Alec Marsh v. J. Alexander's LLC

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALEC MARSH, No. 15-15791

Plaintiff-Appellant,

D.C. No.

v. 2:14-cv-01038-SMM

J. ALEXANDER’S LLC,

Defendant-Appellee.

CRYSTAL SHEEHAN, No. 15-15794

Plaintiff-Appellant,

D.C. No.

v. 2:14-cv-00464-SMM

ROMULUS INCORPORATED,

DBA International House of

Pancakes,

Defendant-Appellee.

2 MARSH V. J. ALEXANDER’S

SILVIA ALARCON, No. 15-16561

Plaintiff-Appellant,

D.C. No.

v. 2:14-cv-00465-SMM

ARRIBA ENTERPRISES

INCORPORATED, DBA Arriba

Mexican Grill,

Defendant-Appellee.

SAROSHA HOGAN; NICHOLAS No. 15-16659

JACKSON; SKYLAR VAZQUEZ;

THOMAS ARMSTRONG; PHILIP D.C. Nos.

TODD; MARIA HURKMANS, 2:14-cv-00051-SMM

Plaintiffs-Appellants, 2:14-cv-00766-SMM

2:14-cv-00768-SMM

v. 2:14-cv-00769-SMM

2:14-cv-01243-SMM

AMERICAN MULTI-CINEMA, 2:14-cv-01244-SMM

INC., DBA AMC Theatres

Esplanade 14,

Defendant-Appellee.

MARSH V. J. ALEXANDER’S 3

NATHAN LLANOS, an No. 16-15003

individual,

Plaintiff-Appellant, D.C. No.

2:14-cv-00261-SMM

v.

P.F. CHANG’S CHINA BISTRO,

INC.,

Defendant-Appellee.

KRISTEN ROMERO, an No. 16-15004

individual,

Plaintiff-Appellant, D.C. No.

2:14-cv-00262-SMM

v.

P.F. CHANG’S CHINA BISTRO,

INC.,

Defendant-Appellee.

ANDREW FIELDS, an individual, No. 16-15005

Plaintiff-Appellant,

D.C. No.

v. 2:14-cv-00263-SMM

P.F. CHANG’S CHINA BISTRO,

INC.,

Defendant-Appellee.

4 MARSH V. J. ALEXANDER’S

ALTO WILLIAMS, No. 16-15118

Plaintiff-Appellant,

D.C. No.

v. 2:14-cv-01467-SMM

AMERICAN BLUE RIBBON

HOLDINGS, LLC,

Defendant-Appellee.

STEPHANIE R. FAUSNACHT, No. 16-16033

Plaintiff-Appellant,

D.C. No.

v. 2:15-cv-01561-SMM

LION’S DEN MANAGEMENT

LLC, DBA Denny’s, OPINION

Defendant-Appellee.

Appeals from the United States District Court

for the District of Arizona

Stephen M. McNamee, Senior District Judge, Presiding

Argued and Submitted En Banc March 20, 2018

San Francisco, California

MARSH V. J. ALEXANDER’S 5

Filed September 18, 2018

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.

Opinion by Judge Paez;

Partial Concurrence and Partial Dissent by Judge Graber;

Dissent by Judge Ikuta

6 MARSH V. J. ALEXANDER’S

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

*

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

MARSH V. J. ALEXANDER’S 7

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.

8 MARSH V. J. ALEXANDER’S

COUNSEL

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.

MARSH V. J. ALEXANDER’S 9

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.

10 MARSH V. J. ALEXANDER’S

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

1

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

MARSH V. J. ALEXANDER’S 11

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,

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.”

2

In the dissent’s view, employers do not abuse tipped employees as

long as the employees receive minimum wage. Dissent at 58 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

12 MARSH V. J. ALEXANDER’S

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

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.

3

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.

MARSH V. J. ALEXANDER’S 13

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.

14 MARSH V. J. ALEXANDER’S

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

MARSH V. J. ALEXANDER’S 15

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

4

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).

16 MARSH V. J. ALEXANDER’S

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

5

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.

MARSH V. J. ALEXANDER’S 17

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

6

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.

18 MARSH V. J. ALEXANDER’S

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

MARSH V. J. ALEXANDER’S 19

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

20 MARSH V. J. ALEXANDER’S

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

7

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

MARSH V. J. ALEXANDER’S 21

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

(8th Cir. 2011) (Nos. 10-1725/26), 2010 WL 3761133 (quoting FOH

§ 30d00(e) (1988)).

8

The dissent’s characterization of the Guidance as a “Time-

Tracking Rule” is a novel one. Dissent at 62. 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”).

22 MARSH V. J. ALEXANDER’S

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.

9

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.

MARSH V. J. ALEXANDER’S 23

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

24 MARSH V. J. ALEXANDER’S

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

MARSH V. J. ALEXANDER’S 25

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

26 MARSH V. J. ALEXANDER’S

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.

10

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.,

MARSH V. J. ALEXANDER’S 27

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]

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).

11

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.

28 MARSH V. J. ALEXANDER’S

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

12

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, 815 F.3d 1080, 1086 n. 3 (9th Cir. 2016) (acknowledging

that United States v. Mead Corp., 533 U.S. 218 (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 64. 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 64–65. 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 (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. The dissent’s citation to Gonzales

v. Oregon, 546 U.S. 243 (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.

MARSH V. J. ALEXANDER’S 29

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

Gonzales made clear that Auer deference was inappropriate because the

supposedly ambiguous regulation at issue simply parroted the statute. Id.

at 257. 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. 37 n.19.

30 MARSH V. J. ALEXANDER’S

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

13

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.

MARSH V. J. ALEXANDER’S 31

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.

14

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

51–53. 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.

32 MARSH V. J. ALEXANDER’S

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.

15

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.

MARSH V. J. ALEXANDER’S 33

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.

16

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 20–

22. There is no “magic words” requirement under Auer. At any rate, the

34 MARSH V. J. ALEXANDER’S

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.

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

73. 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.

MARSH V. J. ALEXANDER’S 35

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. 10-1725/26), 2010 WL 3761133.

Defendants were therefore on notice at least as of September

15, 2010—if not before 17—that their conduct was not in

compliance with the dual jobs regulation.

17

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

36 MARSH V. J. ALEXANDER’S

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

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 61. We therefore do not reach whether

Defendants were on notice before September 15, 2010.

MARSH V. J. ALEXANDER’S 37

the Guidance did not unfairly surprise Defendants as of

September 15, 2010. 18

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. 19 We

disagree. As the Eighth Circuit recognized in Fast, “[b]y

using the terms ‘part of the time’ and ‘occasionally,’ the

18

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 82–83. 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. 28–29, 62; infra pp. 40–41. 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.

19

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).

38 MARSH V. J. ALEXANDER’S

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.

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

MARSH V. J. ALEXANDER’S 39

(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.”20

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

20

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).

40 MARSH V. J. ALEXANDER’S

between occupations and duties. One cannot define the

former without some reference to the latter. 21 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

21

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.

MARSH V. J. ALEXANDER’S 41

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 22 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 &

22

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).

42 MARSH V. J. ALEXANDER’S

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. 23 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

23

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. Wing ‘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)).

MARSH V. J. ALEXANDER’S 43

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

44 MARSH V. J. ALEXANDER’S

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). 24

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 (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

24

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 81. We therefore fail to see how the Guidance is

impracticable.

MARSH V. J. ALEXANDER’S 45

. . . 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. 25 Dissent at 63–64. 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

25

The dissent frames the DOL’s actions as “cut[ting] back on

employers’ opportunity to take a tip credit.” Dissent at 60–61. 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.”).

46 MARSH V. J. ALEXANDER’S

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. 26

26

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

MARSH V. J. ALEXANDER’S 47

REVERSED AND REMANDED.

GRABER, Circuit Judge, concurring in part and dissenting

in part:

Plaintiff Alec Marsh claims that Defendant J.

Alexander’s LLC failed to pay him appropriate wages both

for non-tipped work related to his job as a server and for

non-tipped work unrelated to his job as a server. The

majority opinion concludes that both claims are cognizable

and that the district court thus erred in dismissing Plaintiff’s

case. In my view, though, only the latter claim—that

Defendant denied Plaintiff wages for work unrelated to his

tipped occupation—should survive. Accordingly, I would

affirm in part and reverse in part.

I agree with the majority opinion that Defendant’s

procedural challenge to 29 C.F.R. § 531.56(e) (the “dual

jobs” regulation) is untimely. Perez-Guzman v. Lynch,

835 F.3d 1066, 1077 (9th Cir. 2016). I also agree that, as a

substantive matter, the “dual jobs” regulation warrants

deference under Chevron, U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 843–44 (1984). As the

majority opinion notes, then, Plaintiff’s claims rise or fall on

whether we owe deference, under Auer v. Robbins, 519 U.S.

