Case Name: Alec MARSH, Plaintiff-Appellant, v. J. ALEXANDER'S LLC, Defendant-Appellee. Crystal Sheehan, Plaintiff-Appellant, v. Romulus Incorporated, dba International House of Pancakes, Defendant-Appellee. Silvia Alarcon, Plaintiff-Appellant, v. Arriba Enterprises Incorporated, dba Arriba Mexican Grill, Defendant-Appellee. Sarosha Hogan; Nicholas Jackson; Skylar Vazquez; Thomas Armstrong; Philip Todd; Maria Hurkmans, Plaintiffs-Appellants, v. American Multi-Cinema, Inc., dba AMC Theatres Esplanade 14, Defendant-Appellee. Nathan Llanos, an individual, Plaintiff-Appellant, v. P.F. Chang's China Bistro, Inc., Defendant-Appellee. Kristen Romero, an individual, Plaintiff-Appellant, v. P.F. Chang'S China Bistro, Inc., Defendant-Appellee. Andrew Fields, an individual, Plaintiff-Appellant, v. P.F. Chang's China Bistro, Inc., Defendant-Appellee. Alto Williams, Plaintiff-Appellant, v. American Blue Ribbon Holdings, LLC, Defendant-Appellee. Stephanie R. Fausnacht, Plaintiff-Appellant, v. Lion'S Den Management LLC, dba Denny's, Defendant-Appellee.
Court: United States Court of Appeals for the Ninth
Jurisdiction: United States
Decision Date: 2018-09-18
Citations: 905 F.3d 610
Docket Number: No. 15-15791; No. 15-15794; No. 15-16561; No. 15-16659; No. 16-15003; No. 16-15004; No. 16-15005; No. 16-15118; No. 16-16033
Parties: Alec MARSH, Plaintiff-Appellant,
v.
J. ALEXANDER'S LLC, Defendant-Appellee.
Judges: 
Reporter: Federal Reporter 3d Series
Volume: 905
Pages: 610–653

Head Matter:
Alec MARSH, Plaintiff-Appellant,
v.
J. ALEXANDER'S LLC, Defendant-Appellee.
Crystal Sheehan, Plaintiff-Appellant,
v.
Romulus Incorporated, dba International House of Pancakes, Defendant-Appellee.
Silvia Alarcon, Plaintiff-Appellant,
v.
Arriba Enterprises Incorporated, dba Arriba Mexican Grill, Defendant-Appellee.
Sarosha Hogan; Nicholas Jackson; Skylar Vazquez; Thomas Armstrong; Philip Todd; Maria Hurkmans, Plaintiffs-Appellants,
v.
American Multi-Cinema, Inc., dba AMC Theatres Esplanade 14, Defendant-Appellee.
Nathan Llanos, an individual, Plaintiff-Appellant,
v.
P.F. Chang's China Bistro, Inc., Defendant-Appellee.
Kristen Romero, an individual, Plaintiff-Appellant,
v.
P.F. Chang'S China Bistro, Inc., Defendant-Appellee.
Andrew Fields, an individual, Plaintiff-Appellant,
v.
P.F. Chang's China Bistro, Inc., Defendant-Appellee.
Alto Williams, Plaintiff-Appellant,
v.
American Blue Ribbon Holdings, LLC, Defendant-Appellee.
Stephanie R. Fausnacht, Plaintiff-Appellant,
v.
Lion'S Den Management LLC, dba Denny's, Defendant-Appellee.
No. 15-15791
No. 15-15794
No. 15-16561
No. 15-16659
No. 16-15003
No. 16-15004
No. 16-15005
No. 16-15118
No. 16-16033
United States Court of Appeals, Ninth Circuit.
Argued and Submitted En Banc March 20, 2018-San Francisco, California
Filed September 18, 2018
Jahan C. Sagafi (argued), Outten & Golden LLP, San Francisco, California; Clifford P. Bendau II, The Bendau Law Firm, Phoenix, Arizona; Jamie G. Sypulski, Law Office of Jamie Golden Sypulski, Chicago, Illinois; Douglas M. Werman, Werman Salas P.C., Chicago, Illinois; for Plaintiffs-Appellants.
Paul DeCamp (argued), Jackson Lewis P.C., Reston, Virginia; Stephanie M. Cerasano, Jackson Lewis P.C., Phoenix, Arizona; for Defendant-Appellee P.F. Chang's China Bistro.
David A. Selden, Julie A. Pace, and Heidi Nunn-Gilman, The Cavanagh Law Firm, Phoenix, Arizona, for Defendant-Appellee Romulus, Inc.
Robert W. Horton and Mary Leigh Pirtle, Bass Berry & Sims PLC, Nashville, Tennessee; Eric M. Fraser, Osborn Maledon P.A., Phoenix, Arizona; for Defendant-Appellee J. Alexander's LLC.
Karen L. Karr, K. Leone Karr Law Office, Scottsdale, Arizona, for Defendants-Appellees Arriba Enterprises Inc. and Lion's Den Management LLC.
Tracy A. Miller and Alexandra J. Gill, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, Arizona, for Defendant-Appellant American Multi-Cinema Inc.
Caroline Larsen and Alexandra J. Gill, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, Arizona, for Defendant-Appellee American Blue Ribbon Holdings LLC. Sarah K. Marcus (argued), Senior Attorney; Paul L. Frieden, Counsel for Appellate Litigation; Jennifer S. Brand, Associate Solicitor; M. Patricia Smith, Solicitor of Labor; Office of the Solicitor, United States Department of Labor, Washington, D.C., for Amicus Curiae Secretary of Labor.
Before: Sidney R. Thomas, Chief Judge, and Susan P. Graber, M. Margaret McKeown, Kim McLane Wardlaw, William A. Fletcher, Richard A. Paez, Johnnie B. Rawlinson, Consuelo M. Callahan, Sandra S. Ikuta, Morgan Christen and Andrew D. Hurwitz, Circuit Judges.
PAEZ, Circuit Judge Congress enacted the Fair Labor Standards Act ("FLSA") in 1938 in response to a national concern that the price of American development was the exploitation of an entire class of low-income workers. President Roosevelt, who pushed for fair labor legislation, famously declared: "The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little." S. Rep. No. 93-690, at 4 (1974). The FLSA thus safeguards workers from poverty by preventing employers from paying substandard wages in order to compete with one another on the market. See id. And yet, the plaintiffs in these consolidated cases allege that the defendant employers have done exactly that.
The FLSA permits employers to take a tip credit for employees in tipped occupations. See 29 U.S.C. § 203(m). The tip credit offsets an employer's obligation to pay the hourly minimum wage; employers may therefore pay as little as $2.13 per hour to tipped employees under federal law. 29 C.F.R. § 531.59. If the employee's tip credit wage and tips do not meet minimum wage, however, the employer must make up the difference. See 29 U.S.C. § 203(m).
Alec Marsh and thirteen other former servers and bartenders allege that their employers abused the tip credit provision by paying them the reduced tip credit wage and treating them as tipped employees when they were engaged in either (1) non-tipped tasks unrelated to serving or bartending, such as cleaning toilets; or (2) non-incidental tasks related to serving or bartending, such as hours spent cleaning and maintaining soft drink dispensers in excess of 20% of the workweek. Using the tip credit in such a manner effectively makes tips-intended as gifts to servers for their service-payments to employers instead, who use these tips to minimize their obligations to pay employees the full minimum wage for time spent working in a non-tipped occupation. Furthermore, by using servers as dishwashers, bussers, janitors, and cooks, employers can allegedly eliminate or significantly reduce their need to hire full-time janitors and cooks, who-as non-tipped workers-are entitled to the full minimum hourly wage and therefore cost more to employ.
We conclude today that the Department of Labor ("DOL") foreclosed an employer's ability to engage in this practice by promulgating a dual jobs regulation in 1967, 29 C.F.R. § 531.56(e), and subsequently interpreting that regulation in its 1988 Field Operations Handbook. We agree with Marsh that both the regulation and the agency's interpretation are entitled to deference. Because Marsh has stated a claim under the FLSA for minimum wage violations, we reverse the district court's judgments and remand for further proceedings consistent with this opinion.
I.
