Fifth Circuit: DOL 80/20 Tip Rule is Pending Judicial Scrutiny

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All FLSA-Covered Employers with Employees in TX, LA, and MS

EFFECTIVE

April 28, 2023

  

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Quick Look

  • Fifth Circuit said that the DOL’s 80/20 Rule has a burdensome recordkeeping requirements that may cause irreparable harm to employers.
  • The issue has been sent back to the district court for reconsideration and remains a developing issue.

Discussion

On April 28, 2023, the Fifth Circuit Court of Appeals directed a Texas district court to further examine a lawsuit challenging the U.S. Department of Labor’s (DOL) 80/20 Rule, which impacts employers utilizing a tip credit to fulfill their minimum wage obligations under the Fair Labor Standards Act (FLSA). This decision is part of an ongoing process to determine the legitimacy of the 80/20 Rule.

In October 2021, the DOL announced a final rule reinstating the 80/20 Rule, which divides employee work into three categories: (1) tip-producing work; (2) directly supporting work; and (3) work that is not part of a tipped occupation. Under the Rule, a tip credit cannot be claimed if tipped employees spend over 20% of their time on non-tip generating tasks or if such non-tip generating tasks are done continually for more than 30 minutes.

In December 2021, the Restaurant Law Center (RLC) and the Texas Restaurant Association (TRA) brought suit in the Texas federal district court, challenging the validity of the 80/20 Rule and filing a preliminary injunction to preclude the DOL from enforcing the Rule. The preliminary injunction was initially denied by a Texas district court judge in February of 2022, based on the judge’s finding that RLC and TRA had not shown that there would be irreparable harm flowing from enforcement of the 80/20 Rule. RLC and TRA appealed this decision to the Fifth Circuit Court of Appeals.

The Fifth Circuit determined that the district court judge had incorrectly disregarded evidence of irreparable harm, specifically finding that the 30 continuous-minute limitation under the 80/20 Rule creates a minute-by-minute record keeping obligation and imposes significant costs on employers. Following the Fifth Circuit’s April 28th decision, the case has been sent back to the district court for reconsideration. Employers in the Fifth Circuit should continue to monitor developments of this area, however, for the time being, the 80/20 Rule remains in effect.

 

Action Items

  1. Review compliance with the 80/20 Rule.
  2. Continue to monitor legal developments regarding legitimacy of the 80/20 Rule for tipped employees.
  3. Consult with legal counsel regarding applicability of the 80/20 Rule to current tipped employees.
  4. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2023 ManagEase