452, 461 (1997), to the interpretations of that regulation

contained in the Department of Labor’s (“DOL”) Field

Operations Handbook.

expired as to her claims. Her suit is remanded for the district court to

address this question in the first instance.

48 MARSH V. J. ALEXANDER’S

Importantly, the Field Operations Handbook (“FOH”)

provides two methods for determining when an employee is

engaged in “dual jobs” for purposes of the regulation. FOH

§ 30d00(f) (2016) (the “Guidance”). The first looks to the

amount of time that an employee spends doing work that

relates to the employee’s tipped work but that does not

produce tips. Under this method, if an employee spends

more than 20% of his or her time engaged in related—but

non-tipped—duties, the employee is engaged in “dual jobs.”

The second method classifies an employee as working in

“dual jobs” if the employee performs “work that is not

related to [the employee’s] tipped occupation.” Id.

§ 30d00(f)(4) (emphasis added).

Plaintiff’s two claims track those two methods. That is,

he claims that he was denied wages both for work related to

his job as a server and for work unrelated to his job as a

server. If both of the DOL’s interpretations of what

constitutes a “dual job” under the regulation were entitled to

deference, then both of Plaintiff’s claims would be

cognizable.

The majority opinion concludes that both interpretations

do, indeed, warrant deference and that, as a result, both

claims survive. But, in my view, only one interpretation

comports with the regulation—the interpretation that

focuses on work unrelated to an employee’s tipped

occupation. The other interpretation contained in the

Guidance—the one that focuses on the amount of time spent

engaged in related but non-tipped work—is not entitled to

Auer deference. Plaintiff has thus stated a claim only insofar

as he asserts that Defendant denied him wages for work

unrelated to his job as a server. I would affirm the dismissal

of Plaintiff’s claim that Defendant denied him wages for

non-tipped work related to his occupation as a server, but I

MARSH V. J. ALEXANDER’S 49

would reverse the dismissal of Plaintiff’s claim that

Defendant denied him appropriate wages for non-tipped

work unrelated to his job as a server.

A. Auer governs this case.

This case requires us to do something that we have done

for decades: determine whether an agency, in interpreting

its own regulation, exceeded the bounds of its authority. We

have a two-step test for making that determination. Auer,

519 U.S. at 461. We first ask whether the regulation in

question is ambiguous. Id. If so, at the second step, we defer

to the agency’s interpretation of its regulation so long as the

interpretation is not “plainly erroneous or inconsistent with

the regulation.” Id. (internal quotation marks omitted).

That test makes good sense. Agencies know the purpose

of their own regulations. Martin v. Occupational Health &

Safety Review Comm’n, 499 U.S. 144, 151 (1991). And

because “applying an agency’s regulation to complex or

changing circumstances calls upon the agency’s unique

expertise and policymaking prerogatives,” the Supreme

Court presumes that agencies’ delegated lawmaking powers

include the power to interpret their own regulations. Id. It

is thus entirely reasonable to defer to an agency’s

interpretation of its own words—given, of course, that we

diligently examine agency action for plain error or

inconsistency with the regulation.

Auer provides an appropriate and sufficient mechanism

for accomplishing that task. Its two steps ensure that

agencies stay within the confines of their own regulations—

regulations that must, themselves, fill gaps that Congress

meant to leave for the agencies to fill. Chevron, 467 U.S. at

842–43. Our job, which Auer helps us do, is to ensure that—

like nesting dolls—every agency interpretation fits neatly

50 MARSH V. J. ALEXANDER’S

within an agency regulation that fits neatly within the

authority that Congress has granted to the agency. So long

as we faithfully apply Auer (and its companion, Chevron),

we perform that function and avoid the separation of powers

concerns that the dissenting opinion describes.

B. The Guidance’s interpretation focusing on related work

does not warrant Auer deference.

The “dual jobs” regulation is no model of clarity. But it

plainly forecloses the DOL’s interpretation that an employee

spending a certain amount of time doing related, but non-

tipped, work qualifies as working a dual job. The regulation

provides 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

MARSH V. J. ALEXANDER’S 51

occupation that is a tipped occupation need

not by themselves be directed toward

producing tips.

29 C.F.R. § 531.56(e).

Viewing that regulation as a whole, it determines

whether an employee performs “dual jobs” by looking to

whether the employee performs tasks unrelated to his or her

tipped occupation. That is, the regulation has nothing to do

with the amount of time that an employee spends engaged in

non-tipped tasks related to the tipped occupation.

The regulation’s first example—on which the remainder

of the regulation is premised—makes that focus clear. It

describes a situation in which an employee performs two

different functions: that of a “maintenance man” and that of

“waiter.” The example says nothing about the amount of

time that the employee spends doing each kind of work.

That is, the given employee would qualify as having “dual

jobs” (only one of which is a tipped occupation) no matter

how he split his time between the two jobs. We know, then,

that he qualifies as having “dual jobs” not because he spends

a certain amount of time as a maintenance man and a certain

amount of time as a waiter, but because he performs tasks

that are unrelated to one another.

The other two examples—the “counterman” and the

“waitress” examples—confirm the regulation’s focus on that

distinction. Importantly, the regulation presents those two

examples as foils to the first example. See 29 C.F.R.

§ 531.56(e) (explaining that the situation of the maintenance

man/waiter “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” and that the same situation “is likewise

52 MARSH V. J. ALEXANDER’S

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” (emphases

added)). That is, they are not separate examples of instances

in which a person works “dual jobs.” The examples, instead,

merely illuminate when employees have “dual jobs” by

describing instances in which an employee is not engaged in

“dual jobs.”

Read in context, the waitress example does not permit

the conclusion that a waitress might work “dual jobs”

because she spends a certain amount of time doing non-

tipped tasks related to her work as a waitress. Rather, it

stands for the notion that she is not performing two jobs,

because her non-tipped work—unlike the waiter’s work as a

maintenance man—relates to her tipped occupation. So,

too, with the counterman example. Accordingly, the

majority opinion errs in arguing that the “temporal” words

found exclusively in those counterexamples muddle the

regulation’s focus on unrelated work. Maj. op. at 27–31.

The regulation’s final sentence puts to rest any

ambiguity. That sentence states, in reference to the

counterexamples and in clear terms, that “[s]uch 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) (emphasis added). That final reference to

“related duties” makes clear that the three examples exist to

demonstrate the distinction between an employee who is

engaged in duties related to an occupation that produces tips

and an employee who is engaged in a job that is unrelated to

a tipped occupation. The regulation’s final sentence thus

confirms that one cannot reasonably read the waitress and

counterman examples as standing for the notion that a

MARSH V. J. ALEXANDER’S 53

certain amount of related, non-tipped work constitutes a

separate job.

To defeat that reading, the majority opinion comes up

with a hypothetical employee of its own. The majority

opinion argues that, if one reads the regulation as focused

exclusively on work unrelated to a tipped occupation, the

regulation would wrongly categorize a “server who spends

90% of her time wiping down tables . . . and the remaining

10% of her time assisting customers” as working in a single,

tipped job. Maj. op. at 31 n.14. That hypothetical, even if it

points out a poor policy choice, does not change the focus of

the “dual jobs” regulation itself. Congress has set

requirements that must be met before an employer may take

the tip credit. The employee must be a “tipped employee,”

29 U.S.C. § 203(m), must “customarily and regularly

receive[] more than $30 a month in tips,” id. § 203(t), and

must effectively make the minimum wage, Cumbie v. Woody

Woo, Inc., 596 F.3d 577, 580 (9th Cir. 2010). The DOL, by

promulgating regulations like the one at issue in this case,

has elaborated on those requirements. Those regulations

might, or might not, prevent employers from taking

advantage of the tip credit with respect to employees like the

one in the hypothetical. But they are the regulations that the

DOL has chosen. Should the DOL wish to avoid, with

certainty, results like the one that the majority opinion

describes, the agency is free to create, through notice and

comment, a new regulation providing that a certain amount

of related work becomes a new job. But the “dual jobs”

regulation, in its current form, does not do so.

In conclusion, the regulation, in its current form,

conflicts with the Guidance’s interpretation with respect to

work related to a tipped occupation, FOH § 30d00(f)(3).

Accordingly, the Guidance does not warrant Auer deference

54 MARSH V. J. ALEXANDER’S

on that point. Plaintiff thus cannot state a claim that

Defendant wrongly denied him appropriate wages for the

time that he spent doing work related to his role as a server,

and the district court correctly dismissed that claim.

C. The Guidance’s interpretation focusing on unrelated

work warrants Auer deference.

