What happened?

On August 23, 2024, in Restaurant Law Center v. U.S. Department of Labor, the U.S. Court of Appeals for the Fifth Circuit vacated the U.S. Department of Labor (DOL) Tip Rule or “80/20/30 Rule” that governed how tipped employees must be paid under the Fair Labor Standards Act (FLSA). The rule is no longer in effect nationwide.

What are the details?

Quick Summary:

• The 5th Circuit determined that the DOL’s regulations were:
  
  (1) Inconsistent with the text of the FLSA.
  (2) Arbitrary and capricious in violation of the Administrative Procedures Act (APA).

• The Rule ban is nationwide.

Main Bites for Employers:

• The Fifth Circuit Court of Appeals recently vacated the DOL’s 80/20/30 Rule, which had evolved over the years through non-regulatory guidance and was formalized in 1988.

• This rule restricted the amount of time tipped employees could spend on non-tip-producing activities to 20%. The rule oscillated with changes in presidential administrations, culminating in the 80/20/30 Rule effective December 2021.

• The 80/20/30 Rule categorized work into three types:
  • Tip-producing: Direct service to customers.
  • Directly supporting: Tasks assisting tip-producing work.
  • Not part of the tipped occupation: Unrelated tasks.

• Under this rule, time spent on unrelated tasks had to be compensated at full minimum wage. Directly supporting tasks could be paid at a tip credit rate, but only if they did not exceed 30 continuous minutes or 20% of the workweek.
  • For additional information about the background.

• The Court: On August 23, 2024, the Fifth Circuit invalidated the rule, finding it inconsistent with the FLSA and arbitrary and capricious under the APA. The court held that tipped employees cease to be tipped employees when they engage in unrelated occupations, not based on the time spent on non-tip-producing tasks.
  • For additional information about the case.

• The future of this decision is uncertain, as it may be appealed to the U.S. Supreme Court or challenged by other circuits. For now, the 80/20/30 Rule is invalid nationwide.

Business Considerations

• Employers should review their current policies and practices regarding tipped employees to ensure compliance with the latest legal standards, considering the Fifth Circuit’s ruling.
• Employers should stay informed about any potential appeals or challenges to the Fifth Circuit’s decision.
• Employers should document all work performed by tipped employees to maintain clear records that can support compliance with both federal and state laws.
• Employers should consider conducting regular audits of their payroll practices to ensure that tipped employees are being compensated correctly according to the latest legal standards.

Source References

• Restaurant Law Center v. U.S. Department of Labor, No. 23-50562 (Aug. 23, 2024).
• Fifth Circuit Vacates DOL’s 80/20/30 Rule for Tipped Employees (Littler Mendelson P.C.)
• 5th Circuit Vacates DOL’s Federal 80/20/30 Tip Credit Rule (Fox Rothschild LLP)
• 5th Circuit tosses DOL’s tip credit final rule (Industry Dive.)
• Fifth Circuit Strikes Down DOL Tip Credit Rule: What It Means for Employers (Jackson Lewis P.C.)
• Fifth Circuit Court of Appeals Nixes DOL’s Tip Rule (FordHarrison)

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