In a recent decision that affects employers in the Connecticut restaurant industry, the Appellate Court of Connecticut ruled that a state regulation governing the manner in which employers should record their employees’ gratuities is directory, not mandatory. Nettleton v. C & L Diners, LLC, (“Nettleton”) No. AC-44554 (Conn. App. June 6, 2023).
The regulations, codified at Conn. Gen. Stat. § 31-60(b), entitle employers, as part of their duty to provide a minimum fair wage, to claim a “tip credit” by including gratuities in an amount equal to a certain percentage of the minimum hourly wage for individuals employed in the restaurant industry who regularly and customarily receive gratuities.
In Nettleton, a former server sued C&L Diners, LLC (“C&L Diners”), the owner of the Denny’s restaurant where she worked. She brought claims for violations of minimum wage regulations, alleging that the restaurant could not claim the tip credit as it only recorded gratuities on a daily and bi-weekly basis, not a weekly basis as the CT Department of Labor regulations once stipulated.
Recordkeeping is Directory, Not Mandatory
In December of 2020, the lower court granted Nettleton summary judgment on the claim that C&L Diners did not properly keep a tip record. As such, the Court reasoned, the employer could not claim a tip credit, and had thus paid her less than full minimum wage. The Appellate Court reversed the decision.
On appeal, the Court agreed with C&L Diners’ argument that the recordkeeping requirements of § 31-62-E3 of the regulations were directory, not mandatory, because their noncompliance did not alter the tip credit the company had claimed. Specifically, the Court held “the full regulatory scheme does not suggest an intent to impose mandatory requirements as to the format of the required records.” More so, the Court explained that the goal of the regulation is to ensure that employees are being paid their proper wages and are receiving the tips that employers are claiming as credit – not to monitor recordkeeping methods.
Non-Service vs. Service Duties
The trial court also granted summary judgment on the employee’s claim that the restaurant failed to segregate her service and non-service duties during a shift. Tip credit can only be claimed for service duties or duties “incidental to service” and full minimum wage must be paid for non-service work.
The Appellate Court rejected the trial court’s conclusion that all “side” work performed “away from the tables” were nonservice duties as a matter of law. The Panel made clear that this determination of whether a task is a service or non-service duty involves a case-by-case fact intensive inquiry, and therefore cannot be determined as a matter of law.
Looking Forward
In September 2020, in response to this case, Connecticut’s tip recordkeeping regulations were revised to update the frequency with which employers needed to record gratuities and the method through which employees affirmed that the gratuities recorded were correct. Current regulations are more realistic for employers in the restaurant industry, and provide more clarity in service and non-service duties for recording purposes.
Regulation 31-62-E3 states that gratuities no longer need to be recorded weekly, and instead may be recorded on a daily, weekly, or biweekly basis. Employees can now attest via an electronic point of service system, instead of a written signature, to the accuracy of the amount recorded as credit for part of the minimum fair wage.
In addition, the amendment added a new section, 31-62-E3a, which addresses service and non-service duties within the restaurant industry. According to the new regulation, if an employee performs non-service duties for either two or more hours, or for more than 20% of their shift – whichever is the lesser of the two – then the employer shall not claim gratuities as part of the minimum fair wage for that day. If the non-service work exceeds these limits, then employers must segregate the time, and record it.
The regulation also provides additional guidance on duties that are considered “incidental to service” to clarify what constitutes nonservice duties going forward for employers.
The regulations, while intended to encourage accurate documentation and provide guidance, remain complex. Penalties under state wage and hour laws can be severe. The offices of various state Attorneys General have shown increased willingness to engage in enforcement actions regarding matters such as these.
Employers are encouraged to consult with experienced Labor & Employment attorneys at Hinckley Allen, who can provide guidance navigating these types of issues.
Research and drafting assistance from summer associate, Maryam Ahmed.