Alec Marsh worked as a server at J. Alexander's, a chain restaurant with at least one location in Phoenix, Arizona, from November 2012 to April 2013. Marsh typically worked around thirty-two hours per week, but spent almost half his time on tasks that did not produce tips, such as cutting and stocking fruit, cleaning the soft drink dispenser and nozzles, replacing soft drink syrups, stocking ice, taking out the trash, scrubbing the walls, and cleaning the restrooms. These tasks often took place out of customer view, either before the restaurant had opened or after it had closed. For example, Marsh was required to stock ice, brew tea, and cut and stock fruit every opening shift and to wipe down tables and collect and take out the trash every closing shift. In return for his labor, J. Alexander's paid Marsh an hourly tip credit wage of $4.65 per hour in 2012 and $4.80 per hour in 2013 pursuant to Arizona law. See Ariz. Rev. Stat. § 23-363 (2007).
Marsh filed suit, alleging that J. Alexander's use of the tip credit wage violated the FLSA's minimum wage requirements. See 29 U.S.C. § 206(a). Marsh's complaint alleged that, pursuant to the DOL's dual jobs regulation, he was a dual job employee working in multiple occupations-one tipped, and the others not-because J. Alexander's required him to complete tasks unrelated to his tipped occupation, such as cleaning the restrooms, and to spend well over 20% of his time per week on tasks related to his occupation that did not in and of themselves produce tips, such as brewing coffee. Marsh alleged that although J. Alexander's was entitled to pay him a tip credit wage for the time he spent working in his tipped occupation as a server, it was not entitled to continue paying him the tip credit wage for time spent working in an untipped occupation.
Under this theory, J. Alexander's violated the FLSA's minimum wage requirements when it failed to pay Marsh the full hourly minimum wage for time spent working in an untipped occupation. Marsh requested compensation equal to the difference between the wages he was paid and Arizona's minimum wage.
A few months after filing his complaint, Marsh moved for leave to file a first amended complaint. The proposed first amended complaint detailed how much time Marsh spent completing each untipped task in a given workweek and estimated his compensation for time engaged in a non-tipped second occupation at $3.00 per hour. As the original complaint, the amended complaint alleged two violations of the FLSA and the dual jobs regulation: the first for failing to pay Marsh the full minimum wage for time spent in excess of 20% of his workweek on non-tipped, related duties; and the second for failing to pay Marsh full minimum wage for time spent on unrelated duties.
J. Alexander's moved to dismiss the original complaint. The district court granted the motion, denied Marsh's motion to file an amended complaint, and dismissed Marsh's suit with prejudice. The court concluded that Marsh failed to state an FLSA claim as a matter of law for three reasons: (1) Marsh could not state a minimum wage violation pursuant to United States v. Klinghoffer Bros. Realty Corp. , 285 F.2d 487 (2d Cir. 1960), as long as he was paid minimum wage per workweek, irrespective of how much he was actually paid per hour; (2) the dual jobs regulation, 29 C.F.R. § 531.56(e), is unambiguous and does not recognize that servers like Marsh work in different occupations when the non-tipped tasks are related to the tipped occupation; and (3) even if the dual jobs regulation is ambiguous, the DOL's interpretation of the regulation in its 1988 Field Operations Handbook (the "Guidance")-which treats the performance of related duties in excess of 20% of an employee's workweek as a different occupation-is not entitled to Auer deference.
Marsh timely appealed. A divided panel of this court agreed with the district court that the DOL's interpretation of its dual jobs regulation was not entitled to deference. See Marsh v. J. Alexander's LLC , 869 F.3d 1108 (9th Cir. 2017). The panel majority concluded that the Guidance's focus on duties and tasks was inconsistent with the dual jobs regulation's focus on jobs and characterized the Guidance as less an interpretation entitled to Auer deference than a de facto new regulation masquerading as an interpretation. See id. at 1121-24. The panel majority, however, vacated the district court's dismissal of the suit and remanded to give Marsh an opportunity to file an amended complaint. See id. at 1127.
A majority of the non-recused active judges voted to grant Marsh's petition for rehearing en banc. See Marsh v. J. Alexander's LLC , 882 F.3d 777 (9th Cir. 2018). We reverse the district court's judgments and conclude, as the Eighth Circuit did in Fast v. Applebee's Int'l, Inc. , 638 F.3d 872 (8th Cir. 2011), that the Guidance is entitled to Auer deference.
The thirteen other servers and bartenders are Crystal Sheehan (No. 15-15794); Silvia Alarcon (No. 15-16561); Sarosha Hogan, Nicholas Jackson, Skylar Vazquez, Thomas Armstrong, Philip Todd, and Maria Hurkmans (No. 15-16659); Nathan Llanos (No. 16-5003); Kristen Romero (No. 16-15004); Andrew Fields (No. 16-15005); Alto Williams (No. 16-15118); and Stephanie Fausnacht (No. 16-16033). In addition to J. Alexander's, the other defendants include the International House of Pancakes (No. 15-15794); Arriba Mexican Grill (No. 15-16561); AMC Theatres Esplanade 14 (No. 15-16659); P.F. Chang's China Bistro, Inc. (Nos. 16-15003/04/05); American Blue Ribbon Holdings, LLC (No. 16-15118); and Denny's (No. 16-16033). These cases have been consolidated on appeal. Because Marsh's suit is the lead case, we refer to the plaintiffs collectively as "Marsh." We refer to the defendants collectively as "Defendants."
In the dissent's view, employers do not abuse tipped employees as long as the employees receive minimum wage. Dissent at 638 n.2. But, the DOL was entitled to conclude otherwise. Congress has gradually increased the minimum wage over the years to "eliminate[e] labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers." H.R. Rep. No. 89-1366, at 2 (1966) (emphasis added). The minimum wage is meant to be a floor, not a ceiling: it is the bare minimum necessary to secure "the very lowest standards" of living. Id. at 6. By crediting a server's tips towards their obligations to pay full minimum wage for time employees spend working in a non-tipped occupation, employers deprive servers the full value of their tips, which are the property of the employee, see 29 C.F.R. § 531.52, and make it significantly more difficult for the server to earn a living beyond minimum wage. The dissent's protestations to the contrary miss the forest for the trees: the issue is not whether tipped employees are entitled to the full minimum wage plus their tips, the issue is whether employers may use an employee's tips to cover their own obligation to pay full minimum wage for time an employee spends in a non-tipped occupation.
Marsh filed a motion in the district court for leave to file a first amended complaint, which the court denied on grounds of futility. The proposed amended complaint provided additional details related to Marsh's weekly tasks not included in the original complaint. Where necessary for the sake of clarity, we have incorporated details from the proposed amended complaint in our recitation of the facts. Because the rest of the consolidated cases on appeal share a similar factual background, we do not separately recount them here.

Opinion:
II.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We review de novo the district court's final orders and its interpretation of the relevant statutory and regulatory provisions. See Shaver v. Operating Eng'rs Local 428Pension Tr. Fund , 332 F.3d 1198, 1201 (9th Cir. 2003) (motion to dismiss).
III.
This case revolves around several statutory and regulatory provisions and agency guidance governing the payment of wages to tipped employees: the FLSA, the dual jobs regulation, and the Guidance. Although the FLSA guarantees all workers a federal minimum wage of $7.25 per hour, see 29 U.S.C. § 206(a)(1)(c), employers may pay tipped employees a reduced tip credit wage below the hourly minimum wage, see id. § 203(m). A tipped employee is "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." Id. § 203(t). Employers may therefore take up to a $5.12 tip credit against the full hourly minimum wage and pay tipped employees as little as $2.13 per hour in cash wages so long as the employee's tips bring him or her up to minimum wage. See Fast , 638 F.3d at 874-75. If, however, a server's tips fall short of covering the minimum wage, the employer must increase the employee's cash wage to make up the difference. See Cumbie v. Woody Woo, Inc. , 596 F.3d 577, 580 (9th Cir. 2010).
