Well, The DOL’s 80/20 Tipped Employee Rule Won’t Be Enjoined After All

As we reported in our May 2023 E-Update, the U.S. Court of Appeals for the Fifth Circuit reversed a district court’s decision denying a restaurant association’s request to enjoin a Department of Labor final rule that reinstated the 80/20 rule applicable to tipped employees and further limited the amount of an employee’s non-tipped work time for which the employer may take a tip credit. The Fifth Circuit sent the case back to the district court for further proceedings in accordance with its analysis – but the district court has once again refused to enjoin the rule.

Under the Fair Labor Standards Act and analogous state laws, an employer of tipped employees can satisfy its obligation to pay those employees the applicable minimum wage by paying those employees a lower direct cash wage (no less than $2.13 an hour under federal law) and counting a limited amount of its employees’ tips as a partial credit (i.e. the “tip credit”) to satisfy the difference between the direct cash wage and the applicable minimum wage. The 80/20 rule, which has swung in and out of favor with the change in Presidential administrations, provides that if an employee performs work that directly supports tip-producing work either exceeding 20 percent of all of the hours worked during the employee’s workweek or exceeding 30 continuous minutes, the employee is not performing labor that is part of the tipped occupation, and the employer may not take a tip credit for that time.

In the current case, Restaurant Law Center v. DOL, the district court found that the DOL had the authority to interpret the FLSA’s provisions as to tipped employees, and that its interpretation was not impermissibly arbitrary, capricious, or manifestly contrary to the FLSA’s statutory language. The court further found that the DOL rule did not violate the “major questions” doctrine, which requires Congress to explicitly authorize agencies to decide issues of major national significance. The amounts of money at issue in the present case do not rise to that level, and the rule simply restores prior long-standing guidance, according to the court.

This ruling means that, at least for now, employers of tipped employees must continue to comply with the rule, which we further explained in our October 2021 E-Update.