On August 23, 2024, the Fifth Circuit Court of Appeals (covering Mississippi, Louisiana, Texas and the Canal Zone) struck down – nationally – the 80/20 tip credit rule in Restaurant Law Center v. DOL. This rule was created by the Federal Department of Labor and was intended to help apply the federal wage and hour law (the Fair Labor Standards Act). The court found the rule “both arbitrary and capricious” as well as contrary to the Fair Labor Standards Act (FLSA).
The 80/20 Rule
The Department of Labor’s final rule on tipped employees was effective December 28, 2021 (the “Rule”) and incorporated some of the existing practices across the country. The Rule allowed employers to pay tipped employees a subminimum wage as long as tips at least made up the difference. Under the Rule, tip credit was only available when an employee spent a minimum of 80% of the week on tip earning work. Tip credit was also unavailable if non tipped tasks lasted 30 or more consecutive minutes. The Rule also clarified the narrow definition of tipped work.
Employers claimed the Rule was unreasonable as it was too difficult to calculate how much work was tipped verses non-tipped as employees are often alternating back and forth throughout shifts. It was this factual scenario that prompted this suit.
The Impact of the Fifth Circuit Decision.
While the 80/20 rule is struck down nationally (subject to an appeal), it may still apply outside the Fifth Circuit. The deciding factors include what the state law provides and how the other circuits apply the 80/20 rule in the past – before the DOL Rule was drafted. In Circuits where the 80/20 concept was applied before the Rule was enacted, it still would apply. Bottom line is you need to check with competent Labor and Employment counsel if you have tipped employees to ensure you are paying them correctly.
Is this Case a Sign of Things to Come?
This case may be more significant as a sign of where the courts are heading rather than how tipped employees get paid. The Fifth Circuit Court relied on the recent US Supreme Court decision of Loper Bright v. Raimondo, which overruled Chevron. Chevron required courts to defer to the statutory interpretations by the federal agency charged with enforcing a federal statute, e.g., courts should defer to how the DOL interprets the Fair Labor Standards Act. Loper reversed that. The Supreme Court held the judiciary is given the power to interpret the meaning of legislation rather than government agencies (Executive Branch) such as the DOL. Suddenly, the courts have much more power than they ever had before. Restaurant Law Center v. DOL is one of the first cases to demonstrate the impact of this new power.
Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560