Seeking to clarify the meaning of a "tipped employee" under the statute-including what constitutes an "occupation" that "customarily and regularly" receives tips-the DOL promulgated several regulations in 1967. One of these regulations, 29 C.F.R. § 531.56, explains that "[a]n employee employed full time or part time in an occupation in which he does not receive more than $30 a month in tips customarily and regularly is not a 'tipped employee' within the meaning of [the FLSA]" and that a calendar month need not be used to determine whether an employee meets the $30-a-month benchmark. Id. § 531.56(a), (b). The DOL also included a provision in this regulation directly addressing situations in which an employee is employed in dual jobs, one tipped and one not. This dual jobs regulation states in full:
Dual jobs. In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter. He is employed in two occupations, and no tip credit can be taken for his hours of employment in his occupation of maintenance man. Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.
29 C.F.R. § 531.56(e) (emphases added).
The dual jobs regulation initially generated some confusion among employers, who were unsure whether their tipped employees qualified as dual job employees. The DOL consequently issued several opinion letters in an attempt to delineate the boundaries of the dual jobs regulation. The DOL ultimately released a guidance addressing the dual jobs regulation in its Wage and Hour Division's Field Operations Handbook ("FOH") in 1988, which the DOL revised in 2012. See FOH § 30d00(e) (1988) (the "Guidance"). Judge Ikuta calls the Guidance a new rule promulgated by the DOL, but it is clearly an interpretation in line with that of the DOL's prior opinion letters. The most recent version of the Guidance states:
(1) When an individual is employed in a tipped occupation and a non-tipped occupation, for example, as a server and janitor (dual jobs), the tip credit is available only for the hours spent in the tipped occupation, provided such employee customarily and regularly receives more than $30.00 a month in tips. See 29 CFR 531.56(e).
(2) 29 CFR 531.56(e) permits the employer to take a tip credit for time spent in duties related to the tipped occupation of an employee, even though such duties are not by themselves directed toward producing tips, provided such related duties are incidental to the regular duties of the tipped employees and are generally assigned to the tipped employee. For example, duties related to the tipped occupation may include a server who does preparatory or closing activities, rolls silverware and fills salt and pepper shakers while the restaurant is open, cleans and sets tables, makes coffee, and occasionally washes dishes or glasses.
(3) However, where the facts indicate that tipped employees spend a substantial amount of time (i.e. , in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties. All related duties count toward the 20 percent tolerance.
(4) Likewise, an employer may not take a tip credit for the time that a tipped employee spends on work that is not related to the tipped occupation. For example, maintenance work (e.g. , cleaning bathrooms and washing windows) are not related to the tipped occupation of a server; such jobs are non-tipped occupations. In this case, the employee is effectively employed in dual jobs.
FOH § 30d00(f) (2016) (emphases added).
The Guidance thus clearly contemplates that a server who performs unrelated tasks, such as cleaning restrooms, is a dual job employee entitled to the full minimum hourly wage for her unrelated work. The Guidance also clearly lays out that a server is a dual job employee if her related tasks occupy more than 20% of her hours in a workweek.
The dissent takes issue with the 2012 update to the Guidance and asserts that this was the first time the agency "provided that employers could not take a tip credit for any time employees spent on tasks that did not directly relate to serving customers." Dissent at 640. This presumes, of course, that prior to 2012, the DOL would have permitted employers to take a tip credit even for hours a server spent on tasks unrelated to their tipped occupation. As we discuss infra , the dual jobs regulation squarely forecloses that line of argument by distinguishing between a tipped employee who spends some time completing related, but untipped work, and a dual job employee who works as a maintenance man part of the time and a server the rest. 29 C.F.R. § 531.56(e). Accordingly, if both the Guidance and the dual jobs regulation are entitled to deference, then Marsh has alleged facts sufficient to make out an FLSA minimum wage violation claim. We turn to those questions.
A.
Defendants first contend that the dual jobs regulation is not entitled to deference under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc. , 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). We disagree.
1.
As an initial matter, it is beyond question that the DOL promulgated the dual jobs regulation, 29 C.F.R. § 531.56, in the exercise of its congressionally delegated authority. See United States v. Mead Corp. , 533 U.S. 218, 226-27, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001). Congress amended the FLSA in 1966 by defining "tipped employee" for the first time, see 29 U.S.C. § 203(t), and adding a formula for calculating the wage of a tipped employee, see id. § 203(m). See Fair Labor Standards Amendments of 1966, Pub. L. No. 89-601, § 101, 80 Stat. 830, 830. The 1966 Amendments authorized the Secretary of Labor "to promulgate necessary rules, regulations, or orders with regard to the amendments made by this Act." Id. at § 603, 80 Stat. at 844. Shortly thereafter, the DOL issued a notice of proposed rulemaking aimed at "expand[ing] 29 CFR Part 531 to make provisions responsive" to the "Fair Labor Standards Amendments of 1966," specifically the newly amended sections 203(m) and 203(t) regarding tipped employees. 32 Fed. Reg. 222, 222 (Jan. 10, 1967). This process eventually produced the dual jobs regulation, 29 C.F.R. § 531.56(e). See 32 Fed. Reg. 13,575 (Sept. 27, 1967).
Defendants nonetheless urge us to conclude that Chevron deference is inapplicable in this instance because the dual jobs regulation was promulgated without adequate notice and an opportunity to comment. This argument, however, is decades too late. See Perez-Guzman v. Lynch , 835 F.3d 1066, 1077 (9th Cir. 2016), cert. denied , - U.S. -, 138 S.Ct. 737, 199 L.Ed.2d 604 (2018) ("Procedural challenges to agency rules under the Administrative Procedure Act are subject to the general six-year limitations period in the U.S. Code."); see also 28 U.S.C. § 2401(a). The dissent may object to the way the DOL promulgated the dual jobs regulation, but as a matter of law, such procedural challenges to the regulation here are indisputably untimely and beyond our scope of review. Dissent at 638-40. We therefore conclude that Mead 's requirements have been met. 533 U.S. at 226-27, 121 S.Ct. 2164.
2.
Applying the Chevron framework, we next ask whether "Congress has directly spoken to the precise question at issue." 467 U.S. at 842, 104 S.Ct. 2778. We conclude that it has not.
Section 203(t) defines a tipped employee as "any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." 29 U.S.C. § 203(t). The FLSA, however, does not separately define "occupation." Id. Nor does the statute shed light on the meaning of "customarily and regularly." Id. Counsel for Defendants urge us to conclude that the use of the word "occupation" in section 203(t) was not "intended to do a lot of work" and that the statute is therefore "not ambiguous." United States Court of Appeals for the Ninth Circuit, 15-15791 Alec Marsh v. J. Alexander's LLC , YouTube (Mar. 20, 2018) at 47:10-47:15; 49:45-49:51. We decline to treat Congress's choice of words so dismissively; to the contrary, we must presume that Congress's choice of words is deliberate. See Univ. of Tex. Sw. Med. Ctr. v. Nassar , 570 U.S. 338, 353, 133 S.Ct. 2517, 186 L.Ed.2d 503 (2013). Accordingly, we agree with the Eighth Circuit that where, as here, Congress has crafted an ambiguous statute and tasked the DOL with implementing the ambiguous provisions, we must "defer to the agency's regulation so long as it is not arbitrary, capricious, or manifestly contrary to the statute." Fast , 638 F.3d at 876 (internal quotation marks omitted).
Contrary to Defendants' assertions, the FLSA's legislative history does not "evince an unambiguous congressional intention" to treat all employees as tipped employees, regardless of their tasks or time spent on untipped tasks. Chem. Mfrs. Ass'n v. Nat. Res. Def. Council, Inc. , 470 U.S. 116, 129, 105 S.Ct. 1102, 84 L.Ed.2d 90 (1985). At most, Congress suggested in a Senate report-published seven years after the DOL promulgated its dual jobs regulation-that "[i]n establishments where the employee performs a variety of different jobs, the employee's status as one who 'customarily and regularly receives tips' will be determined on the basis of the employee's activities over the entire workweek." S. Rep. No. 93-690, at 43 (1974). Under Defendants' view, this sentence indicates that section 203(t) unambiguously allows employers to take a tip credit for every hour an employee spends working, as long as the employee's total tips exceed $30 per month-even if the employee engages in tipped work only 10% of the time. See United States Court of Appeals for the Ninth Circuit, 15-15791 Alec Marsh v. J. Alexander's LLC , YouTube (Mar. 20, 2018) at 34:43-35:45.
