On August 23, the United States Court of Appeals for the Fifth Circuit issued its much-anticipated decision in Restaurant Law Center v. United States Department of Labor. In one of the very first federal appellate court rulings since the Supreme Court overruled Chevron USA Inc. v. Natural Resources Defense Council, Inc. this year, the unanimous three-judge panel concluded that the Department of Labor’s 2021 Final Rule regarding tipped employees and the minimum wage, commonly known as the “80/20 Rule” or the “80/20/30 Rule,” is both contrary to the pertinent statutory text and arbitrary and capricious. As a result, the court vacated the rule.
Background: Minimum Wage, the Tip Credit, Dual Jobs, and 80/20
The Fair Labor Standards Act (the “FLSA”) allows employers to count a portion of tips received by a “tipped employee” toward satisfying the federal minimum wage obligation. The statute defines a “tipped employee” as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” That portion of the statute has been in place, largely unchanged, since 1966. Whether an employee counts as a “tipped employee” determines whether the employer may pay a reduced hourly wage of as low as $2.13, so long as the tips suffice to make up the difference to minimum wage. Employees who are not tipped employees must receive at least the full minimum wage directly from their employer.
In 1967, the Department of Labor issued a regulation positing that workers may have more than one job with an employer, one of which involves tips and one or more of which does not. The example the Department used was a hotel employee who works some shifts as a server in the hotel restaurant and other shifts as the hotel’s maintenance person. The so-called “dual jobs” regulation took the position that the employer may pay the lower hourly wage, known as taking the tip credit, for the time spent in the tipped occupation of server, but not for the time spent in the untipped maintenance occupation.
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.
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