Because the DOL’s other interpretation of what

constitutes a “dual job” is entitled to deference, Plaintiff’s

other claim—that Defendant denied him wages for work

unrelated to his job as a server—passes muster. The

Guidance’s interpretation that an employee qualifies as

working “dual jobs” if the employee engages in “work that

is not related to [the employee’s] tipped occupation”

warrants deference for the following reasons. FOH

§ 30d00(f)(4).

At Auer’s first step, the dual jobs regulation is

ambiguous on the point that the Guidance attempts to

address. The regulation, even with its clear focus on whether

work is related or unrelated to tipped work, is unclear as to

how “unrelated” an employee’s duties must be to qualify the

employee as working “dual jobs.” Must the employee

perform entirely different functions? Or does performing

any duty unrelated to a tipped occupation count as working

a dual, non-tipped job? Must the employee perform the

duties at different times of day—maintenance work in the

morning, and waiter work in the afternoon—to qualify as

having “dual jobs”? Or is it enough to perform unrelated

duties at any time?

The Guidance answers those questions by explaining

that an employee who performs any “work that is not related

to [the employee’s] tipped occupation . . . is effectively

employed in dual jobs.” FOH § 30d00(f)(4) (emphasis

MARSH V. J. ALEXANDER’S 55

added). Although that interpretation is not the only one that

the regulation would permit, it is not plainly erroneous or

inconsistent with the regulation. The regulation’s focus on

whether an employee performs non-tipped “related duties”

permits the DOL to determine at what point “related duties”

rise to the level of unrelatedness to constitute a separate job.

The Guidance’s interpretation to that effect thus deserves

Auer deference, and Plaintiff should have been allowed to

move forward with his case, arguing that he was denied

wages for work unrelated to his job as a server.

The counterman example does not, as the dissenting

opinion suggests, plainly foreclose the Guidance’s

“unrelated work” test. True, as the dissenting opinion notes,

if the Guidance categorized the counterman’s work as a short

order cook as unrelated to his work as a counterman, the

Guidance would stand at odds with the regulation. But the

Guidance does not provide a definition of “unrelated work”

that conflicts with the counterman example. 1 That example

thus does nothing to discredit the Guidance’s test.

In summary, I would affirm the district court’s dismissal

of Plaintiff’s claim that Defendant denied him wages for

non-tipped work related to his occupation as a server, but I

would reverse the district court with respect to Plaintiff’s

claim that Defendant denied him appropriate wages for non-

tipped work unrelated to his job as a server.

1

The dissenting opinion quotes the provision concerning “related

duties” found in FOH subsection 30d00(f)(2), and cites subsection

30d00(f)(3), to suggest that the Guidance conflicts with the regulation’s

counterman example. Diss. op. at 72 (emphasis added). But unrelated

work does not fall within FOH subsections 30d00(f)(2) and (f)(3) at all.

Rather, subsections 30d00(f)(1) and (f)(4) govern unrelated work.

56 MARSH V. J. ALEXANDER’S

IKUTA, Circuit Judge, joined by CALLAHAN, Circuit

Judge, dissenting:

In the guise of interpreting a regulation (that itself is far

afield from the statute at issue), the Department of Labor

(DOL) created detailed and specific legislation that

effectively eliminated an employer’s statutory right to take a

tip credit. This legislative act was accomplished without

compliance with the Administrative Procedure Act (APA)

— indeed without any notice to the regulated community at

all, resulting in an unfair and unexpected imposition of

staggering liability on employers. By deferring to the

agency, and thus letting it improperly assume legislative

authority, the majority fails in its duty to check the agency’s

attempt to “exploit ambiguous laws as license for [its] own

prerogative.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142,

1152 (10th Cir. 2016) (Gorsuch, J., concurring). Because

the DOL’s purported interpretation is no interpretation at all,

and the majority’s holding to the contrary raises the worst

dangers of improper Seminole Rock and Auer deference, I

dissent. 1

I

In order to understand what the DOL has accomplished

by means of its undercover legislative enactment,

1

See Bowles v. Seminole Rock & Sand Co., 325 U.S. 410,414 (1945)

(holding that the “administrative interpretation” of a regulation

“becomes of controlling weight unless it is plainly erroneous or

inconsistent with the regulation”); see also Auer v. Robbins, 519 U.S.

452, 461 (1997) (reaffirming Seminole Rock). This principle of

deference to agency interpretations is referred to hereafter as “Auer

deference.”

MARSH V. J. ALEXANDER’S 57

erroneously upheld by the majority as an interpretation of a

regulation, it is necessary to understand a bit of historical

background.

The Fair Labor Standards Act of 1938 (FLSA) generally

requires employers to pay a cash wage of $7.25 per hour to

their employees. 29 U.S.C. § 206(a)(1)(c). As originally

enacted, the FLSA did not apply to tipped occupations. In

1966, however, Congress amended the FLSA to extend its

coverage to workers employed in the hotel and restaurant

industries. Or. Rest. & Lodging Ass’n v. Perez, 816 F.3d

1080, 1083 (9th Cir. 2016). Because the 1966 amendments

brought many traditionally tipped employees within the

FLSA’s protection, Congress designed the amendments “to

permit the continuance of existing practices with respect to

tips.” S. Rep. No. 89-1487 (1966), as reprinted in 1966

U.S.C.C.A.N. 3002, 3014.

Among other changes, the 1966 amendments added

§ 203(m) and § 203(t). See Fair Labor Standards

Amendments of 1966, Pub. L. No. 89-601, § 101, 80 Stat.

830, 830. Section 203(m) allows employers to take a tip

credit against the minimum wage requirement for tipped

employees. 29 U.S.C. § 203(m). Section 203(t) states, in

full:

(t) “Tipped employee” means any employee

engaged in an occupation in which he

customarily and regularly receives more than

$30 a month in tips.

Id. § 203(t). Read together, §§ 203(m) and (t) allow an

employer to take a credit against the minimum wage for

employees who are engaged in an occupation in which they

are already compensated by tips. See id. §§ 203(m), (t). If

the tip credit applies, the employee is guaranteed the

58 MARSH V. J. ALEXANDER’S

minimum wage, but may keep tips above the minimum

wage. Id. § 203(m). 2

After Congress amended FLSA to include employees in

tipped occupations, the DOL promulgated, via notice and

comment, regulations that basically tracked the statute. See

32 Fed. Reg. 222-227, § 531.56(a)–(d) (Jan. 10, 1967),

currently promulgated at 29 C.F.R. § 531.56(a)–(d). These

regulations interpreted § 203 by explaining how to calculate

the amount of tips received by the employee. Id.

But after circulating these proposed regulations for

public comment, and months after the notice-and-comment

period ended, the DOL unexpectedly added the “dual jobs”

regulation. See 32 Fed. Reg. 13,575, 13,580 (Sept. 28,

1967), currently promulgated at 29 C.F.R. § 531.56(e).

Unlike the regulations issued for public comment, the dual

jobs regulation did not track the statute. Instead, without

explanation, the regulation introduced the never-before-seen

concept of “dual jobs.” Id. The regulation states:

(e) Dual jobs. In some situations an employee

is employed in a dual job, as for example,

2

The majority argues that employers “deprive servers the full value

of their tips” by “crediting a server’s tips towards their obligations to pay

full minimum wage for time employees spend working in a non-tipped

occupation,” and that it is wrong for an employer to use an employee’s

tips to pay minimum wage for “time an employee spends in a non-tipped

occupation.” Maj. Op. at 11 n.2. These statements merely assume the

majority’s conclusion that the statutory term “occupation” refers to

minutes spent on tasks that generate tips, rather than referring to a job

(such as a waiter, bartender, or short order cook) in which (as set forth in

the relevant statute) the employee “customarily and regularly receives

more than $30 a month in tips.” 29 U.S.C. § 203(t). There is no dispute

that the plaintiffs here held a job in which they received over the

threshold amount of tips.

MARSH V. J. ALEXANDER’S 59

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).

The eleventh-hour addition of § 531.56(e) in the final

rule was not the sort of deviation from the proposed rule that

is allowed under the APA as a “logical outgrowth of the

proposals on which the public had the opportunity to

comment.” Hall v. EPA, 273 F.3d 1146, 1163 (9th Cir. 2001)

(quoting Health Ins. Ass’n of Am., Inc. v. Shalala, 23 F.3d

412, 421 (D.C. Cir. 1994)). Rather, the proposed regulation

never hinted at the idea of dual jobs. See 32 Fed. Reg. 222-

1227 (Jan 10, 1967); Envtl. Integrity Project v. EPA.,

425 F.3d 992, 996 (D.C. Cir. 2005) (“The ‘logical

60 MARSH V. J. ALEXANDER’S

outgrowth’ doctrine does not extend to a final rule that finds

no roots in the agency’s proposal because ‘[s]omething is not

a logical outgrowth of nothing[.]’”) (first alteration in

original) (quoting Kooritzky v. Reich, 17 F.3d 1509, 1513

(D.C. Cir. 1994)). Instead, § 531.56(e) was the first sign of

a slow but certain erosion of the tip credit rule.

