Link to Eighth Circuit Opinion
On interlocutory appeal, the United States Court of Appeals for the Eighth Circuit affirmed the district court’s order denying Applebee’s motion for summary judgment, concluding that the Department of Labor’s (DOL) interpretation of the Fair Labor Standards Act (FLSA), as contained in the Wage and Hour Division’s Field Operations Handbook (Handbook), establishing conditions for when employers could use the alternative minimum wage for tipped employees, was reasonable, persuasive, and entitled to deference.[2]
I. Facts and Holding
The FLSA allows employers to pay a minimum wage of $2.13 per hour to “tipped employees” so long as those tips make up the difference between their hourly rate and the current federal minimum wage.[3] This alternative minimum wage is known as the “tip credit.”[4] The plaintiffs, representing a class of servers and bartenders, claimed that Applebee’s required them to perform non-tip producing functions for significant portions of their shift while paying them the $2.13 hourly rate.[5] Applebee’s argued that these duties were incidental to the performance of their jobs, and that how much time was spent performing these functions was irrelevant so long as their tips make up the difference and equal the minimum hourly wage rate.[6] Both sides agreed, through the combination of hourly wages and tips, that the plaintiffs were paid the equivalent of the federal minimum wage.[7]
The DOL regulations recognize that an employee may perform more than one job for an employer and that while performing a job that does not generate tips, the employee is entitled to the full minimum wage rate.[8] Because the regulation was ambiguous, the district court deferred to the DOL’s interpretation of the FLSA as contained in their Handbook.[9] If an employee spends more than 20% of their time performing related, but non-tip producing work, then the employer must pay the full minimum hourly wage.[10] Applebee’s filed an interlocutory appeal arguing that the DOL Handbook is contrary to the express language of the statute and regulations.[11]
The parties disputed the necessary burden of proof required.[12] The employees argued that they only need to show that they were paid $2.13 per hour, which would shift the burden to Applebee’s; Applebee’s would have to then prove that it was permitted to take the tip credit by presenting evidence of the number of hours employees worked in a tipped position.[13] The district court held that the employees must do more than show they were paid $2.13 per hour because they did not dispute that they were subject to the tip credit for at least some of their work.[14] Instead the court held that the employees must make a prima facie case showing for which hours they were not paid properly.[15] If there are no records available, then the burden would shift to Applebee’s to demonstrate that the employee’s calculations were unreasonable.[16]
The employees cross-appealed the district court’s allocation of the burden of proof.[17] On appeal, the Eighth Circuit affirmed the holdings of the district court, finding that deference to the DOL Handbook was appropriate, and that the employees were not entitled to burden shifting absent the establishment of a prima facie case.[18]
II. Legal Background
Under 29 U.S.C. § 203(m), the tip credit only applies to “tipped employees” defined as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”[19] While “occupation” is not defined in the FLSA, the DOL has created regulations to implement the tip credit.[20] These regulations receive judicial deference, known as Chevron deference, provided congress has delegated authority to the agency to implement an ambiguous statute and the agency interpretation is reasonable.[21] If Congress’s intent is clear, the court will not defer to a regulation that is contrary to that intent.[22] When Congress’s intent is unclear, the court will defer to the agency’s regulation so long as it is not “arbitrary, capricious, or manifestly contrary to the statute.”[23] When a regulation is not entitled to Chevron deference because the agency failed to follow notice and comment rule making procedures, the agency interpretation may be entitled to Skidmore deference, meaning it will be given respect to the degree that it is persuasive.[24]
Regulations promulgated by the DOL recognize that an employee may be engaged in dual jobs, and that if one of those jobs regularly produces tips while the other does not, the employee must be considered employed in two occupations, and the tip credit may not be taken for hours of employment worked in the non-tip occupation.[25] While neither party disputed whether 29 C.F.R. § 531.56(e) is entitled to Chevron deference, the parties disagreed as to its meaning because it does not clearly communicate the impact of a tipped employee carrying out related duties more than “part of the time” or more than “occasionally.”[26] The statute is made more ambiguous because it fails to define “related duties” or address the impact of a tipped employee who engages in work unrelated to his tipped occupation.[27]
The DOL provided further guidance in regards to its dual jobs regulation through opinion letters and its 1988 Handbook, which states that an employer can take "the tip credit for time spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips (i.e. maintenance and preparatory or closing activities).” Such duties must be "incidental to the regular duties of the server" and must be "generally assigned to the servers."[28] No tip credit may be taken if the facts indicate that specific employees are regularly assigned such duties, or that the tipped employees spend in excess of 20% of their time performing such duties.[29] Such opinion letters and department handbooks are not subject to Chevron deference because they are not subject to notice and comment rulemaking procedures.
