The Fifth Circuit Court of Appeals has struck down the U.S. Department of Labor (DOL) 2021 final rule updating tip credit regulations under the Fair Labor Standards Act (FLSA) in the case of Restaurant Law Center v. U.S. Department of Labor.
“This decision is a big deal for restaurant owners and for tipped employees,” said Sean Kennedy, Executive Vice President of Public Affairs, National Restaurant Association. “For more than two and a half years, restaurant owners have worked in fear of not being in compliance with the complicated and confusing requirements of the 2021 amendments. Today’s decision will alleviate the confusion and allow operators to focus on the economic challenges that threaten their business viability.”
Epstein Becker Green’s Paul DeCamp, who represented the restaurant groups in this case, elaborated for Modern Restaurant Management (MRM) magazine:
“The Fifth Circuit’s ruling has vacated and set aside the Department of Labor’s 80/20/30 Rule. As a result, nothing in federal law limits an employer’s ability to take a tip credit for time a tipped employee spends performing work consistent with that employee’s occupation, so long as all the other conditions for taking the tip credit—for example, adequate notice and sufficient tips to cover the tip credit—apply. To the extent that an employee also spends time working in other occupations for the same employer, such as working shifts as a dishwasher or cook in a restaurant, or a front desk clerk in a hotel, or a maintenance engineer in a casino, the employer should ensure that the employee receives full minimum wage, rather than a tipped wage, for the time spent in those occupations. And employers should remain mindful of and compliant with any state or local laws that impose an 80/20 requirement or some other limitation on use of the tip credit.
The Department of Labor may seek to challenge the ruling by petitioning for rehearing before either the same three-judge panel or the full en banc Fifth Circuit, or possibly certiorari before the Supreme Court. Given the clear, unanimous ruling by the three-judge panel, which consisted of judges appointed by presidents of both parties, as well as the absence of a direct circuit split on the issue, we suspect that the government will abandon the fight. But that is a matter for the Department of Labor and the Solicitor General’s office to decide. If they do seek further review of the ruling, the Restaurant Law Center and the Texas Restaurant Association stand ready to defend the Fifth Circuit’s well-reasoned and obviously correct decision.
We anticipate that some plaintiffs’ attorneys may try to argue that the 80/20 limitation—minus the 30-minute piece—should still apply within the Eighth, Ninth, and Eleventh Circuits based on rulings from those courts interpreting Department of Labor guidance that preceded the now-vacated regulation. We believe that those arguments will ultimately not prevail. In the event that one or more of those courts continue to adhere to such a view in light of the Fifth Circuit’s ruling, we would be looking at a circuit split ripe for the Supreme Court’s review, and we do not believe that the Department’s earlier guidance would pass muster any more than the 2021 rule did.”
“We are pleased that the court agreed with us and determined that the Wage and Hour Division overreached and exceeded its proper authority with its amendments to the ‘Dual Jobs’ regulation,” said Angelo Amador, Executive Director, Restaurant Law Center. “The Department of Labor and its agencies had no authority to redraft the laws that Congress enacts, denying businesses the rights conferred by statute. The Restaurant Law Center and the Texas Restaurant Association brought this case because local restaurants would suffer irreparable damage from the illegal and unjust 2021 amendments to the ‘Dual Jobs’ regulation and we’re satisfied to have ultimately succeed in having the new regulation thrown out due to its illegality.”