In the years following the regulation, the DOL issued

several opinion letters addressing the dual jobs regulation.

These letters provided case-by-case guidance as to when

there is a “clear dividing line” between the types of duties

performed by tipped and non-tipped employees such that an

employee should be deemed to hold two distinct jobs. 3

Apparently not satisfied with this case-by-case approach,

the DOL decided to give its field investigators more

expansive authority to cut back on employers’ opportunity

3

U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter FLSA–

895 (Aug. 8, 1979) (hereinafter, “1979 Letter”) (holding that an

employee who was required to report to work two hours before doors

were opened to the public to prepare vegetables for a salad bar had two

occupations, waitress and chef); U.S. Dep’t of Labor, Wage & Hour

Div., Opinion Letter WH–502 (Mar. 28, 1980), available at 1980 WL

141336, at *1 (hereinafter, “1980 Letter”) (holding that employees hired

as waiters and waitresses, but who were also required to “clean the salad

bar, place the condiment crocks in the cooler, clean and stock the

waitress station, clean and reset the tables . . . and vacuum the dining

room carpet, after the restaurant is closed,” were engaged in two different

occupations because there was no “clear dividing line between the types

of duties performed by a tipped employee, such as between maintenance

duties and waitress duties”); U.S. Dep’t of Labor, Wage & Hour Div.,

Opinion Letter FLSA–854 (Dec. 20, 1985), available at 1985 WL

1259240, at *2–3 (hereinafter, “1985 Letter”) (holding that an employee

who was hired as a waiter but was assigned to arrive at the restaurant at

least two hours before opening to perform general preparatory duties was

employed in two different occupations).

MARSH V. J. ALEXANDER’S 61

to take a tip credit. Therefore, in 1988, the DOL

promulgated a new rule in its internal and unpublished Field

Operations Handbook (FOH). 4 See U.S. Dep’t of Labor,

Wage & Hour Division, Field Operations Handbook (FOH)

30d00(e) (1988) (hereinafter, “FOH”). This new rule strictly

limited an employer’s statutory right to take a tip credit by

applying a specific numerical cap apparently pulled from

thin air. It said: “[W]here 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 general preparation work

or maintenance, no tip credit may be taken for the time spent

in such duties.” Id. This 20-percent cap was not made public

until decades later, when the DOL included it in an amicus

brief filed in the Eighth Circuit in 2010. See Sec’y of Labor’s

Amicus Br., Fast v. Applebee’s Int’l, Inc., 638 F.3d 872 (8th

Cir. 2011) (Nos. 10-1725, 10-1726), 2010 WL 3761133. 5

In 2012, the DOL added a new subsection to its rule (in

addition to the 20-percent cap) which further limited the

availability of a tip credit. See FOH 30d00(f)(4) (2012). The

new subsection provided that employers could not take a tip

credit for any time employees spent on tasks that did not

4

Ironically, the Field Operations Handbook states it “is not used as

a device for establishing interpretive policy.” FOH, Foreword, available

at https://www.dol.gov/whd/FOH/index.htm; see also Probert v. Family

Centered Servs. of Alaska, Inc., 651 F.3d 1007, 1012 (9th Cir. 2011)

(“[I]t does not appear to us that the FOH is a proper source of interpretive

guidance.”).

5

In the amicus brief filed in this appeal, the DOL states that it

published the 20-percent cap rule in the 2010 amicus brief. Given the

DOL’s failure to identify any earlier publication of this rule, the

majority’s statement that “[i]t is therefore impossible to say” whether the

FOH was made public at an earlier date, Maj. Op. at 36 n.17, is

disingenuous.

62 MARSH V. J. ALEXANDER’S

directly relate to serving customers. Id. As a result, an

employer would have to further track employees’ time to

distinguish between related and unrelated duties. The

additional subsection was not made public until the DOL

included it in the amicus brief filed in this very case. The

current version of the DOL’s instructions, which will be

referred to here as the DOL Time-Tracking Rule (or the

Rule), states in full:

(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 employee 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.

MARSH V. J. ALEXANDER’S 63

(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) (Dec. 1, 2016).

In a nutshell, rather than interpreting the dual jobs

regulation, the DOL Time-Tracking Rule effectively

replaces the concept of a tipped occupation with a new

regulatory framework. The Rule requires the employer to

count the number of minutes the employee spends on:

(1) serving customers; (2) performing duties related to

serving customers; and (3) performing duties not directly

related to serving customers. The Rule then allows an

employer to take a tip credit for the minutes an employee

spends on tasks in the first category, but not for the tasks in

the second category if they take more than 20 percent of the

employee’s time on the job, and never for tasks in the third

category. Clearly, this guidance does not constitute an

64 MARSH V. J. ALEXANDER’S

interpretation of the dual jobs regulation; it is a completely

different approach to the tip credit.

II

Given the undercover nature of the DOL’s approach, we

should first consider a threshold question: Is the Time-

Tracking Rule actually an interpretation of the dual jobs

regulation to which Auer deference applies? Or is it a

legislative rule, not entitled to such deference? In failing to

address this issue, the majority misses a key element of the

necessary analysis. See Christensen v. Harris County.,

529 U.S. 576, 588 (2000) (holding that it is improper to defer

to an agency’s position if doing so would “permit the

agency, under the guise of interpreting a regulation, to create

de facto a new regulation”).

A

Under Seminole Rock, an agency’s interpretation of its

own regulation is generally controlling “unless it is plainly

erroneous or inconsistent with the regulation.” 325 U.S. at

414; see also Auer, 519 U.S. at 461. But by its own terms,

this deference applies only when an agency proffers an

interpretation of its own regulation. Id. Deferential review

under Auer is not appropriate “when the disputed

administrative action does not represent an actual

interpretation of the agency’s own regulations.” Mission

Grp. Kansas, Inc. v. Riley, 146 F.3d 775, 781 (10th Cir.

1998); see also Dir., Office of Workers’ Comp. Programs,

U.S. Dep’t of Labor v. Mangifest, 826 F.2d 1318, 1324 n.12

(3d Cir. 1987) (“We therefore believe that even in the case

of interpretations of regulations, we must distinguish

MARSH V. J. ALEXANDER’S 65

between a position and a reasoned interpretation and defer

only to the latter.” (emphasis added)). 6

Courts have made clear that an agency’s substantive

pronouncements are not entitled to Auer deference, even if

they purport to be interpretations of a regulation. In

Gonzales v. Oregon, for instance, the Supreme Court

declined to defer to the Attorney General’s pronouncement

that using controlled substances to assist suicide was not a

legitimate medical practice, even though the Attorney

General claimed this pronouncement was an “interpretive

rule” interpreting a 1971 regulation. 546 U.S. 243, 254–58

(2006). The Court reasoned that the relevant statute did not

decide the assisted suicide issue, the 1971 regulation merely

restated the statutory language, and “[s]ince the regulation

gives no indication how to decide [the assisted suicide] issue,

the Attorney General’s effort to decide it now cannot be

considered an interpretation of the regulation.” Id. at 257.

Because the Attorney General’s pronouncement was not an

interpretation of the regulation, it was owed no deference. 7

Id. at 257–58.

6

Following the decision in Seminole Rock, both the Supreme Court,

see Thomas Jefferson, 512 U.S. at 512; Auer, 519 U.S. at 461, and

appellate courts, see Mission Group, 146 F.3d at 780; Mangifest,

826 F.3d at 1323, considered the scope of judicial deference to agency

interpretations of their own regulations. The majority’s statement that it

is “puzzling” for the dissent to rely on pre-Auer opinions, Maj. Op. at 28

n.12, ignores the history of the very rule it purports to apply.

7

The majority attempts to limit Gonzales to its facts, arguing that

because the DOL’s dual jobs regulation does not merely parrot the

language of the FLSA, Gonzales does not apply. Maj. Op. at 28–29 n.12.

But this dismissive approach fails to engage with the Supreme Court’s

reasoning regarding when an agency’s pronouncements are not entitled

to deference.

66 MARSH V. J. ALEXANDER’S

For the same reason, a court may not defer to a

substantive rule masquerading as an interpretation even

when the rule is consistent in some way with the regulation.

“[M]ere linguistic consistency between the rule and the

regulations cannot establish that the former is within the

interpretive scope of the latter.” Mission Grp., 146 F.3d at

781. For instance, where a regulation uses open-ended

language (such as a regulation requiring regulated entities to

comply with “any additional conditions” specified by the

agency), the agency may not subsequently issue a rule

imposing substantive conditions on those entities “and claim

authorization for that action under the plain terms of” the

regulation. Id. at 778, 781–82. “Such a practice would make

a mockery of Chevron, the APA, and judicial review.” Id.

at 782.

