On December 17, 2014, Judge Charles Norgle of the Northern District of Illinois granted summary judgment to an employer on all counts in a tip credit case where servers argued they were engaged in activities outside of their server duties.  In Schaefer v. Walker Bros. Enterprises, Inc., 10 CV 6366, plaintiffs alleged that their employer violated the Fair Labor Standards Act (FLSA) and the Illinois Minimum Wage Law (IMWL) by: (1) incorrectly using a tip credit to pay plaintiffs an hourly rate less than minimum wage while requiring plaintiffs to perform duties outside of their tipped occupation; and (2) failing to properly inform plaintiffs of their intent to apply the tip credit to plaintiffs’ wages. 

While both the FLSA and IMWL permit employers to take a “tip credit” and pay tipped employees a cash wage below the minimum wage rate, the tip credit may only be applied to hours worked in an occupation where the employee qualifies as a “tipped employee” (29 C.F.R. §531.59(b)).  If an employee works in two different positions, one of which is a tipped occupation (e.g., a server) and the other is not (e.g., a dishwasher), the tip credit may only be taken for the hours in which the employee worked in the tipped position.  

In Schaefer, the plaintiffs claimed that they were required to perform side work that was outside of their server duties, to which the tip credit could not be applied.  The side work consisted of slicing produce, scooping ice cream, brewing iced tea, and placing napkins and silverware on tables, which plaintiffs claimed would typically be performed by a cook, expediter or janitor, and was therefore unrelated to their tipped occupation.  

The employer asserted that the required side work was related to the servers’ primary duty of waiting tables and sought to distinguish cases where side work, such as washing windows, was found to be beyond a server’s regular duties.  The court agreed, concluding that the side work in this case was incidental to the servers’ regular duties and their wages were therefore subject to the tip credit. 

With respect to notice, the court stated that under the IMWL, the only requirement is to post an approved summary of the law in a conspicuous and accessible place in or about the premises, whereas the FLSA requires more affirmative actions than mere posting.  Here, the court found that the employer provided adequate notice of the tip credit under both the IMWL and the FLSA, including meeting the more rigorous standards of the FLSA.  In addition to posting the approved posters, the employer gave servers an employee handbook with information regarding the tip credit, had servers sign a “Server Uniform and Tip Credit Agreement,” and informed servers about the tip credit during training and orientation.  Thus, the undisputed facts and evidence showed the employer gave adequate notice of the tip credit to servers. 

The Schaefer case provides helpful guidance to Illinois employers as to what types of activities are “related” to a server’s duties, permitting application of the tip credit, and which are not.  In addition, the case provided guidance to employers as to what type of notice of the tip credit is required under the FLSA.