But this sentence does not bear the weight Defendants put on it. Critically, the legislation accompanying the 1974 report did not make any changes to section 203(t). Further, the report expressly recognized "the ethical question involved in crediting tips toward the minimum wage" and emphasized that tipped employees "should have stronger protection to ensure the fair operation" of the tip credit provision. S. Rep. No. 93-690 at 42-43. Neither the plain language of the statute nor its legislative history suggest-much less clearly demonstrate-that section 203(t) is unambiguous.
3.
Having concluded that the FLSA "is silent or ambiguous" with respect to the treatment of employees who make more than $30 a month in tips but who may be engaged in multiple occupations, we consider "whether the agency's answer is based on a permissible construction of the statute." Chevron , 467 U.S. at 843, 104 S.Ct. 2778. We conclude that it is.
The 1966 amendments to the FLSA were intended to "improve living standards by eliminating substandard working conditions in employment" and to bring the law up to date with the "advancing economy," which had outpaced the FLSA's worker protections. H.R. Rep. No. 89-1366, at 10 (1966). Later amendments to the FLSA stressed the importance of guaranteeing "a fair day's pay for a fair day's work." H.R. Rep. No. 93-913, at 8 (1974). The dual jobs regulation, which was promulgated to give effect to new statutory provisions addressing tipped employees, was neither an arbitrary reversal of a prior agency position nor "manifestly contrary to the statute." Chevron , 467 U.S. at 844, 104 S.Ct. 2778. Confronted with a gap in the FLSA's coverage of dual job employees, the DOL reasonably exercised its authority to fill that gap by ensuring that employees working in tipped and untipped occupations would not be shortchanged by their employers.
Defendants concede that under the FLSA, if some of an employee's tasks were outside the scope of a tipped occupation, the employee would be engaging in non-tipped employment for which the employer would not be entitled to take a tip credit. See United States Court of Appeals for the Ninth Circuit, 15-15791 Alec Marsh v. J. Alexander's LLC , YouTube (Mar. 20, 2018) at 35:05-35:45. That is precisely the kind of situation the dual jobs regulation addresses.
The dual jobs regulation establishes that an employee is entitled to the full minimum wage for any time spent in a non-tipped occupation. See 29 C.F.R. § 531.56(e). Thus, an employee who serves as both a maintenance man and a waiter in a hotel "is a tipped employee only with respect to his employment as a waiter." Id. This provision prevents employers from paying maintenance workers as little as $2.13 an hour, simply because they also happen to work as servers. Having concluded that the dual jobs regulation "is a reasonable choice within a gap left open by Congress, the challenge must fail." Chevron , 467 U.S. at 866, 104 S.Ct. 2778.
B.
Our inquiry, however, does not end with the dual jobs regulation. For Marsh to state a claim under the FLSA, we must also conclude that the Guidance-which establishes the 20% related duties benchmark and separates occupations by duties-is entitled to judicial deference under either Auer v. Robbins , 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), or Skidmore v. Swift & Co. , 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944). See Indep. Training & Apprenticeship Program v. Cal. Dep't of Indus. Relations , 730 F.3d 1024, 1035 (9th Cir. 2013). Because the dual jobs regulation is ambiguous and the Guidance's interpretation is both reasonable and consistent with the regulation, we agree with the Eighth Circuit that the Guidance is entitled to Auer deference. See Fast , 638 F.3d at 880-81.
1.
"[W]here an agency interprets its own regulation, even if through an informal process, its interpretation of an ambiguous regulation is controlling under Auer unless 'plainly erroneous or inconsistent with the regulation.' " Bassiri v. Xerox Corp. , 463 F.3d 927, 930 (9th Cir. 2006) (quoting Auer , 519 U.S. at 461, 117 S.Ct. 905 ). "Under this standard, we defer to the agency's interpretation of its [ambiguous] regulation unless an 'alternative reading is compelled by the regulation's plain language or by other indications of the [agency's] intent at the time of the regulation's promulgation.' " Id. at 931 (emphasis and second alteration in original) (quoting Thomas Jefferson Univ. v. Shalala , 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) ). Interpretations that "do[ ] not reflect the agency's fair and considered judgment of the matter in question" or unfairly surprise regulated parties are not entitled to Auer deference.
Christopher v. SmithKline , 567 U.S. 142, 155-56, 132 S.Ct. 2156, 183 L.Ed.2d 153 (2012) (quoting Auer , 519 U.S. at 462, 117 S.Ct. 905 ).
[S] We agree with Marsh that the dual jobs regulation is ambiguous. The dual jobs regulation, like the FLSA, does not offer a precise definition for "occupation." Instead, the regulation relies on a series of examples to illustrate the difference between a tipped employee and a dual job employee engaged in both a tipped and an untipped occupation. See 29 C.F.R. § 531.56(e). The regulation explains that a person working as both a maintenance man and a server is obviously "employed in two occupations," such that "no tip credit can be taken for his hours of employment in his occupation of maintenance man." Id. But it does not explain how to classify the person's occupation-whether through official title, expected duties, or some other method. See Fast , 638 F.3d at 877.
The second half of the dual jobs regulation suggests that the DOL likely intended to tie a person's occupation to his or her duties. See 29 C.F.R. § 531.56(e) (explaining that the maintenance man/server's situation is "distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses"). But like a door leading to more doors, this clarification only produces more questions. As the Eighth Circuit recognized, although the regulation establishes that a server who spends "part of her time" cleaning tables and "occasionally" washing dishes is not a dual job employee, see id. , the regulation does not define either ambiguous, temporal term.
See Fast , 638 F.3d at 877. If a server spends 10% of her time washing dishes, does that qualify as "occasional"? What about 30%? The regulation's silence on this point is compelling evidence of its ambiguity. We therefore disagree with Judge Graber's reading of the regulation. See Partial Concur. at 633-34. Had the DOL intended to unambiguously foreclose servers from being dual job employees regardless of the amount of time they spend on related, but untipped duties, the regulation would not include the temporal limitations it does. Instead, the dual jobs regulation would have read: "Such a situation is distinguishable from that of a waitress who spends her time serving customers or completing related, but untipped tasks, such as cleaning and setting tables, toasting bread, and making coffee." By restricting related duties with limitations such as "occasionally," "part of [the] time," and "tak[ing] a turn," the dual jobs regulation necessarily distinguishes between single-job employees who only occasionally complete related tasks, and dual-job employees who regularly do. What the regulation leaves undefined is the point at which this transformation occurs.
The same is true of the regulation's reference to "related duties," 29 C.F.R. § 531.56(e), which suggests two distinctions: one between related and unrelated duties; and the other between duties related to a tipped occupation and duties that are part and parcel of a tipped occupation. The regulation states that cleaning tables, washing dishes, making coffee, and toasting bread are all duties related to a server's occupation, but offers no guidance as to other duties, such as cleaning the restroom or chopping fruits and vegetables in the kitchen. See id. The regulation also leaves open the possibility that when a tipped employee engages in tasks related to her tipped occupation-but which are not actually synonymous with her tipped occupation-more than occasionally or part of the time, those related tasks form a separate, untipped job for which the employer is not entitled to take a tip credit. These interpretive gaps, including the regulation's failure to "define 'related duties,' " Fast , 638 F.3d at 877, all serve as additional evidence of the regulation's ambiguity.
2.
Having concluded that the dual jobs regulation is ambiguous, we next consider whether the Guidance is "plainly erroneous or inconsistent with the regulation." Auer , 519 U.S. at 461, 117 S.Ct. 905 (internal quotation marks omitted). The DOL's interpretation is consistent with nearly four decades of interpretive guidance and with the statute and the regulation itself. Together, these factors strongly counsel in favor of applying Auer deference to the Guidance.
The dual jobs regulation relies on two undefined factors to determine whether an employee is a dual-job employee: (1) the relatedness of an employee's duties to a tipped occupation and (2) the amount of time an employee spends on completing related but untipped duties. See 29 C.F.R. § 531.56(e) (clarifying that an employee who spends "part of her time" on duties "related" to her tipped occupation that are not themselves "directed toward producing tips" is not a dual jobs employee). In the decades following the regulation's promulgation, the DOL continuously endeavored to provide employers with further guidance on the regulation in the form of opinion letters. These efforts eventually culminated in the creation of the Guidance in the DOL's Field Operations Handbook ("FOH") in 1988. See Brief for the Secretary of Labor as Amicus Curiae, Dkt. No. 45, at 16 (hereinafter "DOL Amicus Brief") ("The FOH interpretation was based on, and is consistent with, the prior opinion letters.").