The reason for requiring courts to determine, in the first

instance, whether an agency’s pronouncement is a legitimate

interpretation or merely a disguised substantive rule is clear.

Under the APA, a substantive rule must be promulgated

pursuant to notice-and-comment rulemaking. 5 U.S.C.

§ 553. Agencies may not make an end-run around this

requirement by promulgating an ambiguous regulation, and

then, without notice and comment, issuing a substantive rule

that purports to resolve the regulation’s ambiguities. Such

an approach would allow an agency to “bootstrap its way

into the equivalent of Chevron deference” for its unreviewed

position on what a regulation requires. Matthew C.

Stephenson & Miri Pogoriler, Seminole Rock’s Domain,

79 Geo. Wash. L. Rev. 1449, 1464 (2011); see also Mission

Grp., 146 F.3d at 782 (warning that absent judicial review,

“agencies could simply replace statutory ambiguity with

regulatory ambiguity, thus creating Chevron deference for

any administrative action that might be squeezed within the

unrestricted terms of a promulgated regulation”). The mere

MARSH V. J. ALEXANDER’S 67

fact that an agency has promulgated an ambiguous

regulation does not mean that the agency has a blank check

to promulgate substantive laws in the guise of interpretation.

Christensen, 529 U.S. at 588. Accordingly, a court must

differentiate “between a reasoned interpretation of a

regulation’s language and a mere position about what the

regulations require.” Mangifest, 826 F.2d at 1324.

Instead of giving careful consideration to the significant

concerns raised by an agency’s promulgation of substantive

rules in the guise of interpretation — concerns that have been

noted by both the Supreme Court and our sister circuits —

the majority asserts it has no obligation to do so because the

Court has not enunciated a rule directly on point or created a

“mandatory” threshold question. Maj. Op. at 28–29 n.12.

But appellate courts do not just excerpt language from

Supreme Court decisions and apply it by rote; rather, we

must strive to understand the Court’s theory and reasoning,

and work out how its jurisprudence applies in new contexts.

By avoiding that duty here, the majority mistakenly fails to

address the threshold question whether the Time-Tracking

Rule qualifies as an interpretation. 8

8

The majority also errs in claiming that the defendants waived this

argument. Maj. Op. at 28–29 n.12, 37 n.19. The defendants argued that

the Time-Tracking Rule was invalid because through it the agency

created “a new regulation or law” without opportunity for public

comment, and thus violated the separation of powers “by making law

disguised as an informal commentary,” and creating “new causes of

action.” This is more than sufficient to raise the issue to the Court, which

in any event may “identify and apply the correct legal standard, whether

argued by the parties or not.” Thompson v. Runnels, 705 F.3d 1089, 1098

(9th Cir. 2013).

68 MARSH V. J. ALEXANDER’S

B

Because a court must analyze whether an agency is

interpreting an existing regulation or creating a new

substantive rule in order to determine whether Auer

deference applies, it is necessary to understand the

difference between interpretive and substantive rules. 9

“[T]he critical feature of interpretive rules is that they are

‘issued by an agency to advise the public of the agency’s

construction of the statutes and rules which it administers.’”

Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1204 (2015)

(quoting Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87, 99

(1995)). “[I]nterpretive rules merely explain, but do not add

to, the substantive law that already exists in the form of a

statute or legislative rule.” Hemp, 333 F.3d at 1087. This

means that the substance of the interpretive rule “must flow

fairly from the substance” of the existing law. Catholic

Health Initiatives v. Sebelius, 617 F.3d 490, 494 (D.C. Cir.

2010) (quoting Robert A. Anthony, “Interpretive” Rules,

“Legislative” Rules, and “Spurious” Rules: Lifting the

Smog, 8 Admin. L. J. Am. U. 1, 6 n.21 (1994)).

By contrast, legislative rules “create rights, impose

obligations, or effect a change in existing law pursuant to

authority delegated by Congress.” Hemp, 333 F.3d at 1087.

Such a rule has several hallmarks. First, it has the “force of

law,” meaning that “in the absence of the rule, there would

9

Under the APA, 5 U.S.C. § 553(d)(a), an agency “need not follow

the notice and comment procedure to issue an interpretive rule.” Hemp

Indus. Ass’n v. Drug Enf’t Admin., 333 F.3d 1082, 1087 (9th Cir. 2003).

But when an agency issues a legislative rule without following the APA

procedure, it is invalid, id.; N.H. Hosp. Ass’n v. Azar, 887 F.3d 62, 70

(1st Cir. 2018), and therefore cannot receive deference under Auer, see

Auer, 519 U.S. at 461; Christensen, 529 U.S. at 587–88.

MARSH V. J. ALEXANDER’S 69

not be an adequate legislative basis for enforcement action.”

Id. (internal quotation marks omitted). Second, a rule is

legislative if it does not afford an agency any significant

discretion over enforcement. See Barahona-Gomez v. Reno,

167 F.3d 1228, 1235 (9th Cir. 1999); Mada-Luna v.

Fitzpatrick, 813 F.2d 1006, 1013–14 (9th Cir. 1987). If an

agency issues a directive that “establishes a binding norm

that so fills out the statutory scheme that upon application

one need only determine whether a given case is within the

rule’s criterion, it effectively replaces agency discretion with

a new binding rule of substantive law.” Mada-Luna,

813 F.2d at 1014 (emphasis and internal quotation marks

omitted). Another indicator of a legislative rule is that it

states a principle “in numerical terms, that cannot be derived

from a particular record.” Catholic Health, 617 F.3d at 495

(internal quotation marks omitted). This is because “[a] rule

that turns on a number is likely to be arbitrary” and “[w]hen

agencies base rules on arbitrary choices they are legislating.”

Id. (quoting Hoctor v. U.S. Dep’t of Agric., 82 F.3d 165,

170–71 (7th Cir. 1996) (alteration in original)). For

example, a rule requiring that an enclosure for dangerous

animals be surrounded by an eight-foot high perimeter fence

is legislative when the underlying regulation merely requires

structurally sound containment of dangerous animals.

Hoctor, 82 F.3d at 171.

C

In deciding whether a rule interprets an existing

regulation or creates a new regulation, Christensen, 529 U.S.

at 587–88, it is necessary to first examine the existing

regulation at issue.

70 MARSH V. J. ALEXANDER’S

1

Here, the underlying dual jobs regulation merely requires

employers to discern whether an employee is working in two

distinct jobs, based on a common-sense understanding of

what it means to have two jobs. The regulation gives one

example of a person in a dual job: a maintenance man in a

hotel who also serves as a waiter. 29 C.F.R. § 531.56(e).

This first example involves jobs that are ordinarily

understood to involve different types of duties. While a

maintenance man has a range of duties associated with

keeping buildings or equipment in good repair, a waiter has

a range of duties associated with serving customers at their

tables in a restaurant. In common usage, these constitute

distinct jobs.

Next, the regulation gives two examples of a person in a

single tipped occupation: a waitress who “spends part of her

time cleaning and setting tables, toasting bread, making

coffee and occasionally washing dishes or glasses,” and a

counterman who “as part of a group of countermen, takes a

turn as a short order cook for the group.” Id. The waitress

and counterman examples are consistent with the everyday

understanding that a job is comprised of a cluster of tasks

typically associated with that job. A waitress is engaged in

a single job so long as the range of duties she performs is

typical for a waitress job (e.g., some cleaning, some food

preparation), and a counterman is engaged in a single job so

long as his range of duties is typical for that job (e.g.,

cooking some of his own orders, or taking a turn as a chef)

and his fellow countermen share in those duties. Id.

As these examples teach, if the employer has hired a

person for one job (such as waitress or counterman), but that

job includes a range of tasks not necessarily directed towards

producing tips, the person is still considered a tipped

MARSH V. J. ALEXANDER’S 71

employee engaged in a single job so long as the person

“customarily and regularly receives at least $30 a month in

tips.” Id.; cf. Schaefer v. Walker Bros. Enters., Inc., 829 F.3d

551, 555 (7th Cir. 2016) (“At some restaurants busboys

remove dishes after diners have finished, while at others the

servers perform this chore. So it is not helpful to ask . . .

whether cooks or busboys or janitors do one or another task

at other restaurants.”).

2

There is no reasonable view of the Time-Tracking Rule

that permits the conclusion that it is an interpretation of the

dual jobs regulation.

