coffee shop, sandwich shop, pizzeria, hot dog stand, and the like. And what about the people who deliver pizzas to your home, often in the rain, snow or cold?  They regularly get tipped, and deserve it.

But in adopting regulations to enforce the tip credit statute, the Department of Labor decided that employees in the restaurant industry should be divided into “service” and “non-service” employees, a distinction which is not in the statute. Service employees were defined as restaurant employees who served food or beverages to patrons seated at tables or in booths and who customarily get tipped, and non-service employees were defined as those who did not wait on tables, such as servers at a counter.  Another regulation explains that when restaurant employees perform both service and non-service duties, the tip credit may only be applied to the hours worked in the service category.

The Department of Labor interprets these regulations to mean that restaurants can apply the tip credit only to service employees (bartenders are covered under a separate regulation), although the regulations do not specifically say that, and even though there are other categories of restaurant employees, such as counter servers, who customarily and regularly receive tips.

Believing as many of us would that pizza delivery drivers customarily and regularly received tips, two Domino’s pizza franchises in the Groton area recently applied to the Department of Labor for a ruling which would allow them to apply the tip credit to their delivery drivers.  The Department of Labor ruled instead that since it deems only service employees to be subject to the tip credit, and since drivers obviously do not serve food and beverages to patrons seated at tables and booths, the tip credit cannot be applied to them.

The “tip” that all employers can take from this story is that there are often three levels of authority in the application of our employment laws: the statute as enacted by the legislature, the regulations promulgated by the Department of Labor, and the “interpretation” that the DOL gives to its own regulations.  In determining compliance with wage payment obligations, it is often the last level that counts the most.