Alec Marsh v. J. Alexander's LLC
869 F.3d 1108
9th Cir.2017Background
- Plaintiffs are former tipped employees (servers/bartenders) who allege employers improperly claimed the FLSA tip credit for time spent on non-tip-generating duties, resulting in below-minimum wages. Lead plaintiff: Alec Marsh at J. Alexander’s.
- FLSA permits a tip credit so employers may pay a $2.13 cash wage and use tips to reach the federal minimum; a "tipped employee" is one "engaged in an occupation" in which she "customarily and regularly receives more than $30 a month in tips." 29 U.S.C. §§ 203(m), 203(t).
- DOL’s 29 C.F.R. § 531.56(e) (the “dual jobs” regulation) distinguishes dual jobs (e.g., maintenance man who also waits) from a single tipped occupation with incidental related duties (e.g., waitress who occasionally washes dishes).
- The DOL’s Field Operations Handbook (FOH § 30d00(f)) interprets the regulation to require minute-by-minute categorization of duties into: tip-generating, related-but-not-tip-generating, and unrelated; disallows tip credit if related duties exceed 20% of hours or for any unrelated duties.
- District court refused to defer to the DOL FOH, dismissed complaints for failure to state an FLSA minimum-wage claim, and denied leave to amend; plaintiffs appealed. Ninth Circuit largely agreed FOH is not owed Auer deference but vacated and remanded to allow plaintiffs to amend in light of the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether DOL FOH §30d00(f) is entitled to Auer deference | FOH reasonably interprets §531.56(e); FOH’s 20% rule and duty categories clarify ambiguous terms like "occasionally" and protect tipped workers | FOH departs from the regulation: it creates substantive, minute-by-minute rules (de facto new regulation) and is inconsistent with the regulatory text and statute | FOH not entitled to Auer deference: it is inconsistent with §531.56(e) and attempts to promulgate new substantive rules without rulemaking; no controlling deference (majority) |
| Proper meaning of "engaged in an occupation" / "dual jobs" test | "Occupation" can be read to permit task-by-task analysis; tip credit should be denied where non-tipped duties are substantial | "Occupation" means a job (a cluster of tasks) — regulation focuses on whether employee holds two distinct jobs, not on minute-by-minute task accounting | Court interprets "occupation" as job-based; DOL’s time-sheet, task-by-task approach is inconsistent with regulation and statute |
| Whether Marsh’s pleadings stated a minimum-wage violation under §206(a) | Alleged duties (cleaning, prep, maintenance) consumed >20% of hours; reliance on FOH supports claim that tip credit was improper | Employer relied on tip credit and argued plaintiff’s average hourly pay (including tips) satisfied minimum for the workweek; district court found complaint insufficient | Court rejects FOH reliance but does not affirm dismissal on merits; because Marsh conceded many duties were intermingled with tip work, his current pleadings do not state a claim under the correct (job-based) standard; remand to allow amendment |
| Remedy / procedural disposition | Plaintiffs sought leave to amend and reversal | Defendants sought affirmance of dismissals and judgment | Ninth Circuit vacated district-court dismissals/judgments and remanded so plaintiffs may propose amended complaints consistent with the court’s interpretation; left open that other DOL guidance (e.g., Opinion Letters) might be considered on remand |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (agency regulations entitled to deference if statute ambiguous)
- Auer v. Robbins, 519 U.S. 452 (agency interpretations of its own ambiguous regulations generally entitled to deference)
- Christensen v. Harris County, 529 U.S. 576 (agency interpretation cannot create de facto new regulation)
- Skidmore v. Swift & Co., 323 U.S. 134 (persuasive weight accorded to agency interpretations not entitled to Auer deference)
- Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (framework for assessing deference to agency interpretations and weighing persuasive power)
- Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir.) (explains tip-credit mechanics under §203(m))
- Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th Cir.) (deferred to DOL FOH 20% rule; court here explains why Fast was unpersuasive)