First, the Rule does not attempt to explain or derive a

general principle from the regulation’s example of what

constitutes two distinct jobs — a maintenance man and a

waiter. Instead, the Rule effectively disregards this example

and takes a different approach, holding that an employee is

engaged in dual jobs: (1) if the employee has spent any time

at all on tasks not related to obtaining tips; or (2) if the

employee has spent time on tasks related to obtaining tips

(but not directly serving customers), and this time in the

aggregate accounts for 20 percent or more of the hours

worked. Obviously, this description of time spent in

different tasks over the course of the day is not a description

of distinct jobs. There is no job that can be described

as more-than-20-percent-of-time-spent-on-untipped-related

tasks, nor is there a job that can be described as the five or

ten minutes spent here and there on unrelated tasks.

The Rule also effectively disregards the regulation’s

examples of when an employee is engaged in a single job,

despite being involved in a multitude of tasks. Under the

dual jobs regulation, a waitress doing typical waitress duties

72 MARSH V. J. ALEXANDER’S

remains a waitress, even if (in five-minute increments

throughout her workweek) she spends 60 percent of her time

waiting tables, 10 percent cleaning tables, 10 percent

toasting bread, 10 percent making coffee, and 10 percent

washing dishes. See 29 C.F.R. § 531.56(e). The dual jobs

regulation — and common sense — tells us that the waitress

is 100 percent engaged in the single tipped occupation of

waitressing — she is not 60 percent a waitress, 10 percent a

janitor, 10 percent a baker, 10 percent a barrista, and

10 percent a dishwasher. The Rule holds exactly the

opposite: because such a waitress spends more than

20 percent of her time in tasks that are not themselves tipped,

she is both engaged in the tipped occupation of waitress and

engaged in the untipped occupation of . . . something else?

Similarly, the dual jobs regulation contemplates that an

employee who has a job as a counterman, which may include

both serving customers at the counter and working as a chef

preparing short orders, is engaged in a single tipped

occupation. See id. But because the Rule defines “related

duties” to mean duties that “are not by themselves directed

toward producing tips” and that meet certain other criteria,

FOH § 30d00(f)(2), the time a counterman spends working

as a chef preparing short orders (which is not a tip-generating

task) is not part of the job of counterman if the cooking duty

takes up more than 20 percent of the counterman’s time. See

FOH § 30d00(f)(3). In other words, if the counterman

spends more than 20 percent of his time preparing short

orders, then under the Rule he has two jobs, even though the

dual jobs regulation says he has only one. See 29 C.F.R.

§ 531.56(e).

Despite this clear disjunction between the Rule and the

regulation, the majority argues that the Rule must be upheld

because the dual jobs regulation is ambiguous, and the Rule

MARSH V. J. ALEXANDER’S 73

is not “plainly erroneous or inconsistent with the regulation.”

Maj. Op. at 32 (quoting Auer, 519 U.S. at 461). The majority

errs, however, because the Rule could qualify as a

permissible interpretation of the dual jobs regulation only if

the Rule could be fairly derived from the regulation. The

majority fails to show how the Rule’s specific time-tracking

requirements “flow fairly” from the dual jobs regulation,

Catholic Health, 617 F.3d at 494, rather than being “a mere

position about what the regulations require,” Mangifest,

826 F.2d at 1324.

First, the Rule fails to clarify any of the phrases in the

dual job regulation that the majority claims are ambiguous.

The majority states that the dual jobs regulation is

ambiguous because it “does not offer a precise definition for

‘occupation’” and only provides examples. Maj. Op. at 28–

29. But the Rule does not clarify this supposed ambiguity.

Rather than construe the word “occupation,” the Rule uses

the undefined term “tipped occupation” and focuses on the

time employees spend in specified duties related or unrelated

to the “tipped occupation.” FOH § 30d00(f)(3)–(4). The

Rule’s time-tracking framework is obviously not a definition

of an “occupation”; at a minimum, the term “occupation”

does not mean how often a person performs a task. See

Occupation, Webster’s Third New International Dictionary

1560 (3d ed. 2002) (defining the word to mean a “craft,

trade, profession, or other means of earning a living”).

Second, the majority states that the dual job regulation is

ambiguous because it does not explain what it means by the

phrases “part of her time” and “occasionally” in the sentence

explaining that a waitress does not have a dual job if she

“spends part of her time cleaning and setting tables, toasting

bread, making coffee and occasionally washing dishes or

glasses.” Maj. Op. at 29–30; 29 C.F.R. § 531.56(e). But the

74 MARSH V. J. ALEXANDER’S

Rule does not provide guidance on what “part of her time”

and “occasionally” mean in this context. Instead the Rule

states merely that no tip credit may be taken for “duties

related to the tipped occupation of an employee” (without

providing any guidance on what constitutes such “related”

duties) for those employees who “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,” and that no tip credit may be taken on work

“that is not related to the tipped occupation.” FOH

§ 30d00(f)(2)–(4). These detailed instructions do not “flow

fairly,” Catholic Health, 617 F.3d at 494, from the terms

“part of her time” and “occasionally” in the dual jobs

regulation.

The majority attempts to camouflage this failure of

interpretation by arguing that “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.” Maj. Op. at 33 n.16. But this is contrary to the

very nature of an interpretation: if the purported

interpretation does not address some ambiguity in the

regulation, what is the interpretation interpreting? It is not

enough for an agency’s statement to be consistent with a

regulation or express the agency’s position about what the

regulation requires; rather, it must be a reasoned

interpretation of the regulatory language. Mangifest,

826 F.2d at 72–74 & n.12.

Finally, the majority points out that the dual jobs

regulation states that “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), but contends

that this rule is ambiguous because it does not define the

term “related duties.” Maj. Op. at 31. But as noted above,

MARSH V. J. ALEXANDER’S 75

the Rule does not define “related duties” either; it provides

no guidance on how closely “related” to customer service a

duty must be to constitute a “related duty.” See FOH

§ 30d00(f)(3).10 Accordingly, the Rule provides no

guidance for interpreting the terms the majority identifies as

ambiguous in the dual jobs regulation.

The majority not only fails to show that the Rule

construes ambiguous terms, it also fails to justify the Rule’s

time-tracking framework as a fair interpretation of the dual

jobs regulation as a whole. First, the regulation’s example

of a waitress “who spends part of her time cleaning and

setting tables, toasting bread, making coffee and

occasionally washing dishes or glasses,” 29 C.F.R.

§ 531.56(e), establishes that an employee is not engaged in

dual jobs merely because the employee has multiple duties.

The Rule flips this determination, holding that an employee

is engaged in dual jobs when the employee has multiple

duties and spends more than 20 percent of the time on related

but untipped duties. FOH § 30d00(f)(3)–(4). This reversal

of the regulation’s example finds no support in the language

of the regulation.

Similarly, the dual jobs regulation’s example of 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” establishes that an employee is not

engaged in dual jobs merely because the employee takes a

turn as a short order cook. 29 C.F.R. § 531.56(e). The

10

Judge Graber agrees that the Rule’s interpretation of “related

work” does not warrant deference, and that the dual jobs regulation

“plainly forecloses the DOL’s interpretation that an employee spending

a certain amount of time doing related, but non-tipped, work qualifies as

working a dual job.” Graber Conc. Diss. at 50.

76 MARSH V. J. ALEXANDER’S

regulation goes on to say that “[s]uch related duties in an

occupation that is a tipped occupation need not by

themselves be directed toward producing tips.” Id. The Rule

again flips this determination, so that a counterman who

engages in work as a short order cook is engaged in dual jobs

if the counterman’s work as a short order cook is unrelated

to tips (or takes more than 20 percent of his time). FOH

§ 30d00(f)(3)–(4). As noted above, this reversal of the

regulation’s example contradicts the regulation because,

under the regulation, working as a “short order cook for the

group” is part of the single, tipped occupation of a

counterman. See 29 C.F.R. § 531.56(e). The majority has

failed to show how either of the Rule’s reversals of the

regulation “flow fairly from the substance” of the

regulation.11 See Catholic Health, 617 F.3d at 494.

11

Because the Time-Tracking Rule provides a comprehensive

approach to the tip credit, it is unlikely that subsection 4 of the Rule,

FOH § 30d00(f)(4), is severable from the rest of the Rule, as Judge

Graber suggests. Graber Conc. Diss. at 54–55. But even if subsection 4

is read by itself, it is not entitled to Auer deference. Subsection 4

provides:

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.

