5th Circuit Strikes Down DOL Tipped-Wage Rule

The 5th U.S. Circuit Court of Appeals has vacated a U.S. Department of Labor (DOL) rule that regulated the payment of tipped employees under the Fair Labor Standards Act (FLSA). The court determined the rule did not align with the language of the FLSA. We’ve gathered articles on the news from SHRM Online and other outlets.

80/20/30 Rule

The vacated rule, called the 80/20/30 rule, identified three categories of work:

• Tip-producing work that provides service to customers for which tipped employees receive tips.
• Directly supporting work performed in preparation of or to otherwise assist tip-producing customer service work.
• Work that is not part of the tipped occupation and that is neither tip-producing nor directly supporting.

Under the rule, any time spent in the third category had to be compensated at full minimum wage—that is, no tip credit could be taken. Time spent in the second category could be paid at a tip credit rate, but only if the work was not performed for a substantial amount of time. Substantial time was defined as either more than 30 continuous minutes or more than 20% of the hours in the workweek for which the employer had taken a tip credit.

The 5th Circuit’s decision signals the end of the 80/20/30 rule that took effect in December 2021. Employee-side lawyers may assert that the 1988 version of the 80/20 rule remains in place outside the 5th Circuit, which covers Louisiana, Mississippi, and Texas. However, there may be further legal challenges of that rule in light of the U.S. Supreme Court’s June decision in Loper Bright Enterprises v. Raimondo, which the 5th Circuit relied upon in part. Loper Bright overruled so-called Chevron deference to ambiguous federal agency rules.

(Littler)

Background on DOL Rule

The DOL’s overturned 2021 rule had replaced a regulation adopted by the Trump administration that said workers could be paid the tipped minimum wage if they primarily performed tipped duties.

Two trade groups—the Restaurant Law Center and the Texas Restaurant Association—sued soon after the Biden administration adopted the 2021 rule. The groups were appealing a decision from a district court judge upholding the rule last year.

The 5th Circuit said the 2021 rule “draws a line for application of the tip credit based on impermissible considerations and contrary to the statutory scheme enacted by Congress.”
(Reuters)

Supreme Court Ruling’s Impact

Employers may have to follow fewer regulations and could be in a better position to challenge rules from federal agencies, including the DOL, after the U.S. Supreme Court in Loper Bright overruled a 1984 decision, Chevron, that held courts should defer to federal agencies’ reasonable interpretations of ambiguous laws passed by Congress.

“The Supreme Court has made a monumental decision in Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce, overruling Chevron deference,” said Emily M. Dickens, chief of staff, head of government affairs, and corporate secretary for SHRM.

“This ruling overturns decades of established precedent, fundamentally changing how courts evaluate the boundaries of regulatory authority and executive actions,” Dickens added. “This decision sets a new precedent to guide lower courts to not give deference to a federal agency’s interpretation of laws when challenged.”

(SHRM Online)

Chicago, D.C. Are Phasing Out Tip Credit

Chicago and Washington, D.C., have passed laws phasing out the tip credit. In Chicago, the subminimum wage for tipped employees will gradually be eliminated by July 1, 2028. In Washington, D.C., the subminimum wage will gradually increase to the standard minimum wage in 2027.

(SHRM Online)