Written by Kristen O’Connell, CPP
In a landmark decision that significantly impacts employers in the hospitality industry, the Fifth Circuit Court of Appeals’ decision on August 23, 2024, in Restaurant Law Center v. U.S. Department of Labor, vacated the U.S. Department of Labor’s (DOL) 80/20/30 Tip Credit Rule. This ruling introduces potential changes to how employers can compensate tipped employees, particularly in the amount of time they can allocate to non-tip-generating duties while still receiving a lower tipped minimum wage.
Understanding the 80/20/30 Rule
The 80/20/30 Rule, introduced by the DOL, aimed to clarify the Fair Labor Standards Act (FLSA) tip credit provisions. Under this Rule, employers could claim a tip credit—paying tipped employees less than the federal minimum wage, provided tips make up the difference. However, the Rule also set limits on the types of duties that tipped workers could perform while still qualifying for the tip credit:
- 80% Tip-Producing Work: At least 80% of an employee’s work must involve tip-producing activities, such as serving customers or bartending.
- 20% Related but Non-Tipped Work: No more than 20% of the workweek could be spent on duties related to tipped work but not directly generating tips, like setting tables or restocking supplies.
- 30-Minute Limit: Non-tipped work could not exceed 30 consecutive minutes during any shift.
The 5th Circuit’s Decision
On August 23, 2024, the 5th Circuit Court vacated the 80/20/30 Rule, stating that it placed an undue burden on employers and was difficult to enforce consistently. The court found that the DOL exceeded its authority in creating this Rule, making it invalid under the law. This decision only applies to states within the 5th Circuit (Texas, Louisiana, and Mississippi), but it may have broader implications across the country, as other courts could reference this ruling in similar cases.
What Does This Mean for Employers?
With the 80/20/30 Rule vacated, employers in the 5th Circuit now have greater flexibility in assigning duties to tipped workers without worrying about the strict limits imposed by the Rule. Employers must still comply with the FLSA’s tip credit provisions, but they may no longer face penalties for exceeding the 80/20 or 30-minute limits.
This decision also highlights the ongoing legal uncertainty surrounding the regulation of tipped employees. Employers outside the 5th Circuit should stay informed of developments in their jurisdictions, as this ruling could influence future legal challenges to the DOL’s regulations.
Implications for Tipped Employees
For tipped employees, the ruling may result in increased non-tip-producing duties, which could affect their overall earnings. While the FLSA’s tip credit provisions remain unchanged, tipped workers may need to be more diligent in tracking their work duties to ensure they are being compensated fairly. It is crucial for workers to stay informed about any changes to state or local labor laws that could influence their wages and working conditions.
What’s Next?
The 5th Circuit’s ruling could prompt further legal challenges to the DOL’s regulations on tipped employees. Employers in the hospitality industry and tipped workers should monitor developments closely and consult legal counsel to ensure compliance with federal, state, and local labor laws.
