The U.S. Department of Labor’s “80/20/30” rule, which provided guidelines on when employers could take the tip credit for work performed by tipped employees, was recently struck down by the Fifth Circuit Court of Appeals.
Under the Fair Labor Standards Act (FLSA), an employer is permitted to pay tipped employees $2.13 per hour in direct wages, so long as the direct wage and tips earned equal at least the $7.25 hourly federal minimum wage. In 2021, the DOL codified the “80/20” rule, which first appeared in the DOL’s field handbook in 1988. The rule limited the amount of time an employee could spend on work that was not tip-producing to 20% of the employee’s time in a given work week, while still allowing the employer to take the tip credit. Furthermore, the rule defined three categories of work:
1. “Tip-producing work,” such as providing table service;
2. “Directly supporting” work, such as setting and bussing tables; and
3. Work not part of the tipped occupation, such as preparing food.
The final rule imposed a new “30-minute” restriction stating that an employer loses the tip credit for the time a tipped employee performs directly supporting work for a continuous period that exceeds 30 minutes.
The Court held that the U.S. DOL’s final rule was both “contrary to the FLSA’s clear statutory text" and arbitrary and capricious because it drew an impermissible distinction between tip-producing and tip-supporting work. The Court stated that “[I]f a core duty of a server is bussing and setting up tables, the server is undoubtedly engaged in his occupation. It does not matter whether he is tipped or not for those duties.” Further, that tipped employees cease to be tipped employees not because of the amount of time they spend within their tipped occupations performing tasks that may not generate tips, but if and when they engage in unrelated occupations.
The recent decision eliminates the requirement for hospitality employers to comply with the “80/20/30” rule under federal law. The decision has a limited impact to New York hospitality employers because NewYork’s Hospitality Industry Wage Order provides that “[o]n any day that a service employee or food service worker works at a non-tipped occupation (a)for two hours or more, or (b) for more than 20 percent of his or her shift, whichever is less, the wages of the employee shall be subject to no tip credit for that day.”
If you have questions about how this decision affects restaurant employers or employees, please contact the attorneys of Pechman Law Group at 212-583-9500.
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