Governor Lamont signs House Bill 7501 into law on January 6, 2020.

As we say goodbye to 2019 (and await commencement of the 2020 session of the Connecticut General Assembly in February), the General Assembly via a “Special Session” passed a bill to address some unfinished business concerning the so-called minimum wage “tip credit” under Connecticut law.  The tip credit allows restaurant employers to pay certain employees who customarily receive tips a subminimum wage for the hours they spend performing defined service duties.  The difference between the permitted wage for these types of employees and the minimum wage is the “tip credit.”

Earlier in 2019, Governor Lamont vetoed a bill (Public Act 19-198) that would have repealed the regulation (Connecticut Agency Regulation §31-62-E4) governing how the minimum wage tip credit is applied to restaurant and service employees who spend some, but not all, of their time performing duties for which tips are usually received.  Specifically, this regulation currently provides that where an employee performs both service and non-service duties, and the time spent on each is definitely segregated and so recorded, the tip credit may be applied to the hours worked in the service category. Conversely, the tip credit may not be applied if an employee performs both service and non-service duties and the time spent on each is not or cannot be definitely segregated and so recorded. The Act that was vetoed would have required Connecticut’s Labor Commissioner to develop new regulations, and in doing so to 1) consult with the restaurant industry, and 2) include recent U.S. Department of Labor Wage and Hour Division guidance.  In general, this would have allowed employers more flexibility in applying the tip credit to non-service work by employees who perform both types of duties.

In the aftermath of the veto, a new compromise was crafted, and on December 18, 2019, the General Assembly passed House Bill 7501 (July 22, 2019 Sp. Sess., Public Act No. 19-1).  On January 6, 2020, Governor Lamont signed this bill into law.  Among other things, the new bill requires the Labor Commissioner to post, by April 1, 2020, a notice of intent to adopt new regulations concerning employees who perform both service and nonservice duties and the allowances for tips/gratuities for minimum wage compliance.  The Labor Commissioner must consult not only with representatives of the restaurant industry, but also with restaurant employees, service employees, and “other interested stakeholders” in developing the proposed regulations, before posting the required notice.

The new regulations shall be in accordance with prior U.S. Department of Labor Wage and Hour Division guidance, which was referred to as the “80/20 rule.”  The 80/20 rule, which was in effect from 1988 until 2018, required employers to pay the full minimum wage to servers, bartenders, and other tipped employees for any “side” or “preparation” work (e.g., nontipped functions such as setting tables, folding napkins, etc.) that exceeded 20% of their duties on any given shift.  A Connecticut regulation that is consistent with this rule will allow employers more flexibility in circumstances where it is difficult to keep precise records segregating time spent in service and non-service duties, but will still protect tipped employees who spend significant portions of their working time doing non-service work.  It thus represents a compromise between the positions of restaurant employers and employees.

The new bill also provides that any employee paid less than the minimum wage or overtime wage to which he or she is entitled under the amended Regulation §31-62-E4) can recover, in a civil action: 1) twice the full amount of such wage less any amount actually paid to such employee by the employer, with costs and such reasonable attorney’s fees as may be allowed by the court; or 2) if the employer establishes that the employer had a good faith belief that the underpayment of such wages was in compliance with the law, just the full amount of such wage less any amount actually paid by the employer, with costs (but not attorney fees) as may be allowed by the court.  And the bill further provides that no person may be authorized by a court to sue on behalf of a class of similarly situated persons in a case brought for violations of Section 31-62-E4 unless such person, in addition to satisfying any usual rules of practice governing class action certification, demonstrates to the court that the defendant/employer is liable to all  proposed class members because all such members: 1) performed nonservice duties while employed by the defendant, for more than a de minimis amount of time, that were not incidental to service duties; and 2) were not properly compensated by the defendant for some portion of their nonservice duties in accordance with Section 31-62-E4.  These provisions offer hotel and restaurant employers a degree of protection from class action suits, and insulate employers who acted in good faith from exposure to multiple damages and attorney fees.

After the adoption of the new regulations, the Labor Commissioner is required to begin conducting random wage and hour audits of tipped workers in not fewer than 75 restaurants in Connecticut and prepare a report on such restaurants’ compliance with the regulations. Within one year after the adoption of the regulations, the Labor Commissioner shall report on these random wage and hour audits to the General Assembly.

A Friendly Reminder:  It is important to remember that these changes come in the context of prior legislation in 2019 raising the minimum wage to $11.00/hour on October 1, 2019; $12.00/hour on September 1, 2020; $13.00/hour on August 1, 2021; $14.00/hour on July 1, 2022; and $15.00/hour on June 1, 2023 (and thereafter subject to annual indexing/adjustment for inflation).  That same legislation provides that the tip credit for employees in the restaurant and hotel industry who customarily receive gratuities will be an amount equal to the difference between the applicable minimum wage and a fixed employer’s share of $6.38 per hour for service employees other than bartenders, and $8.23 per hour for bartenders.  As one can see, the minimum wage will increase, but the payment required from employers to employees covered by the tip credit will remain constant.  Thus, the tip credit will grow as the minimum wage rises, and these workers will realize less gain from the increased minimum wage than might have been expected.  It remains to be seen whether this aspect of the law will be modified in the future.

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