Alec Marsh v. J. Alexander's LLC
905 F.3d 610
9th Cir.2018Background
- Plaintiffs are current and former servers/bartenders who were paid the tipped (tip-credit) cash wage while performing substantial non-tip work (e.g., cleaning restrooms, maintaining soft-drink dispensers, prep/closing tasks).
- Marsh sued under the FLSA alleging employers misused the tip-credit by treating time spent on (a) unrelated non-tipped work and (b) related-but-non-tip-producing work (when >20% of the workweek) as tipped hours.
- The DOL issued a 1967 regulation (29 C.F.R. § 531.56(e)) addressing “dual jobs” and later the Field Operations Handbook (FOH/Guidance, first 1988, revised later) specifying (i) duties-based analysis, (ii) a 20% cap for related duties, and (iii) that unrelated maintenance work is untipped.
- District courts dismissed/plaintiffs’ claims; a prior Ninth Circuit panel rejected deference to the Guidance; the en banc Ninth Circuit granted rehearing and heard the consolidated appeals.
- The en banc majority held the dual-jobs regulation is entitled to Chevron deference and the DOL’s Guidance interpreting it is entitled to Auer deference, reversing dismissals and remanding for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the DOL’s dual-jobs regulation (29 C.F.R. § 531.56(e)) is entitled to Chevron deference | The regulation fills statutory gaps about what counts as a tipped ‘‘occupation’’ and is a valid exercise of DOL authority | The regulation was procedurally defective or not entitled to deference | Chevron applies; the court concluded the regulation reasonably fills gaps left by the FLSA and procedural challenges were time-barred |
| Whether the DOL Guidance (FOH) interpreting § 531.56(e), including a 20% related-duty benchmark and duties-based (minutes/hours) analysis, is entitled to Auer deference | The Guidance reasonably and consistently interprets the ambiguous regulation and the DOL’s longstanding practice; plaintiffs relied on it | Employers argued the Guidance is a legislative rule, inconsistent with the regulation, unfairly surprises employers, and is unworkable/time-tracking burdensome | Auer deference applied: the Guidance is not plainly erroneous or inconsistent with the regulation and mirrors prior DOL opinion letters; Guidance governs |
| Whether plaintiffs stated plausible FLSA minimum-wage claims (for unrelated tasks and for related tasks exceeding 20%) | Marsh alleged sufficient facts that employers treated substantial unrelated or >20% related non-tip work as tipped hours and thus withheld minimum wages | Defendants relied on Klinghoffer-style weekly-average arguments and contended that tip-credit coverage was broader | Plaintiffs stated claims for both types of violations; dismissals were reversed and cases remanded |
| Whether reliance on the Guidance causes unfair surprise or violates APA separation-of-powers (i.e., Guidance is de facto rule that required notice-and-comment) | Plaintiffs: Guidance has long pedigree (opinion letters, FOH since 1988) and DOL adopted it in briefing; employers had notice | Defendants: Guidance/20% rule is legislative, was not publicly promulgated via notice-and-comment, and imposes massive retroactive liability/unworkable obligations | Majority: no unfair surprise—Guidance and 20% benchmark are longstanding (foreshadowed by prior letters and FOH) and not plainly inconsistent with regulation; dissent disagreed and would have rejected deference |
Key Cases Cited
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (framework for deference to reasonable agency statutory/regulatory interpretations)
- Auer v. Robbins, 519 U.S. 452 (1997) (deference to agency interpretations of its own regulations unless plainly erroneous or inconsistent)
- United States v. Mead Corp., 533 U.S. 218 (2001) (agency action and rulemaking context relevant to deference analyses)
- Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (2012) (Auer deference inappropriate where agency interpretation would impose massive liability or unfair surprise)
- Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th Cir. 2011) (upholding DOL Guidance and applying Auer to FOH 20% rule)
- Klinghoffer Bros. Realty Corp., 285 F.2d 487 (2d Cir. 1960) (weekly-average approach to minimum-wage challenged and distinguished by the court)
- Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010) (employer must make up any shortfall if tips plus cash wage do not meet minimum wage)