In August, the Fifth Circuit vacated a Department of Labor (DOL) regulation governing how tipped employees could be paid by their employers.
FLSA requires employers to pay employees at least the minimum wage. In 1967, Congress changed the minimum wage rule for tipped employees to allow an employer to claim a tip credit and count tips from customers toward a portion of the minimum wage obligation.
In 1988, DOL segregated tipped employees' work into three categories:
Tip-producing work (e.g., a server taking a customer's food order);
Directly supporting work (e.g., a server cleaning up a dining area before serving the next customer); and
Non-tipped work (e.g., a server cleaning the restaurant's dining area as part of closing duties).
The DOL published the 80/20 rule preventing employers from taking a tip credit when a tipped employee spent more than 20 percent of time on non-tip-producing duties.
In 2021, DOL published the 30-minute rule preventing employers from taking a tip credit when a tipped employee engaged in more than thirty minutes of non-tipped work at any time.
The lower court granted DOL's motion for summary judgment by ruling on a 2021 suit to permanently enjoin DOL's enforcement of the 80/20 and 30-minute rules.
The Fifth Circuit Court of Appeals, noting the Supreme Court's new Ramondo ruling, found that the 80/20 and 30-minute rules were inconsistent with the FLSA's text and were arbitrary and capricious.
It held the DOL's rules departed from the FLSA by parsing job duties by the minute or percentage—when the statute only required an employee to be engaged in a tipped occupation. The Court explained that where an employee regularly engages in distinct occupations, a tip credit is only permissible for the tipped occupation; however, an employee is not engaged in dual jobs when engaged in a single occupation that includes tip-producing and non-tipped tasks.
The Court found the rules arbitrary and capricious, partly because they ignored the realities of a tipped employee's occupation, which involves tip-producing and non-tipped work at varying and ever-changing intervals and durations.
The Court reversed the DOL's lower court victory and rendered judgment for the restaurants vacating the rules.
WHY THIS IS IMPORTANT...This decision is important for the tip employee question and shows the effect of the Supreme Court's recent decision on administrative discretion.
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