US appeals court rules for bartenders, waiters in tip fight

Restaurants must pay waiters and bartenders minimum wage when they are engaged in tasks such as cleaning toilets that are unrelated to their main jobs and do not offer tips, a divided U.S. appeals court ruled Tuesday.

At issue in the decision by an 11-judge panel of the 9th U.S. Circuit Court of Appeals was a federal law that allows an employer to pay workers who receive tips as little as $2.13 an hour as long as their tips earn them minimum wage.

Employers cannot use that tip credit when the workers are engaged in unrelated tasks that don't pay tips, the panel ruled in a 9-2 decision. Employers also can't use the tip credit for tasks related to bartending or serving such as preparing coffee if employees spend a substantial part of the work week on them.

The impact of the ruling appeared limited. Seven states require that employers pay workers the state minimum wage on top of any tips they receive, according to the labor department's wage and hour division. Six of those states fall under the 9th Circuit's jurisdiction: California, Alaska, Montana, Nevada, Oregon and Washington.

Writing for the majority in Tuesday's ruling, Judge Richard Paez said tips were intended as "a gift to the server, as opposed to a cost-saving benefit to the employer."

A broader use of the tip credit would allow employers to underpay bartenders and wait staff and put off hiring staff such as janitors who don't receive tips and therefore must get paid minimum wage by employers, Paez said.

The ruling upheld a regulation by the U.S. Department of Labor and subsequent guidance that limited employers' use of the tip credit. It also revived lawsuits against restaurant chains by 14 bartenders and servers. The defendants include P.F. Chang's China Bistro and J. Alexander's.

Emails to attorneys for J. Alexander's and P.F. Chang's were not immediately returned.

One of the plaintiffs, Alec Marsh, said he spent almost half his work week at a J. Alexander's in Phoenix on tasks that did not produce tips such as cutting fruit and stocking ice. The restaurant paid Marsh an hourly tip credit wage of $4.65 per hour in 2012 and $4.80 per hour in 2013 in accordance with Arizona law, according to the 9th Circuit ruling.

Marsh argued in his lawsuit that the company was entitled to pay him that wage while he worked as a server, but not when he performed the other tasks. A U.S. judge in Arizona threw out Marsh's lawsuit. The 9th Circuit overturned that decision and sent the case back to the judge for additional hearings.