The Guidance attempts to address the regulation's ambiguity by establishing three definitions, each of which builds on an interpretation of the regulation. First, the Guidance limits "related duties" to those that are "incidental to the regular duties of the tipped employees and are generally assigned to the tipped employees." FOH § 30d00(f)(2) (2016). Second, the Guidance establishes that a tipped employee who spends a "substantial amount of time," defined as "in excess of 20 percent of the hours worked in the tipped occupation in the workweek," on such related duties may not be paid the reduced tip credit wage. Id. § 30d00(f)(3). "All related duties count toward the 20 percent tolerance," meaning that a server need not spend all of that time on one related task, such as washing dishes, to qualify as a dual job employee. Id. Third, the Guidance makes explicit the regulation's suggestion that occupations are defined by their tasks. See id. § 30d00(f)(4) ("For example, maintenance work (e.g. , cleaning bathrooms and washing windows) are not related to the tipped occupation of a server; such jobs are non-tipped occupations."). Accordingly, the Guidance recognizes that a server is no longer engaged in a tipped occupation once she starts cleaning bathrooms and washing windows, because those tasks fall within the purview of a separate, non-tipped occupation. See id.
Citing Probert v. Family Centered Servs. of Alaska, Inc. , 651 F.3d 1007 (9th Cir. 2011), Defendants contend that the Guidance is not entitled to deference because the FOH includes a disclaimer that it "is not used as a device for establishing interpretive policy." Id. at 1012. Defendants' argument fails because the DOL has adopted the Guidance's interpretation in its amicus brief. See DOL Amicus Brief at 16; Fast , 638 F.3d at 877. It is well-settled law that courts may afford an agency's interpretation Auer deference if the interpretation is advanced through an amicus brief. See Auer , 519 U.S. at 461, 117 S.Ct. 905 ; Barrientos v. 1801-1825 Morton LLC , 583 F.3d 1197, 1214 (9th Cir. 2009) ("Further, an agency's litigation position in an amicus brief is entitled to deference if there is no reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter." (internal quotation marks omitted) ).
We similarly reject as unpersuasive Defendants' brief argument that the Guidance is not entitled to Auer deference because employers in this country did not have "notice that they must pay an employee . based on an agency's internal advice given to its field investigators." Christopher v.SmithKline Beecham Corp. , 567 U.S. 142, 132 S.Ct. 2156, 183 L.Ed.2d 153 (2012), held that Auer deference is not warranted when an agency's interpretation would "impose potentially massive liability" without first providing regulated parties "fair warning of the [prohibited] conduct." Id. at 155-56, 132 S.Ct. 2156. There, the Court recognized that preventing "unfair surprise[s]" outweighed the "general merits of Auer deference," particularly where the agency's interpretation postdated the regulated parties' conduct. Id. at 156, 159, 132 S.Ct. 2156 ; see also Indep. Training & Apprenticeship Program v. Cal. Dep't of Indus. Relations , 730 F.3d 1024, 1035 (9th Cir. 2013) ("[T]he Court has deemed Auer deference unsuitable when such deference would result in 'unfair surprise' to one of the litigants.").
Here, in contrast, the Guidance has been in place since 1988 and was published to the Internet pursuant to the Electronic Freedom of Information Act Amendments of 1996. See Wage & Hour Div., Dep't of Labor, Field Operations Handbook (Aug. 31, 2017), available at https://www.dol.gov/whd/FOH/index.htm. The DOL also adopted the Guidance's interpretation and the 20% benchmark in its amicus brief to the Eighth Circuit in Fast , which was filed on September 15, 2010-two years before Marsh began his employment with J. Alexander's. See Brief for the Secretary of Labor as Amicus Curiae in Support of Plaintiffs-Appellees, Fast v. Applebee's Int'l, Inc. , 638 F.3d 872 (8th Cir. 2011) (Nos. 10-1725/26), 2010 WL 3761133. Defendants were therefore on notice at least as of September 15, 2010-if not before -that their conduct was not in compliance with the dual jobs regulation.
As a result, unlike the plaintiffs in SmithKline , Marsh's theory of liability rests on an interpretation that predates Defendants' conduct. This is not a case where the instant suit represents the first and only time the DOL has advanced the interpretation at hand. See, e.g. , Emp'r Sols. Staffing Grp. II, LLC v. Office of Chief Admin. Hearing Officer , 833 F.3d 480, 488-90 (5th Cir. 2016) (concluding Auer deference was unwarranted because the proffered interpretation emerged from a single decision by the ALJ in the instant case). Nor is this a case where the agency failed to issue "interpretative guidance indicating [its] current position," Perez v. Loren Cook Co. , 803 F.3d 935, 943 (8th Cir. 2015) (en banc), considering the DOL adopted the Guidance in its 2010 amicus brief. Further, as we discuss later, the DOL has regularly promulgated regulations that use the 20% benchmark to distinguish between substantial and incidental amounts of time. We therefore conclude that the Guidance did not unfairly surprise Defendants as of September 15, 2010.
Defendants next contend that the Guidance is not entitled to deference because its 20% limitation on related duties is inconsistent with the dual jobs regulation itself. We disagree. As the Eighth Circuit recognized in Fast , "[b]y using the terms 'part of the time' and 'occasionally,' the regulation clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation." 638 F.3d at 879 (internal alterations omitted); see also Knox v. Jones Grp. , 201 F.Supp.3d 951, 961 (S.D. Ind. 2016) (applying Auer deference because "[t]hrough its use of the terms 'part of the time' and 'occasionally,' the dual-jobs regulation embodies temporal limitations regarding the performance of related, non-tipped duties" (internal alteration omitted) ); Flood v. Carlson Rests. Inc. , 94 F.Supp.3d 572, 583 (S.D.N.Y. 2015) (explaining that "district courts across the country have likewise endorsed the twenty percent rule").
The dual jobs regulation states that a server who occasionally washes dishes is not a dual job employee. See 29 C.F.R. § 531.56(e). The Guidance states that a server who spends 20% of her time or less washing dishes is not a dual job employee. See FOH § 30d00(f)(3). There is nothing inconsistent between these two statements because the regulation does not limit the meaning of "occasionally" beyond its ordinary meaning of "now and then; here and there; sometimes." Fast , 638 F.3d at 879-80 (quoting Webster's Third New Int'l Unabridged Dictionary 1560 (1986) ). True, the DOL could arguably have set the limit higher, but it did not and we are not at liberty to disturb the agency's "fair and considered judgment on the matter in question." Auer , 519 U.S. at 462, 117 S.Ct. 905.
Furthermore, the DOL's 20% threshold is consistent with its treatment of other temporal limitations. This, too, counsels in favor of applying Auer deference. See Fast , 638 F.3d at 881 (deferring to the Guidance in part because the 20% threshold draws from numerous other FLSA provisions); cf. Friedman v. Sebelius , 686 F.3d 813, 825 (D.C. Cir. 2012) (granting the agency's interpretation Auer deference even though "the regulations elsewhere distinguish between 'acts' and 'omissions,' " and the agency interpreted a regulation's use of only "acts" to include both acts and omissions). The DOL adopted the 20% rule in order to ensure conformity with "various other FLSA provisions, interpretations, and enforcement positions setting a 20 percent tolerance for work that is incidental to but distinct from the type of work to which an exemption applies." DOL Amicus Brief at 19 n.6. Because the DOL has consistently utilized the 20% threshold to distinguish between substantial and incidental or occasional work in a variety of contexts, it is especially appropriate to defer to the Guidance.
