Restaurant servers and bartenders must be paid full minimum wage, and not a reduced tipped rate, for any time spent on other duties where they cannot earn gratuity, a federal appeals court ruled Tuesday.

The U.S. Court of Appeals for the Ninth Circuit, sitting en banc, upheld a U.S. Labor Department interpretation of the federal wage and hour law for workers who split their time between tipped and untipped job duties. Workers, servers and bartenders for several chain restaurants, including J. Alexander's, P.F. Chang's and International House of Pancakes, filed suit, claiming they were underpaid for time they spent on duties such as cleaning bathrooms or washing dishes.

The federal minimum wage is $7.25 an hour, but an employer can pay a tipped employee as little as $2.13 if gratuities push their wages up to the minimum wage. At issue is the Labor Department's dual-job regulation and the agency's interpretation when an employer should pay the full minimum wage per hour or the reduced tipped rate.

Tuesday's ruling overturned a three-judge panel decision that found courts could ignore the Labor Department's interpretation because it was essentially a “de facto regulation” that did not follow appropriate rule-making standards when it was created. Two judges, dissenting, agreed with the panel.

Outten & Golden partner Jahan Sagafi in San Francisco, who argued in the Ninth Circuit for the workers, said Tuesday, that the decision “will help millions of waitresses, waiters, bartenders, and other hard-working servers get paid a decent wage and reasonable tips, and it will push back on unemployment rates for janitors, prep cooks, and others who don't earn tips.”

The companies were represented by firms including Jackson Lewis, Bass Berry & Sims, and Ogletree Deakins Nash Smoak & Stewart. Paul DeCamp, now at Epstein Becker Green, argued for the companies. A Labor Department lawyer argued before the court as an amicus party.

The Labor Department's dual jobs regulation say that “when an employee is employed in more than one occupation for the same employer, no tip credit may be taken for the hours the employee is engaged in a job wherein he does not customarily and regularly receive at least $30 a month in tips,” according to a Littler Mendelson analysis. The agency has subsequently issued guidance that interprets the regulations.

The Ninth Circuit majority said the Labor Department's interpretation was entitled to deference because “the dual jobs regulation is ambiguous and the guidance's interpretation is both reasonable and consistent with the regulation.” The court aligned with the Eighth Circuit.

“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,” Ninth Circuit Judge Richard Paez wrote for the majority. “The guidance also clearly lays out that a server is a dual job employee if her related tasks occupy more than 20 percent of her hours in a work week.”

Judge Sandra Segal Ikuta, joined by Judge John Callahan, said in dissent that the court should not have deferred to the agency's interpretations. Ikuta said the majority ruling essentially allowed the Labor Department to “invent rules without notice.” The Labor Department's rule “eviscerates a benefit conferred by Congress and results in a nightmare for the regulated community,” she wrote.

The Ninth Circuit's ruling is posted below:

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