This is not an interpretation of the dual jobs regulation because, like

subsection (3), subsection (4) adopts a minute-by-minute approach that

contradicts the regulation’s occupation-based analysis. While the

regulation applies only when an employee holds two distinct jobs, such

as a maintenance man and a waiter, subsection (4) classifies the minutes

MARSH V. J. ALEXANDER’S 77

D

Rather than being an interpretation of the dual jobs

regulation, the Time-Tracking Rule has all the indicia of a

legislative rule. See supra at 68–69. Without the Rule and

its time-tracking requirements “there would not be an

adequate legislative basis for enforcement action,” Hemp,

333 F.3d at 1087 (internal quotation marks omitted), merely

because an employer takes a tip credit when an employee

spends time on a range of duties typically included in a

tipped occupation. Nor does the Rule give the DOL any

discretion in enforcement. See Barahona-Gomez, 167 F.3d

at 1235. An employer would be subject to liability whenever

a minute-by-minute calculation of how employees spend

their time during the course of the day shows that, per the

Time-Tracking Rule, an employee was not paid minimum

wages for minutes spent on related duties exceeding the 20-

percent cap or for minutes spent on duties not related to tips.

Further, the DOL’s derivation of a 20-percent cap on

related duties is precisely the type of arbitrary, numerical

choice that should have been made through notice and

comment. Catholic Health, 617 F.3d at 495; Hoctor, 82 F.3d

an employee spends on tasks that are “not related to the tipped

occupation” as a distinct job, regardless of the nature of the tasks or the

amount of time spent performing them. The regulation’s assurance that

a waitress may perform multiple tasks (including washing dishes or

glasses and cleaning tables) and still be employed in a single waitress

job, is at odds with subsection (4)’s statement that a server who spends

any time washing windows is “effectively employed in dual jobs.” Nor

does subsection (4) clarify any ambiguous terms in the dual jobs

regulation; rather, it adds to the confusion by failing to explain why time

spent washing windows, but not time spent washing dishes, is “not

related” to the tipped occupation. Because subsection (4) merely

presents the agency’s position, rather than an interpretation of the

regulation, it is not entitled to deference.

78 MARSH V. J. ALEXANDER’S

at 170–71. The majority argues that the DOL had the

authority to establish a 20-percent cap, because it is

“consistent with its treatment of other temporal limitations,”

in regulations it previously promulgated. Maj. Op. at 38.

But the majority’s examples of the DOL’s prior temporal

limitations were either legislatively enacted or promulgated

through notice-and-comment rulemaking. See Maj. Op. at

39 n.20; 29 U.S.C. § 213(c)(6); 29 C.F.R. §§ 552.5,

552.6(b), 786.1, 786.100, 786.150, 786.200. Accordingly,

the majority’s examples actually compel the opposite

conclusion: the DOL recognized that a rule establishing a

numerical 20-percent cap is a legislative rule that must be

promulgated through the normal rulemaking process.

In short, the Time-Tracking Rule is purely a legislative

rule: “under the guise of interpreting a regulation,” the DOL

has created “de facto a new regulation.” Christensen,

529 U.S. at 587–88. As such, the Rule is not entitled to Auer

deference. Moreover, because the DOL did not issue it

through notice-and-comment rulemaking, it is invalid.

III

By mistakenly upholding the DOL’s legislative rule as

an interpretation that is owed Auer deference, the majority

runs squarely into the problems that the APA was enacted to

prevent.

A

First, the DOL failed to get necessary input from the

regulated public. “[T]he point of notice-and-comment

rulemaking is that public comment will be considered by an

agency and the agency may alter its action in light of those

comments.” Hall, 273 F.3d at 1163 (9th Cir. 2001). The

APA’s notice requirement is intended to “improve[] the

MARSH V. J. ALEXANDER’S 79

quality of agency rulemaking by ensuring that agency

regulations will be tested by exposure to diverse public

comment.” Small Refiner Lead Phase-Down Task Force v.

EPA., 705 F.2d 506, 547 (D.C. Cir. 1983) (internal

quotations omitted).

Because it never sought or received such input, the DOL

promulgated a Rule that not only eviscerates the statutory tip

credit, but is unworkable as a practical matter. The facts of

this case illustrate why the complexity of the time-tracking

requirement makes it unreasonable. Here, Marsh claims that

he brewed tea during every opening shift and as needed,

which took about ten minutes to complete each time, for a

total of forty minutes over the course of any given

workweek. He also brewed coffee for each customer who

ordered it, which took about five minutes to complete each

time, and added up to approximately eighty minutes of any

given workweek. Marsh cut, arranged, and stocked lemons

and limes during every opening shift and throughout his

shifts, each session taking approximately five minutes, for a

total of forty minutes in any given workweek. Marsh

cleaned the soft drink dispensers and their nozzles, replaced

soft drink syrups, and stocked ice. Each task took about five

minutes to complete, and over the course of a workweek

these tasks respectively took twenty, ten, and forty minutes.

J. Alexander’s also assigned Marsh cleaning duties, such as

wiping tables (five to twenty minutes each time, for a total

of one hour and forty minutes over the course of a week),

taking out trash (ten minutes each time, for a total of twenty

minutes over the course of a week), scrubbing walls when

the restaurant was slow (one hour over the course of the

week), sweeping floors (about ten minutes each time, for a

total of forty minutes over the course of a week), and

cleaning restrooms (ten minutes each time, for a total of

thirty minutes over the course of a week). Given this

80 MARSH V. J. ALEXANDER’S

distribution of multiple varied tasks over the course of a day,

“nearly every person employed in a tipped occupation could

claim a cause of action against his employer if the employer

did not keep the employee under perpetual surveillance or

require them to maintain precise time logs accounting for

every minute of their shifts.” Pellon v. Bus. Representation

Int’l, Inc., 528 F. Supp. 2d 1306, 1314 (S.D. Fla. 2007),

aff’d, 291 F. App’x 310 (11th Cir. 2008).

The majority claims that the Rule is not unworkable in

this context, Maj. Op. at 42–44, but each of its arguments

fails. First, the majority argues that defendants’ concerns are

misplaced because “[t]he 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.” Maj. Op. at 42–

43. But Marsh and the other plaintiffs base their damages

claims on exactly these sorts of allegations: minutes spent

performing various tasks throughout the work day. And

Marsh’s claims are exactly the sort addressed by the Rule,

which insists that an employer must aggregate all “related

duties” as part of “the 20 percent tolerance” and pay

minimum wage for all time spent on such duties if over

20 percent, as well as pay minimum wage for all time spent

on work “not related to the tipped occupation.” FOH

§ 30d00(f)(3)–(4). Cf. Sandifer v. U.S. Steel Corp., 571 U.S.

220, 234 (2014) (rejecting the argument that a de minimis

exception applied in a particular FLSA context, such that a

court could ignore “a few seconds or minutes of work

beyond the scheduled working hours” (quoting Anderson v.

Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946))).12

12

The majority’s reliance on Schaefer, Maj. Op. at 42–43, as

standing for this proposition that the FLSA has a de minimis exception

MARSH V. J. ALEXANDER’S 81

The majority next argues that it is not impracticable for

an employer to keep track of time spent on various duties,

because an employee could clock in and out, using different

input codes, when engaged in different tasks, such as before

and after the restaurant closes or when business is slow.

Maj. Op. at 42–43. This assertion is belied by Marsh’s

claims, which are primarily based on five and ten minute

tasks performed throughout his shifts. Contrary to the

majority’s argument, many of these tasks were not

“scheduled,” Maj. Op. at 43, but occurred “as needed.” The

variable nature of such duties further increases the difficulty

of tracking Marsh’s time spent on each task.

Finally, the majority also claims that the Rule is not

impracticable, “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).” Maj.

Op. at 44. But the cited regulation requires employers to

track only the “[h]ours worked each workday in any

occupation in which the employee does not receive tips,”

29 C.F.R. § 516.28(a)(4) (emphasis added), and the “[h]ours

worked each workday in occupations in which the employee

receives tips,” 29 C.F.R. § 516.28(a)(5) (emphasis added).

Employers do not have to track related duties within a tipped

occupation — and certainly not duties as granular as brewing

coffee or rolling silverware in napkins. See id. Thus the

Time-Tracking Rule significantly expands employers’ time-

tracking obligations.

is misplaced. In Schaefer, it was undisputed that the servers spent less

than 20 percent of their time in related, untipped duties, and the only de

minimis exception allowed by the court was for the negligible amount of

time (minutes a day) that servers spent dusting picture frames. 829 F.3d

at 555.

82 MARSH V. J. ALEXANDER’S

B

Second, the DOL’s creation of a legislative rule without

notice and comment — indeed, without any notice at all —

imposed an unfair surprise on the regulated community. The

Supreme Court has made clear that an agency cannot

“impose potentially massive liability” on the regulated

community without giving fair notice and forewarning.

Christopher v. SmithKline Beecham Corp., 567 U.S. 142,

155 (2012).