We find similarly unpersuasive Defendants' contention that the Guidance's focus on duties is "patently inconsistent" with the dual jobs regulation's "occupation-based analysis." Defendants' argument rests on an artificial distinction between occupations and duties. One cannot define the former without some reference to the latter. See Occupation , Black's Law Dictionary (10th ed. 2014) (defining "occupation" to mean "an activity or pursuit in which a person engages" (emphasis added) ). The tip credit regulation states that "[a]n employee who receives tips . is a 'tipped employee' . when, in the occupation in which he is engaged , the amounts he receives as tips [exceed the requisite amount]." 29 C.F.R. § 531.56(a) (emphasis added). The dual jobs regulation-a sub-provision of the tip credit regulation-elaborates that a tipped employee who occasionally performs "related" but untipped "duties" is not employed in "two occupations," but that a server who works as a maintenance man is. Id. § 531.56(e).
The dual jobs regulation therefore contemplates a difference between tipped and untipped occupations, as defined by an employee's duties. The Guidance makes that distinction explicit by sorting the duties accordingly: (1) an employee who engages in duties "directed toward producing tips" or spends 20% of her workweek or less on duties related to "the regular duties of the tipped employees" works in a tipped occupation and may receive the reduced tip credit cash wage; (2) on the other hand, an employee who engages in untipped "work that is not related to the tipped occupation" or spends more than 20% of her workweek on related duties that are not themselves directed toward producing tips must be treated as working in an untipped occupation and paid the full hourly minimum wage. FOH § 30d00(f) (emphasis added). The Guidance, far from creating a de facto new rule, closely hews to the framework suggested by the dual jobs regulation.
We also reject Defendants' argument that Auer deference is inappropriate here because the DOL's position has changed throughout the years. Before adopting the Guidance in 1988, the DOL issued a number of opinion letters to employers elaborating on the dual jobs regulation. Those opinion letters consistently emphasized the temporal nature of the dual jobs regulation. For instance, although the DOL explained in a 1980 opinion letter that servers who spent part of their time cleaning the salad bar and vacuuming the dining room carpet after closing time could be considered tipped employees, the agency was careful to note that it "might have a different opinion if the facts indicated that specific employees were routinely assigned , for example, maintenance-type work such as floor vacuuming." U.S. Dep't of Labor, Wage & Hour Div., Opinion Letter WH-502 (Mar. 28, 1980), available at 1980 WL 141336 (emphasis added). In a 1985 letter, the DOL reiterated that a server who spent "part of his or her time " on tasks such as toasting bread or making coffee could be treated as engaging in a single tipped occupation. U.S. Dep't of Labor, Wage & Hour Div., Opinion Letter FLSA-854 (Dec. 20, 1985), available at 1985 WL 1259240 (emphasis added). In that letter, the DOL advised the employer that it could not take a tip credit for any hours a server spent performing preparatory activities that consumed "a substantial portion of the waiter or waitress' workday." Id. The DOL focused in particular on the fact that the preparatory tasks typically consumed 30% to 40% of a given employee's workday-a sign that the tasks were not "incidental to the [waiter] or waitress regular duties." Id. We therefore agree with the Eighth Circuit that the Guidance "incorporates answers provided in prior opinion letters" and that the DOL's position has remained consistent over the years. Fast , 638 F.3d at 878 ; see also DOL Amicus Brief at 24-25 ("The FOH interpretation was based on, and is consistent with, the prior opinion letters.").
As a last-ditch attempt to dismantle the Guidance, Defendants protest that the 20% limitation is not entitled to Auer deference because it is "unworkable." But, the DOL could have reasonably concluded otherwise. Employers are ultimately responsible for assigning duties and responsibilities. The allegations that would trigger a FLSA wage violation claim require more than de minimis claims based on seconds or minutes spent rolling silverware or sweeping a customer's shattered glass. See Schaefer v. Walker Bros. Enters., Inc. , 829 F.3d 551, 555 (7th Cir. 2016) ("[T]he possibility that a few minutes a day were devoted to keeping the restaurant tidy does not require the restaurants to pay the normal minimum wage rather than the tip-credit rate for those minutes."). Marsh has alleged far more than the occasional request to tend to related but untipped tasks: he has alleged a continuous practice of assigning him tasks such as cutting lemons and limes, cleaning soft drink dispensers, wiping tables, and taking out the trash. Moreover, Marsh was able to provide information on when he was expected to complete each task: "every opening shift," "after most closing shifts," or "after each shift." The scheduled nature of these tasks makes them all the more easy to track.
As several district courts have concluded, it is not impracticable for an employer to keep track of time spent on related tasks by requiring employees to clock in any time spent rolling silverware or cleaning the restaurant before and after the restaurant closes or when business is slow. See, e.g. , Irvine v. Destination Wild Dunes Mgmt., Inc. , 106 F.Supp.3d 729, 734 (D.S.C. 2015) ("In any case, since employers, in order to manage employees, must assign them duties and assess completion of those duties, it is not a real burden on an employer to require that they be aware of how employees are spending their time before reducing their wages by 71%."); Barnhart v. Chesapeake Bay Seafood House Assocs., LLC , Civil No. JFM-16-01277, 2017 WL 1196580, at *6 (D. Md. Mar. 31, 2017). Unlike the Plaintiffs in Pellon v. Bus. Representation Int'l, Inc. , 528 F.Supp.2d 1306 (S.D. Fla. 2007), Marsh does not concede that it is "impractical or impossible" to track his tasks. Id. at 1313-14. To the contrary, he asserts, consistent with several district court decisions, that "[s]egregating duties is simple," because employers already have the ability to input codes for employees to clock in and out at different pay rates, see Driver v. AppleIllinois, LLC , 890 F.Supp.2d 1008, 1033 (N.D. Ill. 2012), and because employers are already required to maintain records of each hour an employee receives tips and each hour she does not, see 29 C.F.R. § 516.28(a).
In short, the DOL's opinion letters, Guidance, and amicus brief positions have long established that discerning whether a person is employed in both a tipped and untipped occupation under the dual jobs regulation requires some consideration of both the time an employee spends on a given task and the type of task involved. Because the interpretation that the DOL advances in its Guidance and amicus brief is "entirely consistent with its past views," Auer deference is warranted. Chase Bank USA, N.A. v. McCoy , 562 U.S. 195, 210, 131 S.Ct. 871, 178 L.Ed.2d 716 (2011).
IV.
We also decline to affirm the district court's flawed application of United States v. Klinghoffer Bros. Realty Corp. , 285 F.2d 487 (2d Cir. 1960). Klinghoffer held that requiring workers to work overtime without pay does not violate the FLSA's minimum wage requirements as long as the average hourly pay for the week is equivalent to the minimum wage. See id. at 490 (concluding that the requirements of 29 U.S.C. § 206(a) are met "[i]f the total wage paid to each guard in this case during any given week . divided by the total time he worked that week" produces an average hourly wage equal to minimum wage); see also Adair v. City of Kirkland , 185 F.3d 1055, 1063 (9th Cir. 1999) (same).
Marsh, however, has not brought a claim based on failure to pay overtime. To the contrary, he has alleged that he was paid the tip credit cash wage-an amount significantly below minimum wage-for each hour he spent engaged in a non-tipped occupation. His claim is functionally no different than that alleged by an employee who works as a server for one employer and a janitor for another, but sues only the second employer for paying him the tip credit wage every week. Klinghoffer is thus inapplicable.
V.
Contrary to the dissent's suggestions, the DOL did not embark on a fifty-year undercover mission spanning multiple administrations to erode the FLSA's tip credit provision. Dissent at 641. There are no rogue agencies or tales of intrigue to be found in this case. The reality is much less exciting: confronted with an undefined reference to "tipped employees" in the FLSA, the DOL promulgated the dual jobs regulation to clarify that dual job employees do not count as tipped employees in certain circumstances. Employers had six years to challenge this regulation. See 28 U.S.C. 2401(a). They did not. Instead, they sought clarification on the dual jobs regulation, which the DOL provided first through its opinion letters and then through the Guidance.
Congress did not intend to give employers a blank check when it enacted the FLSA's tip credit provision. Recognizing this and foreseeing the possibility that employers could misuse this provision to withhold wages from dual job employees like Marsh, who are titled "servers" or "bartenders," but who function in actuality as bussers, janitors, and chefs at least part of the time, the DOL promulgated the dual jobs regulation and issued an interpretative guidance. Together, these two provisions clarify the boundaries of acceptable tip credit use and ensure that a server's tips serve as a gift to the server, as opposed to a cost-saving benefit to the employer. Although the agency had a number of options available to resolve this issue, it is neither appropriate nor reasonable for us to override the DOL's dual jobs regulation and its Guidance where, as here, the latter is consistent with the former and both are consistent with the purpose of the FLSA.
