On April 28, 2023, the U.S. Court of Appeals for the Fifth Circuit reversed and remanded a decision from the Western District of Texas declining to issue a preliminary injunction barring the Department of Labor (“DOL”) from enforcing a regulation known as the “80/20/30 rule.”

As we previously reported, on October 29, 2021, the DOL issued a final rule for determining which tipped employees may receive “tip credit” in lieu of receiving the full minimum wage directly from the employer.  Under the 80/20/30 rule, employers must pay employees at least the minimum wage if they spend more than 20% of their time on tasks that do not immediately and directly generate tips, including wiping down tables, filling salt and pepper shakers, rolling silverware into napkins, and other duties referred to in the industry as “side work,” or if they spend more than 30 consecutive minutes performing such tasks.  The Restaurant Law Center and the Texas Restaurant Association promptly sought a preliminary injunction in the Western District of Texas.

Despite assuming that the plaintiffs are likely to succeed on the merits, the District Court denied the preliminary injunction after finding that the plaintiffs had failed to demonstrate that they would be irreparably harmed by the costs they would incur as a result of complying with the new rule.  Among other things, the court noted that employers had already assumed those costs because the rule had been in place for a month before the court conducted its hearing on the request for an injunction.

On appeal, in Restaurant Law Center v. U.S. Department of Labor, No 22-50145 (5th Cir., Apr. 28, 2023), a panel of the Fifth Circuit ordered the District Court to reconsider the preliminary injunction ruling “expeditiously” after concluding that the District Court erred in its analysis of the irreparable harm prong of the preliminary injunction test. The panel’s majority pointed to the District Court’s failure to acknowledge circuit precedent establishing that “the nonrecoverable costs of complying with a putatively invalid regulation typically constitute irreparable harm [,]” as well as the DOL’s concession that businesses will incur ongoing costs to comply with the rule, as grounds for reversal.

In addition to requiring reconsideration of the question of irreparable harm, the Fifth Circuit also ordered the District Court to consider the remaining prongs of the preliminary injunction test that were not previously analyzed, including whether the threatened injury outweighs any harm that will result to the non-movant if the injunction is granted, and whether the injunction will disserve the public interest. (Note: Epstein Becker & Green represents the Restaurant Law Center and the Texas Restaurant Association in this matter.)