In Christopher, the Court considered an action in which

pharmaceutical sales representatives sued their employers

for overtime wages based on their claim they were not

exempt “outside salesmen.” Id. While the case was pending

before the Supreme Court, the DOL reinterpreted an

ambiguous regulation to further support the employees’

claims. Id. at 154. The Court concluded that such

interpretation was not entitled to Auer deference for several

reasons, all of which apply here. Id. at 155–59.

For one, Christopher noted that the employees

“invoke[d] the DOL’s interpretation of ambiguous

regulations to impose potentially massive liability on

respondent for conduct that occurred well before that

interpretation was announced.” Id. at 155–56; see also Auer,

519 U.S. at 461–63. The same concern applies here. As

noted above, the DOL announced its 20-percent rule in an

amicus brief in 2010, and did not announce the full Time-

Tracking Rule until this appeal.1 3 While the 2010 version of

13

Therefore, the majority errs in claiming that notice predates the

defendants’ conduct. Maj. Op. at 36. Although the DOL internally

revised the Time-Tracking Rule in 2012, it did not publicize the revised

MARSH V. J. ALEXANDER’S 83

the FOH imposed the 20-percent cap on related work, it was

not until 2016 that employers learned they could not take a

tip credit for any time — no matter how minimal — an

employee spends performing a task “not related to the tipped

occupation.”14 § 30d00(f)(4). According to the Rule, any

unrelated work (which it still leaves undefined) transforms

the employee from a tipped employee to one employed in

dual jobs. The unexpected liability such a “surprise

switcheroo” can cause is evident here. See Envtl. Integrity

Project, 425 F.3d at 996 (holding that notice-and-comment

requirements prevent agencies from “pull[ing] a surprise

switcheroo on regulated entities”). Marsh claims he is

entitled to minimum wage for the 17.33 hours he spent each

week performing tasks related to serving, and for the

5.5 hours he spent performing unrelated tasks. Multiplying

the alleged unpaid wages for these hours over the entire time

Marsh was employed, and aggregating the claims of all

guidance until it filed its amicus brief in this appeal in 2016 — more than

two years after Marsh filed his initial complaint.

14

The majority contends that the DOL’s 1985 opinion letter

provides notice to employers that they could not take a tip credit for any

unrelated work. Maj. Op. at 37 n.18. This is incorrect: the opinion letters

articulated a multi-factor test for determining when an employee was

engaged in two different occupations. Among other factors, the DOL

considered whether there was a “clear dividing line” between two

different types of duties, such as when one set of duties was performed

in a distinct part of the workday. See 1980 Letter (articulating the “clear

dividing line” standard); see also 1979 Letter (concluding that an

employee has dual jobs where the duties unrelated to tip generation were

temporally separated from tip-generating duties). In addition, the DOL

considered whether an employer assigned a set of distinct duties to a

single employee and whether these duties occupied a significant portion

of the employee’s time. See 1985 Letter; 1980 Letter.

84 MARSH V. J. ALEXANDER’S

similarly situated employees, it is reasonable to assume that

large employers will face staggering damages claims.

An analogous concern expressed by Christopher is that

misplaced Auer deference “would seriously undermine the

principle that agencies should provide regulated parties fair

warning of the conduct [a regulation] prohibits or requires”

and “result in precisely the kind of unfair surprise against

which our cases have long warned.” Christopher, 567 U.S.

at 156 (alteration in original) (internal quotation marks

omitted); see also Indep. Training & Apprenticeship

Program v. Cal. Dep’t of Indus. Relations, 730 F.3d 1024,

1035 (9th Cir. 2013) (declining to defer to agency

interpretations “where an agency pulls the rug out from

under litigants that have relied on a long-established, prior

interpretation of a regulation”). In Christopher, the fact that

“the DOL never initiated any enforcement actions” or

“otherwise suggested that it thought the industry was acting

unlawfully,” highlighted the lack of notice. 567 U.S. at 157.

Again, the same factors apply here. As it has done on

many earlier occasions, the DOL issued its Time-Tracking

Rule through an unpublished internal manual, and then

sought controlling deference via an amicus brief. See E.I.

Du Pont De Nemours & Co. v. Smiley, No. 16-1189, 2018

WL 3148557, at *1 (U.S. June 28, 2018) (Gorsuch, J.,

respecting the denial of certiorari) (noting the DOL’s

“aggressive” attempts to establish policy via amicus briefs

in private litigation); Deborah Thompson Eisenberg,

Regulation by Amicus: The Department of Labor’s Policy

Making in the Courts, 65 Fla. L. Rev. 1223, 1243–50 (2013)

(summarizing the DOL campaign to define the FLSA via

interpretations advanced in amicus briefs and the resulting

“wild flip-flops in the DOL’s position on certain issues

during a short period of time”); Stephenson & Pogoriler,

MARSH V. J. ALEXANDER’S 85

supra, at 1493 (“[G]ranting [Auer] deference to litigation

briefs exacerbates the self-delegation problem by giving the

agency even more freedom and incentive to promulgate

open-ended rules to be clarified only later[.]”). Moreover, as

the district court noted, the DOL has never initiated

enforcement litigation based on the 20-percent rule, even

though it initially circulated the FOH to investigators in

1988. Like in Christopher, there are massive numbers of

tipped employees, and “the nature of their work has not

materially changed for decades.” 567 U.S. at 158. Yet,

despite consistent industry practices, the DOL never brought

any enforcement action. Where, as here “an agency’s

announcement of its interpretation is preceded by a very

lengthy period of conspicuous inaction, the potential for

unfair surprise is acute.” Id.

In short, the DOL’s failure to engage in notice and

comment before issuing the Time-Tracking Rule as its

authoritative interpretation of the dual jobs regulation, raises

the precise concerns that led the Supreme Court to reject

Auer deference to stealth DOL rulemaking. Id. at 158–59.

The majority errs in failing to do likewise.

IV

In recent years, a number of Supreme Court justices have

noted grave concerns about the propriety and

constitutionality of deferring to agency interpretations. See,

e.g., Perez, 135 S. Ct. at 1210–11 (Alito, J., concurring in

part and concurring in judgment); id. at 1211–13 (Scalia, J.,

concurring in the judgment); id. at 1213–25 (Thomas, J.,

concurring in the judgment); Decker v. Nw. Envtl. Def. Ctr.,

568 U.S. 597, 615–16 (2013) (Roberts, C.J., concurring);

Talk Am., Inc. v. Mich. Bell Tel. Co., 564 U.S. 50, 67–69

(2011) (Scalia, J., concurring). As Justice Scalia observed,

“[i]t seems contrary to fundamental principles of separation

86 MARSH V. J. ALEXANDER’S

of powers to permit the person who promulgates a law to

interpret it as well.”15 Talk America, 564 U.S. at 68 (Scalia,

J., concurring).

The majority’s mistaken willingness to give Auer

deference to the DOL’s legislative rulemaking in the guise

of deferring to an “interpretation” highlights these concerns.

By taking a hands-off approach to the DOL’s arrogation of

power, the majority allows the DOL to promulgate what

essentially amounts to secret legislation that eliminates the

benefit conferred on employers by Congress and then

enforce the rule via surprise amicus filings in private

litigation — all without political accountability, input from

the regulated community via notice and comment, or

independent judicial review. See Gutierrez-Brizuela,

834 F.3d at 1152 (Gorsuch, J., concurring) (“[W]hen

unchecked by independent courts exercising the job of

declaring the law’s meaning, executives throughout history

[have] sought to exploit ambiguous laws as license for their

own prerogative.”). This accumulation of power “subjects

regulated parties to precisely the abuses that the Framers

sought to prevent,” Perez, 135 S. Ct. at 1213 (Thomas, J.,

concurring in the judgment), and raises separation of power

concerns, id. at 1220–21; Talk America, 564 U.S. at 68

(Scalia, J., concurring).

15

It is no help to argue, as Judge Graber does, that “[a]gencies know

the purpose of their own regulations.” Graber Conc. Diss. at 49. The

“implied premise of this argument — that what we are looking for is the

agency’s intent in adopting the rule — is false.” Decker, 568 U.S. at 618

(Scalia, J., concurring in part and dissenting in part). Because “[o]nly

the text of a regulation goes through the procedures established by

Congress for agency rulemaking,” it is the text that has “the force and

effect of law, not the agency’s intent.” Perez, 135 S. Ct. at 1223–24

(Thomas, J., concurring in the judgment).

MARSH V. J. ALEXANDER’S 87

Allowing agencies to invent rules without notice

“frustrates the notice and predictability purposes of

rulemaking, and promotes arbitrary government.” Talk

America, Inc., 564 U.S. at 69 (Scalia, J., concurring). Here

the DOL did just that, issuing a legislative rule that

eviscerates a benefit conferred by Congress and results in a

nightmare for the regulated community. Because there is no

basis to defer to the DOL’s promulgation of this rule under

Auer or any other theory, I dissent.