We therefore conclude that Marsh has stated two claims for relief under the FLSA: first, that he is entitled to the full hourly minimum wage for the substantial time he spent completing related but untipped tasks, defined as more than 20% of his workweek; and second, that he is entitled to the same for time he spent on unrelated tasks.
REVERSED AND REMANDED.
Partial Concurrence and Partial Dissent by Judge Graber ; Dissent by Judge Ikuta
The district court granted motions to dismiss in six of the cases, judgment on the pleadings in two of the cases, and summary judgment in one case. Our review of the district court's final orders and interpretation of the FLSA and the dual jobs regulation is de novo for all nine cases. See, e.g. , Kotrous v. Goss-Jewett Co. of N. Cal. , 523 F.3d 924, 929 (9th Cir. 2008) (judgment on the pleadings); Kalantari v. NITV, Inc. , 352 F.3d 1202, 1204 (9th Cir. 2003) (summary judgment).
Section 203(m), which created the alternative pay scheme for tipped employees, provides, in relevant part:
In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee's employer shall be an amount equal to-
(1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and
(2) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.
Arizona state law caps the tip credit at $3.00 instead of $5.12. See Ariz. Rev. Stat. § 23-363(C) (2007). This difference is irrelevant to whether Marsh has stated a claim under the FLSA as a matter of law.
This formulation represents the DOL's current interpretation of the dual jobs regulation and may be found online at https://www.dol.gov/whd/FOH/FOH_Ch30.pdf. The 20% benchmark has been in place since the Guidance was first issued in 1988. The 1988 version of the Guidance provided in full:
Reg 531.56(e) permits the taking of 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). For example a waiter/waitress, who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses may continue to be engaged in a tipped occupation even though these duties are not tip producing, provided such duties are incidental to the regular duties of the server (waiter/waitress) and are generally assigned to the servers. However, where the facts indicate that specific employees are routinely assigned to maintenance, or that tipped employees spend a substantial amount of time (in excess of 20 percent) performing preparation work or maintenance, no tip credit may be taken for the time spent in such duties.
Brief for the Secretary of Labor as Amicus Curiae in Support of Plaintiffs-Appellees at 13, Fast v. Applebee's Int'l, Inc. , 638 F.3d 872 (8th Cir. 2011) (Nos. 10-1725/26), 2010 WL 3761133 (quoting FOH § 30d00(e) (1988) ).
The dissent's characterization of the Guidance as a "Time-Tracking Rule" is a novel one. Dissent at 640-41. Neither the district court nor the parties referred to the Guidance in this manner. Indeed, the prior panel opinion-which was authored by Judge Ikuta-never mentioned this "Time-Tracking Rule." See Marsh v. J. Alexander's LLC , 869 F.3d 1108 (9th Cir. 2017), reh'g en banc granted by Marsh v. J. Alexander's LLC , 882 F.3d 777 (9th Cir. 2018) (referring to the Guidance as "the FOH § 30d00(f)," "the FOH," and "the guidance").
We are not the first circuit to grapple with these questions. The Eighth Circuit addressed similar claims brought by tipped employees in Fast v. Applebee's Int'l Inc. , 638 F.3d 872 (8th Cir. 2011). The employers in Fast , however, conceded that the dual jobs regulation was entitled to Chevron deference. See id. at 877. The Eighth Circuit focused instead on whether the Guidance was entitled to Auer deference. The court concluded that because the dual jobs regulation was ambiguous and included temporal considerations, the Guidance was not plainly erroneous or inconsistent with the regulation and was therefore entitled to deference. See id. at 879-80. Accordingly, the district court did not err when it denied the employer's motion for summary judgment. See id. at 882.
We note that in many of the challenges to the Guidance, the employers do not contest that the dual jobs regulation is entitled to Chevron deference. See, e.g. , Fast , 638 F.3d at 877 ; Knox v. Jones Grp. , 201 F.Supp.3d 951, 961 n.8 (S.D. Ind. 2016) ; Chavez v. T&B Mgmt.,LLC , No. 1:16cb1019, 2017 WL 2275013, at *5 (M.D.N.C. May 24, 2017). In cases where defendants have disputed whether Chevron applied, the argument has not been successful. See, e.g. , Flood v. Carlson Rests. Inc. , 94 F.Supp.3d 572, 583 n.9 (S.D.N.Y. 2015) ; Goodson v. OS Rest. Servs., LLC , No. 5:17-cv-10-Oc-37PRL, 2017 WL 1957079, at *6 (M.D. Fla. May 11, 2017).
The Eighth Circuit deferred to an earlier version of the Guidance, see FOH § 30d00(e) (1988). The differences between the current version of the Guidance and its predecessor, however, are immaterial because both utilize the 20% benchmark.
Unlike with Chevron deference, there is no preliminary analysis that precedes Auer 's two-step analysis. Cf. Oregon Rest. and Lodging Ass'n v. Perez , 816 F.3d 1080, 1086 n. 3 (9th Cir. 2016) (acknowledging that United States v. Mead Corp. , 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) created a "Chevron step zero" that precedes the Chevron test). There is certainly no mandatory "threshold question" regarding whether the interpretation in question is a "legislative rule" as opposed to an interpretation. Dissent at 641. The dissent's reliance on Mission Group Kansas, Inc. v. Riley , 146 F.3d 775 (10th Cir. 1998), and Director, OWCP v. Mangifest , 826 F.2d 1318 (3d Cir. 1987), to establish the boundaries of Auer deference is puzzling. Dissent at 641-42. For one, neither case mentions Auer -indeed, Mangifest predates Auer by over nine years. For another, the Supreme Court has never adopted a pre-Auer test that asks at the outset whether an interpretation is a regulation in disguise. In fact, the Supreme Court's case law seems to suggest the exact opposite. In Christensen v. Harris County , 529 U.S. 576, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000), the Supreme Court held that if a court determines at step one of Auer that a regulation is unambiguous, the court cannot defer to the agency's position because that would sanction the de facto creation of a new regulation to override a previously existing one. Id. at 588, 120 S.Ct. 1655. The dissent's citation to Gonzales v. Oregon , 546 U.S. 243, 126 S.Ct. 904, 163 L.Ed.2d 748 (2006), does nothing to make up the paucity of case law supporting the dissent's interpretation of Auer , in part because the dissent omits critical context in describing the Court's holding. Gonzales made clear that Auer deference was inappropriate because the supposedly ambiguous regulation at issue simply parroted the statute. Id. at 257, 126 S.Ct. 904. Because "[a]n agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language," the Court concluded that Auer deference was inapplicable to the interpretive rule at issue. This is a well-established exception to Auer deference that has no bearing on this case. None of the Defendants argue that the dual jobs regulation merely parrots the language of the FLSA, nor could they given the obvious differences.
The Defendants were free to separately challenge whether the Guidance should have gone through notice-and-comment rulemaking. That they did not means this argument is waived. See infra p. 628 n.19.
Similarly, the regulation's reference to a "counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group," 29 C.F.R. § 531.56(e) (emphasis added), as one example of a non-dual job employee offers no details on the meaning of "taking a turn." There must be a point at which the counterman is no longer just taking a turn as a short order cook but instead actually working as a short order cook. The regulation, however, is devoid of even a hint as to what that point might be.
Consider, for instance, a server who spends 90% of her time wiping down tables, for which she receives no tips, and the remaining 10% of her time assisting customers. Under Judge Graber's view, the dual jobs regulation would unambiguously consider this server a single-job, tipped employee because it is immaterial whether the server is spending her time on tipped duties or related duties. Partial Concur. at 635-36. We think this example is plainly inconsistent with the text of the dual jobs regulation. A server who spends 90% of her time on related duties is not spending "part of her time" on such tasks any more than she is "occasionally" engaging in untipped work.
