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Marsh v. J. Alexander's LLC

United States Court of Appeals, Ninth Circuit

September 18, 2018

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.

          Argued and Submitted En Banc March 20, 2018 San Francisco, California

          Appeals from the United States District Court for the District of Arizona D.C. Nos. 2:14-cv-01038-SMM, 2:14-cv-00464-SMM, 2:14-cv-00465-SMM, 2:14-cv-00051-SMM, 2:14-cv-00766-SMM, 2:14-cv-00768-SMM, 2:14-cv-00769-SMM, 2:14-cv-01243-SMM, 2:14-cv-01244-SMM, 2:14-cv-00261-SMM, 2:14-cv-00262-SMM, 2:14-cv-00263-SMM, 2:14-cv-01467-SMM, 2:15-cv-01561-SMM Stephen M. McNamee, Senior District Judge, Presiding

          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.

         SUMMARY[*]

         Labor Law

         The en banc court reversed district courts' dismissals of actions under the Fair Labor Standards Act concerning tip credits toward servers' and bartenders' wages.

         The FLSA permits employers to take a tip credit for employees in tipped occupations. Plaintiffs alleged that their employers abused the tip credit provision by paying them a reduced tip credit wage and treating them as tipped employees when they were engaged in either (1) non-tipped tasks unrelated to serving and 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.

         The en banc court held that the Department of Labor foreclosed an employer's ability to engage in this practice by promulgating a dual jobs regulation, 29 C.F.R. § 531.56(e), and subsequently interpreting that regulation in its 1988 Field Operations Handbook, known as the "Guidance." The en banc court concluded that the regulation was entitled to Chevron deference. Agreeing with the Eighth Circuit, the en banc court held that the agency's interpretation in the Guidance was entitled to Auer deference because the regulation was ambiguous and the Guidance's interpretation was both reasonable and consistent with the regulation. The en banc court concluded that the plaintiffs had stated a claim under the FLSA for minimum wage violations. The en banc court reversed the district courts' judgments and remanded for further proceedings.

         Concurring in part and dissenting in part, Judge Graber wrote that plaintiffs stated a claim that their employers failed to pay them appropriate wages for non-tipped work unrelated to their jobs. Judge Graber wrote that she would affirm in part on the ground that plaintiffs failed to state a claim regarding wages for non-tipped work related to their jobs.

         Dissenting, Judge Ikuta, joined by Judge Callahan, wrote that deference to the agency was improper because the agency's purported interpretation effectively eliminated an employer's statutory right to take a tip credit. Judge Ikuta wrote that this legislative act was accomplished without compliance with the Administrative Procedure Act, resulting in an unfair and unexpected imposition of liability on employers.

          OPINION

          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[1] 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.[2] 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.[3] 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.

         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.[4] See Shaver v. Operating Eng'rs Local 428 Pension 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).[5] 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.[6] 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).[7]

         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[8] 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 61-62. 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.[9]

         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 (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 (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, 138 S.Ct. 737 (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 58-60. We therefore conclude that Mead's requirements have been met. 533 U.S. at 226-27.

         2.

         Applying the Chevron framework, we next ask whether "Congress has directly spoken to the precise question at issue." 467 U.S. at 842. 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 (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 (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. 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. 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."[10] Chevron, 467 U.S. at 866.

         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 (1997), or Skidmore v. Swift & Co., 323 U.S. 134 (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.[11] 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). "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 391 (emphasis and second alteration in original) (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (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 (2012) (quoting Auer, 519 U.S. at 462).

         [S]We agree with Marsh that the dual jobs regulation is ambiguous.[12] 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.[13] 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 48-49. 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.[14] 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 (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.[15] 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.[16] 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; 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 (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. 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; 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. ...


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