In the fall of 2016, a server at an Outback Steakhouse in suburban Orlando took the company to court. Virgil Goodson, who had waited tables at the restaurant on and off between 2014 and 2016, accused Outback of illegally paying him less than the minimum wage.
The claim was based on a provision in a U.S. Department of Labor field manual that agency investigators use to interpret federal minimum wage laws and rules. Under the law, employers don’t have to pay the minimum wage to employees like waiters, bellhops and bartenders who regularly earn at least $30 a month in tips. Instead, those employees can be paid what’s known as the “tip credit” wage. In Florida, the tip credit wage is $5.23 an hour, compared to the standard minimum wage of $8.25.
But there’s a gray area when it comes to paying that tip credit wage. What happens when tipped workers spend a lot of time performing tasks for which they can’t receive tips — bellhops who also do maintenance work, for example, or bartenders who clean bathrooms?
According to the Department of Labor’s manual, employers can still pay employees the tip credit wage as long as the employees’ “side work” doesn’t amount to more than 20% of their time on the job. In the restaurant industry, that provision is called the “80/20 rule.”
In his suit, Goodson argued that Outback always paid him the tip credit wage even though he spent more than 20% of his time every week on non-tipped tasks — rolling silverware, cleaning coolers, handing out fliers, setting up banquets, preparing salads, cutting bread and brewing coffee.
Outback’s response was that it doesn’t have to follow the 80/20 guideline because it isn’t a real rule. The chain, a unit of Tampa-based Bloomin’ Brands, argued that a provision buried in an internal manual doesn’t have the same force as a law passed by Congress or a formal rule promulgated by an executive agency.
As a practical matter, the company said, complying with such a rule would be a logistical nightmare. “In the context of a fast-moving restaurant job,” Outback’s attorneys wrote, “where an employee regularly moves from tableside interactions with customers to interactions with point-of-sale computers or back-of-the-house employees that are designed to fulfill the customers’ needs, no court has ever convincingly described how an employer would be expected to administratively track minute-by-minute the many variations in the tasks performed by an employee so that the employer could determine whether the supposed 20% threshold had been violated.”
Outback tried to have the case dismissed. But the federal judge presiding over it denied the motion — and declared that the 80/20 rule is, in fact, a rule under which Goodson could sue. Outback quickly settled the case, agreeing to pay Goodson $1,750 in unpaid wages and another $1,750 in damages rather than risk an appeal — and a precedent-setting opinion that could officially enshrine the 80/20 rule as law.
In recent years, other prominent restaurant operators, including Walt Disney World, Cheddar’s Scratch Kitchen, IHOP and Landry’s, have tried similar strategies, arguing that the 80/20 rule has no force in Florida. Each time, they’ve lost. And each time, they’ve settled the smallstakes claims well before a court could issue a binding opinion. In one case, an Orange County judge sided with a major Golden Corral franchisee and decided that the rule was invalid, but the company settled the case with the plaintiff soon after the ruling, snuffing out any potential appeal.
As a result, decades after the 80/20 standard first appeared in that Department of Labor guidebook, it’s still not clear whether restaurants have to follow it in Florida — home to nearly a quarter of a million waiters and bartenders.
The rule is becoming more firmly ensconced in other parts of the country. Earlier this fall, the U.S. Court of Appeals for the 9th Circuit, which covers the West Coast, upheld the 80/20 rule in a case involving servers at J. Alexander’s, Denny’s, IHOP, P.F. Chang’s and AMC Theatres, among others. The 8th Circuit, which extends from North Dakota to Arkansas, has also upheld the rule.
Some attorneys representing the restaurant industry expect the 9th Circuit’s ruling to embolden workers and plaintiff attorneys to pursue more 80/20 claims in other parts of the country.
“I think we might see an uptick, even though the 9th Circuit is, of course, not binding here in Florida,” says Laura Prather, managing partner in the Tampa office of Jackson Lewis.
The industry, for its part, has by no means ceded the issue. This summer, the Texas Restaurant Association and the legal arm of the National Restaurant Association filed their own suit challenging the rule in a federal court in Texas, hoping to find friendlier judges. If the 5th Circuit, which includes Texas, ultimately sides with the industry, it will set up a likely showdown at the U.S. Supreme Court.
In the interim, the rule remains a sensitive subject for restaurants. Representatives for Bloomin’ Brands, Disney World, Darden Restaurants, Red Lobster, Ruth’s Chris and IHOP franchisee Sunshine Restaurant Partners all declined to answer when Florida Trend asked if they abide by the 80/20 rule.
Samantha Hunter Padgett, a lobbyist for the Florida Restaurant & Lodging Association, says the 80/20 rule should be tossed. The Department of Labor has “this regulation that they are inclined to enforce, but it’s never been promulgated,” Hunter Padgett says. “It’s in a field guide. No one ever got to tell the department, ‘This is how we feel about this, and this is our comment.’ They just stuck it in a field guide, and now it’s being applied in a restaurant setting.”
Hunter Padgett says she would advise restaurants in Florida to follow the rule out of an abundance of caution. In fact, Heather Meglino, an Orlando attorney, says she advises her clients, most of whom are small, locally owned restaurants, to forgo the tip credit entirely and pay the standard minimum wage — just to avoid the legal risk that comes with the lower wage.
“When you take the tip credit, all these other conditions come along with that,” Meglino says. “I almost feel like the tip credit is just for these very large companies. They have to do it. But for your smaller companies, the tip credit is almost obsolete.”
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