Federal Court Rejects Employer's "Hey, It All Worked Out Defense" In Tipped Worker Minimum Wage Case

By harley erbe

An interesting argument arose recently in the March 7, 2017 United States Court of Appeals decision in Romero v. Top-Tier Colorado. That is another tipped restaurant worker case in which the employees contend that the employer's paying them tipped minimum wage, rather than regular minimum wage, for time they spend on untipped labor. We have worked and are working on several similar cases and the allegation always is that the employer should be paying its employees the regular minimum wage of $7.25 per hour, rather than tipped minimum wage, during periods of time when the employees are engaged in job activities that don't include the opportunity to earn tips.

Romero concerned a question that arose because employers are sometimes allowed to include the tips paid by customers as part of the wages received by their tipped employees. Tipped workers receive a lower guaranteed minimum wage (for example, $4.35 per hour under Iowa law and $2.13 per hour under federal law) because it's expected that they'll receive tips from customers as a supplement to the guaranteed tipped minimum wage. Employers are allowed to count customer tips as part of the employees wages in what is often referred to as the "tip credit." As long as the employee's guaranteed minimum wage plus customer tips equals at least $7.25 per hour, the employer's complied with the minimum wage law for tipped employees. If the employee's tips, when added to the guaranteed tipped minimum wage, aren't sufficient to get the employee to $7.25 per hour, the employer pay the employee the additional wages necessary to do so.

Romero raised the issue of whether employers are allowed to average an employee's wages, including tips, out over the entire workweek. The employer argued that, regardless of what minimum wage it should've paid its employees during periods of untipped labor, the employees still averaged at least $7.25 per hour when their total guaranteed tipped minimum wage and tips were divided by the number of hours they worked in the week. In other words, potentially illegal minimum wage practices can be overlooked as long as the employer still manages to pay its employees an average of $7.25 per week.

The United States Court of Appeals didn't necessarily disagree with the employer. It instead observed that the issue's more complicated than the employer asserted. That's because not all tips are automatically eligible to be included in the calculation of the employee's wages. In other words, the employer's argument might be correct, but it first has to be determined whether all of each employee's tips can be counted as part of the employee's wages.    

The court noted that the "tip credit" only applies to tipped employees. That's important because the employees in Romero alleged that some of the work they performed did not count as "tipped" labor. Thus, in the court's analysis, before deciding how much in wages a tipped  employee earned in a given week, it must first be decided how much of that employee's tips may be counted as wages by the employer. The court's primary concern was that, if the employer's argument was correct and total tips divided by hours worked equaled at least $7.25, then the employer didn't have to pay the employee anything at all, which is clearly not what the minimum wage laws contemplate.

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