Wage and Hour Defense Blog

Gratuities are often helpful for both employees and their employers: tips supplement a worker’s income, and federal law and the laws of most states allow employers to credit a portion of a worker’s tips toward the company’s minimum wage obligations. But what exactly is a tip and how do employers take this so-called “tip credit?”

What is a tip or gratuity?

As we reported earlier this week, on February 22, 2023, the Supreme Court issued its decision in Helix Energy Solutions Group, Inc. v. Hewitt, finding that a daily-rate worker who earned over $200,000 annually was not exempt from the Fair Labor Standards Act’s (FLSA or Act) overtime requirements. The Court reasoned that, although the employee’s compensation exceeded the amount required under 29 C.F.R. § 541.601’s highly compensated employee (HCE) exemption, and he customarily and regularly performed at least one exempt duty (there, the “executive” duty of supervising a crew of workers), his employer did not pay him on a “salary basis” because he did not “receive a fixed amount for a week no matter how many days he … worked.”

Practically, Helix’s holding is unlikely to have broad consequences. Most employers pay employees who earn enough to qualify as an HCE (currently, $107,432 annually) and perform at least one exempt administrative, executive, or professional duty a predetermined salary. But employers who have classified non-salaried high earners as exempt HCEs will acutely feel its effects.

The Ninth Circuit has issued its long-awaited ruling in Chamber of Commerce v. Bonta, perhaps putting a nail in the coffin of the controversial California law known as AB 51, which would have made it criminal conduct to require an applicant or employee to sign an arbitration agreement.

The history of AB 51 and the case challenging it is a tortuous one, to say the least, but the issue has always remained the same: was the California legislature too clever in its attempt to circumvent the Federal Arbitration Act (“FAA”) and the Supreme Court’s landmark decision in Epic Systems?

More than a decade ago, Epstein Becker Green (EBG) created its complimentary wage-hour app, putting federal, state, and local wage-hour laws at employers’ fingertips.

The app provides important information about overtime exemptions, minimum wages, overtime, meal periods, rest periods, on-call time, travel time, and tips that employers can use to remain compliant with the law—and, hopefully, to avoid class action, representative action, and collective action lawsuits and government investigations. 

Generally speaking, the FLSA requires that employers pay employees the required minimum wage and overtime for all hours worked in excess of 40 hours in any workweek (at a rate of one and one-half times the employee’s regular rate of pay). Accordingly, courts have consistently held that the FLSA provides employees with a basis to sue for the recovery of unpaid wages if an employee is paid below the required minimum wage or an employee is not adequately compensated for overtime hours worked in excess of 40 hours.

But what about claims that do not fit neatly into either of those two buckets? Cue in gap-time claims.