However, under Auer v. Robbins, an agency’s interpretation of its own regulation will be considered controlling unless it is “plainly erroneous or inconsistent with the regulation."[30] Furthermore, the regulation itself must be ambiguous and therefore necessitating interpretation. Finally, the regulation may not be permissive, essentially allowing the agency to create a de facto new regulation under the guise of interpreting a regulation.[31] In the instant case, such deference is appropriate because the DOL was interpreting its own regulations to clarify a statutory scheme the Secretary of the DOL is charged to enforce, and the interpretation reflects the expertise and experience of the DOL with respect to the complexities of the FLSA.[32] Accordingly, the Court of Appeals affirmed the findings of the district court, concluding that the DOL Handbook interpretation that “employees who spend ‘substantial time’ (defined as more than 20 percent) performing related but non-tipped duties should be paid at the full minimum wage for that time without the tip credit,” was a reasonable interpretation and thus entitled to Auer deference.[33]
In regards to the disputed burden of proof, the court held that an employee who brings a claim for unpaid minimum wages carries the burden of proving he was not compensated for work performed, but that it is the employer’s duty to keep proper and accurate employment records.[34] If such records are not available, the employee may present evidence sufficient to create a reasonable inference that he performed the work in question, resulting in the burden shifting to the employer “to come forward with evidence of the precise amount of work performed or with evidence to negative the reasonableness of the inference to be drawn from the employee's evidence."[35] In the instant case, the plaintiffs failed to present a prima facie case establishing that they spent a substantial amount of time performing non-tip related functions at work, and there was no indication that Applebee’s failed to keep accurate records.[36] The Eighth Circuit affirmed the ruling of the district court, finding that the employees were not entitled to use the relaxed standard of producing evidence that creates a reasonable inference after which the burden would then shift to Applebee’s.[37]
III. Comment
The holding in Fast v. Applebee’s illustrates how the courts continue to expand the scope of agency authority. Under Chevron, an agency’s interpretation of an ambiguous statute is given judicial deference provided the regulation was enacted pursuant to procedural rulemaking requirements (such as notice and comment) and the interpretation is reasonable. Deference is appropriate because by entrusting an agency to enforce a statute, Congress essentially delegated their legislative authority to the agency with respect to that statute. Because executive agencies do not have the same level of accountability as legislators, they are required to give notice of proposed regulations and give opportunity for parties to comment when performing rulemaking functions. If notice and comment procedures were not implemented, and there was no opportunity for affected parties to comment on the proposed regulation, accountability is diminished, therefore Skidmore deference is more appropriate and the regulation would only be granted persuasive authority by the court based upon the agency’s experience and expertise.
If a regulation that survives scrutiny under Chevron is considered ambiguous, agency interpretations of that regulation will be given deference under Auer. At first glance, use of Auer deference appears problematic because it gives agency interpretations a level of deference more on par with Chevron than Skidmore, yet does not require the same procedural accountability. This has created a loophole through which agencies could create a regulation through notice and comment procedures, leaving certain portions vague, only to clarify these portions later. The agency then relies upon Auer deference if their legitimacy is questioned, thereby avoiding note and comment procedures. While the court has safeguarded against this kind of exploitation by refusing to give deference to agency interpretations considered permissive rather than ambiguous, the potential for abuse still remains.
