Judge Won't Block DOL Rule on Paying Tipped Workers

​A federal judge in Texas declined to halt a Department of Labor (DOL) rule on gratuities while the court hears a challenge led by the Restaurant Law Center and the Texas Restaurant Association.

Under the Fair Labor Standards Act (FLSA), certain employers can take a so-called tip credit and pay servers, bartenders and other tipped employees as little as $2.13 an hour if those workers earn at least the standard minimum wage of $7.25 an hour once their tips are added in. 

Under the DOL's final rule, which took effect on Dec. 28, 2021, employers may take a tip credit only for the hours when an employee is working on tip-producing activities or tasks that directly support such activities, so long as the "80/20 rule" is followed. This means that the employee spends no more than 20 percent of the workweek on nontipped support tasks—such as rolling silverware into napkins, setting tables and refilling condiment bottles before or after service.

The final rule also requires employers to pay workers the full minimum wage when they spend at least 30 continuous minutes on secondary duties that don't generate gratuities.

The Lawsuit

Under the FLSA, "tipped employees" are "engaged in an occupation in which [they] customarily and regularly receive more than $30 a month in tips."

The Restaurant Law Center and the Texas Restaurant Association argued that the DOL exceeded its authority by creating a new definition of a "tipped occupation" that is not supported in the FLSA. Citing concerns about the cost of compliance, the groups sought a preliminary injunction, which would halt the rule while the court considers the merits of the case. 

"Tasks such as getting the restaurant ready for customers, restocking items during meal service, cleaning and closing down the restaurant at the end of the day have long been an integral part of the tipped occupations commonly found in restaurants," said Emily Williams Knight, Ed.D., president and chief executive officer of the Texas Restaurant Association.

"Because restaurant employees often move rapidly from one task to another throughout a shift, there is no practical way for an employer to keep the task-by-task records the administration's regulations would demand to avoid potential penalties," she said. 

Angelo Amador, executive director of the Restaurant Law Center, argued that the DOL's regulations may harm hospitality employers that are "currently focused on labor and supply chain shortages and working to keep their doors open during an economically devastating pandemic." 

One owner of five restaurants in Texas argued that her restaurants would no longer be able to take the tip credit under the new regulations.

Attorneys for the DOL argued that the department acted within its authority and the restaurant groups overstated the cost of compliance.

Siding with the DOL, Judge Robert Pitman of the U.S. District Court for the Western District of Texas denied the motion for a preliminary injunction on Feb. 22.  

"Plaintiffs claim the main source of harm from the rule is the compliance costs it entails. At this point, however, these costs should have already been incurred," Pitman said in his order. "Because of plaintiffs' timing in filing this suit and seeking this injunction, the rule has already been in place for more than a month. The remaining costs of compliance with the rule are at best unspecific, and at worst purely speculative."

He added that the court "is hesitant to read in any unexplained harms from the obligation to pay a modest $7.25 minimum wage to employees."

Long-Standing Policy

The DOL had a long-standing policy of applying the 80/20 rule, but the prior administration rescinded the rule and replaced it with a broader "reasonable time" standard that allowed employers to pay just the tip minimum wage whenever tipped workers perform related side jobs (such as rolling silverware) either during, just before or a reasonable time after tipped duties.

The Biden administration's new rule reinstated the 80/20 test and added the secondary requirement to pay the full minimum wage whenever side duties are performed for at least 30 continuous minutes, regardless of whether the 80/20 test has been satisfied for the workweek.

In his order, Pitman highlighted the decades-long history of the 80/20 rule. "Plaintiffs' claims that the rule is unworkably burdensome are particularly difficult to support given the rule's similarity to the 80/20 guidance, which has governed the industry for decades," he said. "That guidance has been repeatedly upheld in the face of legal challenges."

The new rule aims to level the playing field for historically marginalized workers. "Women, people of color and immigrants represent more than half of all tipped workers," said DOL Wage and Hour Division Acting Administrator Jessica Looman. The final rule "enhances protections for this vital segment of the nation's essential workforce and combats income disparity and promotes equity," she added.