The FOH is an "operations manual that provides Wage and Hour Division (WHD) investigators and staff with interpretations of statutory provisions, procedures for conducting investigations, and general administrative guidance." See Wage & Hour Div., Dep't of Labor, Field Operations Handbook (Aug. 31, 2017), available at https://www.dol.gov/whd/FOH/index.htm. The FOH "reflects policies established through changes in legislation, regulations, significant court decisions, and the decisions and opinions of the WHD Administrator." Id.
Contrary to the dissent's position, an agency need not explicitly identify in its guidance each ambiguous word it is defining in order to provide a valid interpretation of an ambiguous regulation. Dissent at 647-48. There is no "magic words" requirement under Auer . At any rate, the dissent's claim that "the Rule fails to clarify any of the phrases in the dual job regulation" because the agency failed to identify each ambiguous term it was defining is unsupported by the facts. Dissent at 646. In its 2010 amicus brief adopting the Guidance, the DOL explained that the Guidance was intended to "affix[ ] a specific limit to the regulation's tolerance for the 'occasional' performance of such related duties," "identify a number of duties related to the tipped occupation," and elaborate on the difference between a tipped and non-tipped occupation. See Brief for the Secretary of Labor as Amicus Curiae in Support of Plaintiffs-Appellees at 9, 11-12, 29 n.9, Fast v. Applebee's Int'l, Inc. , 638 F.3d 872 (8th Cir. 2011) (Nos. 10-1725/26), 2010 WL 3761133.
It may be that employers "have had access to the DOL's view on the 20 percent rule for decades," as Plaintiffs claim, which would further cut against unfair surprise. On the record before us, however, it is unclear when the Guidance was first published online-only that it must have been after 1996. See Wage & Hour Div., Dep't of Labor, Field Operations Handbook (Aug. 31, 2017), available at https://www.dol.gov/whd/FOH/index.htm (explaining that the DOL chose to publish its FOH "on the Internet pursuant to its obligation under FOIA [Freedom of Information Act] to make available administrative staff manuals and instructions to staff that affect members of the public, 5 U.S.C. 552(a)(2)," which was amended in 1996 to requires agencies to make such records available by computer telecommunications or other electronic means); see also H. Rep. No. 104-795, at 20 (1996) (clarifying that the 1996 amendments to 5 U.S.C. 552(a)(2) were intended to ensure that agency information would be made available "online"). It is therefore impossible to say, as the dissent does, that "th[e] 20-percent cap was not made public until decades later, when the DOL included it in an amicus brief." Dissent at 640. We therefore do not reach whether Defendants were on notice before September 15, 2010.
The dissent asserts that it was "not until 2016 that employers learned they could not take a tip credit for any time" spent on unrelated tasks. Dissent at 651. The text of the dual jobs regulation, however, belies the dissent's timeline, as does the DOL's opinion letter dating back to 1985. See U.S. Dep't of Labor, Wage & Hour Div., Opinion Letter FLSA-854 (Dec. 20, 1985), available at 1985 WL 1259240, at 2 ("[S]alad preparation activities are essentially the activities performed by chefs and no tip credit may be taken for the time [the employer's servers] spent in preparing vegetables for the salad bar."); see also supra pp. 623-24, 640-41; infra pp. 629-30. Moreover, Marsh alleged in his first complaint, which was filed in 2014, that "[i]n addition to tipped work, Defendant regularly and consistently required Plaintiff to perform non-tipped work unrelated to this tipped occupation, for which Plaintiff was paid at the reduced tip credit rate, in willful violation by Defendant of the FLSA." If Marsh was aware of these limitations on the tip credit well before 2016, it is a fair assumption that his employer was as well.
Although several of the Defendants briefly assert in one sentence that the Guidance has created a new cause of action and therefore violates the separation of powers principle, they have offered no supporting authority for that proposition and have failed to elaborate on their point. As such, this argument is waived. See Navajo Nation v. U.S. Forest Serv. , 535 F.3d 1058, 1079 n.26 (9th Cir. 2008) (en banc) ("It is well-established that a bare assertion in an appellate brief, with no supporting argument, is insufficient to preserve a claim on appeal."). Accordingly, we express no opinion as to whether the 20% rule is legislative, rather than interpretive, and therefore subject to the Administrative Procedure Act's notice and comment requirement. See 5 U.S.C. § 553(b) ; see also Hoctor v. U.S. Dep't of Agric. , 82 F.3d 165 (7th Cir. 1996) ; Catholic Health Initiatives v. Sebelius , 617 F.3d 490 (D.C. Cir. 2010).
See, e.g. , 29 U.S.C. § 213(c)(6)(G) (permitting 17-year-old employees to drive automobiles or trucks on public roadways as part of their employment so long as the driving is "occasional and incidental," defined as "no more than 20 percent of an employee's worktime in any workweek"); 29 C.F.R. § 552.5 (explaining that "[c]asual babysitting services may include the performance of some household work not related to caring for the children: Provided, however , That such work is incidental, i.e., does not exceed 20 percent of the total hours worked on the particular babysitting assignment" (emphasis in original) ); 29 C.F.R. § 552.6(b) ("The term companionship services also includes the provision of care . if it does not exceed 20 percent of the total hours worked per person and per workweek."); 29 C.F.R. § 786.150 ("For enforcement purposes, the amount of nonexempt work will be considered substantial if it occupies more than 20 percent of the time worked by the employee during the workweek."); 29 C.F.R. § 786.1 (same) ; 29 C.F.R. § 786.100 (same) ; 29 C.F.R. § 786.200 (same).
To paraphrase Shakespeare, a dishwasher by any other name-even a "server"-is still a dishwasher if she spends a substantial part of her time washing dishes.
The DOL also issued an opinion letter in 1979 instructing an employer not to take a tip credit for any time a server spent preparing vegetables for the salad bar before the restaurant opened. See U.S. Dep't of Labor, Wage & Hour Div., Opinion Letter FLSA-895 (Aug. 8, 1979). The DOL reasoned that because the salad preparation activities described were "essentially the activities performed by chefs," the situation paralleled the dual jobs regulation's hypothetical maintenance man/waiter example. Id. Accordingly, there was no need for a time analysis because the employee engaged in a second occupation any time she was tasked with performing unrelated duties, regardless of the time spent on such activities. See id. (rejecting the employer's argument that because the work was "de minimis," the employer was entitled to the tip credit).
The DOL issued an unpublished opinion letter in 2009 that "rejected the 20 percent tolerance for related, non-tipped duties." DOL Amicus Brief at 25 n.9. This letter, however, was withdrawn after two months with instructions that it not be relied upon as a statement of agency policy. Several courts addressing the 2009 opinion letter have therefore deemed it inconsequential, as do we. See, e.g. , Irvine , 106 F.Supp.3d at 735 ; Soto v. Wings 'R Us Romeoville, Inc. , No. 15-cv-10127, 2016 WL 4701444, at *3 n.3 (N.D. Ill. Sept. 8, 2016) ; cf. Rivera , 735 F.3d at 899 n.4 (deferring to the DOL's interpretation despite a "brief[ ]" change in agency interpretation because "[t]he withdrawal of the brief-lived 2008 interpretation expressly stated that the 2008 interpretation may not be relied upon as a statement of agency policy" (internal quotation marks omitted) ).
The dissent complains that the Guidance "significantly expands employers' time-tracking obligations," but it acknowledges that the technology to track an employee's duties on shift is already available. Dissent at 650. We therefore fail to see how the Guidance is impracticable.
The dissent frames the DOL's actions as "cut[ting] back on employers' opportunity to take a tip credit." Dissent at 640. Based on this characterization, the dissent seems to suggest that the FLSA was enacted to protect employers and not employees. It was not. See H.R. Rep. No. 89-1366, at 6 (1966) ("The [FLSA] was a response to call upon a Nation's conscience, at a time when the challenge to our democracy was the tens of millions of citizens who were denied the greater part of what the very lowest standards of the day called the necessities of life; when millions of families in the midst of a great depression were trying to live on income so meager that the pall of family disaster hung over them day by day.").
Because Crystal Sheehan has alleged a willful violation of the FLSA, see 29 U.S.C. § 255(a), the statute of limitations may not have expired as to her claims. Her suit is remanded for the district court to address this question in the first instance.