Highlights of Federal and State Activity Impacting the Restaurant Industry


Federal Activity

Tip Credit:  The Department of Labor reissued a 2009 Opinion Letter that provides the restaurant industry with a clear definition of “related” and “unrelated” work regarding the availability of the tip-credit.  The letter rescinds an Obama Administration policy that made the tip credit unavailable for tipped employees who spend more than 20% of their time performing allegedly non-tip generating duties. The 20% limitation, contained in an internal DOL Field Operations Handbook, spawned numerous lawsuits, claiming servers spent too much time performing allegedly non-tipped work. Counsel summary is here.

* In January 2019, the U.S. District Court for the Western District of Missouri decided in a lawsuit brought against a restaurant franchisee that the new standard issued in the opinion letter did not merit adoption. A final determination will likely be made in subsequent litigation. A summary is here.

* In February 2019, the Department of Labor issued an update to the Wage and Hour Division’s Field Operations Handbook formalizing the one-job interpretation of the rules governing tip credit use. It specified that tips can be counted toward servers’ pay for duties “performed contemporaneously with direct customer-service duties or for a reasonable time immediately before or after performing such direct-service duties.” 

Depreciation: An oversight in the Tax Cuts and Jobs Act of 2017 requires qualified improvement property (QIP) and leasehold improvements to depreciate over 39-years instead of the intended 15-years, and also makes improvements on items like kitchen equipment or furnishings ineligible for bonus depreciation. Efforts on a QIP fix are underway. A summary is here.

*In March 2019, Senators Pat Toomey (R-PA) and Doug Jones (D-AL) introduced S. 803, the "Restoring Investments in Improvements Act. " The Tax Foundation issued a summary of the measure.

Joint Employer: The National Labor Relations Board’s (NLRB) 2015 Browning-Ferris Industries (BFI) decision created of a new “joint employer” liability standard, making any business that exercises indirect, potential, or even reserved control over the practices of another business and its employees a joint employer.  This standard could make franchisors responsible for actions of franchisees or companies responsible for actions of contractors. In September, 2018, the NLRB issued a notice of proposed rulemaking (NPRM). The proposed rule would return the standard to the direct and immediate control standard that was in place prior to the Board's Browning Ferris decision.  A summary is here.

State News

Plastic Straw Bans: California became the first state to enact a state-wide ban on single use plastic straws. The law, which went into effect Jan. 1 2019, applies only to full-service, dine-in restaurants, not fast-food establishments or other businesses. It sets a fine of $25 per day for restaurants that violate the rule, with the total not to exceed $300 annually.

Cashless Payments: Effective immediately, New Jersey has become the second state to prohibit businesses from refusing to accept cash as payment. A news report is here. Massachusets has a 1978 pro-cash measure on the books. Philadelphia, PA is the first city to ban cashless payments as the only transaction option in stores.  Starting July 1, 2019, restaurants in the city can not refuse to accept cash as payment. The law also prevents businesses from demanding surcharges on customers who pay with cash. Penalties include up to a $2,000 fine. A news report is here. Similar measures are under consideration in New York.