It could be argued that granting this kind of deference violates the separation of powers due to limited accountability. Deference under Chevron is premised upon two stages of accountability: first, during the notice and comment portion of the rulemaking process; and second, during judicial proceedings, when it must be determined whether the agency was empowered by congress to interpret the statute, whether the statute was ambiguous, and whether the interpretation was reasonable.[38] Deference under Auer requires only one stage of accountability, during judicial proceedings, when it must be determined whether the agency was responsible for the regulation, whether the regulation is permissive rather than ambiguous, and whether the agency interpretation is clearly inconsistent with the regulation.[39] Shouldn’t interpretation of a regulation that interprets a statute essentially function as further interpretation of that statute? If so, why is there a lower level of accountability when interpreting a regulation? This seems inconsistent with the separation of powers because it delegates too much legislative authority to an executive agency without a corresponding level of accountability. Requiring agencies to implement formal proceedings for every interpretation of a regulation would be prohibitively onerous. It seems more appropriate to apply a lower degree of deference more consistent with Skidmore, where agency interpretations of regulations are persuasive but not controlling.
-Andrew C. Hooper
[1] Fast v. Applebee's Int’l, Inc., 638 F.3d 872 (8th Cir. 2011).
[2] Id. at 874.
[3] Id.
[4] Id.
[5] Id. at 875.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] 29 U.S.C. § 203(m) (2006).
[20] See 29 C.F.R. §§ 531.50-531.60 (2010).
[21] Eisenrich v. Minneapolis Retail Meat Cutters & Food Handlers Pension Def. Counsel, Inc., 577 F.3d 644, 649 (2009).
[22] Senger v. City of Aberdeen, 466 F.3d 670, 672 (8th Cir. 2006).
[23] Chevron U.S.A. Inc., v. Natural, Res. Def. Council, Inc., 467 U.S. 837, 844 (1984).
[24] Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) (“The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”).
[25] See 29 C.F.R. § 531.56(e) (2010).
[26] Fast v. Applebee's Int’l, Inc., 638 F.3d 872, 877 (8th Cir. 2011).
[27] Id.
[28] DOL Handbook § 30d00(e) (1988).
[29] Id. (“The Handbook incorporates answers provided in prior opinion letters, including that: a waitress assigned to general after-hours cleaning duties was performing tipped work as long as the duties were assigned generally to all wait staff and not specific employees, (Appellant's Add. at 22, Dep't of Labor, Wage & Hour Div., Op. Letter WH-502, 1980 WL 141336 (Mar. 28, 1980)); and a waiter assigned to perform opening preparatory work, where that waiter was the only one so assigned and spent 30% to 40% of his shift performing the preparatory work, was not performing tipped work, (Appellant's Add. at 25, Dep't of Labor, Wage & Hour Div., Op. Letter WH-FLSA-854 (Dec. 20, 1985)).”).
[30] Auer v. Robbins, 519 U.S. 452, 461 (1997).
[31] Christensen v. Harris County, 529 U.S. 576, 588 (2000).
[32] Fast v. Applebee’s Int’l, Inc., 638 F.3d 872, 878 (citing Gonzales v. Oregon, 546 U.S. 243, 256-57 (2006)).
[33] Id. at 879-81.
[34] Id. at 881 (citing Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 686-87 (1946)).
[35] Id. (citing Mt. Clemens Pottery, 328 U.S. at 687-88).
[36] Id. at 882.
[37] Id.
[38] Chevron U.S.A. Inc., v. Natural, Res. Def. Council, Inc., 467 U.S. 837, 844 (1984).
[39] Auer v. Robbins, 519 U.S. 452, 461 (1997).
