In a landmark decision issued on August 23 in the case of Restaurant Law Center; Texas Restaurant Association v. the United States Department of Labor, the United States Court of Appeals for the Fifth Circuit upended decades of Department of Labor (“DOL”) pronouncements concerning compensation for servers performing side work related to the occupation of a tipped employee. Relying on The Administrative Procedure Act, the Court held that the DOL’s 2021 Final Rule in question was contrary to the Fair Labor Standards Act’s (“FLSA”) clear statutory text, and also that it was arbitrarily adopted outside the boundaries of applicable law.
The FLSA allows employers to take what is commonly referred to as a “tip credit” when paying the wages of any “tipped employee.” The tip credit allows employers to pay such employees at a rate of $2.13 per hour in Texas, so long as their total earnings from tips plus the $2.13 wage match or exceed the applicable federal minimum wage of $7.25 per hour. In 1967, the DOL, which is authorized to promulgate rules interpreting and clarifying the FLSA, issued its “dual-jobs” regulation, differentiating compensation paid to a server if that person performed “dual jobs,” that is, if the individual served as a waiter and also served as a maintenance employee. A waiter performing maintenance duties had to be compensated at the full guaranteed minimum wage for performing such work because that work was “unrelated” to the job of the waiter. On the other hand, a waiter performing tasks related to the job of server, such as cleaning and setting tables, toasting bread, making coffee, or occasionally washing dishes or glasses, was classified as performing duties “related to” the tipped occupation, even though such work did not produce tips.
The Fifth Circuit’s latest ruling focused on the actions of the DOL in interpreting and regulating the scope of “related” side work. In particular, the Court noted that after issuing opinion letters interpreting restrictions on non-tipped work for several years, the DOL eventually adopted what came to be known as its “80/20” guidance. This guidance stated that an employer could only require a server to spend a maximum of 20 percent of the server’s time on non-tipped activities that were related to the tipped occupation, in order for the employer to claim the full tip credit and avoid liability for paying the full minimum wage to that server.
Identifying the vacillating interpretations of this regulation by the DOL with each change of presidential administration, the Court noted that the DOL had most recently issued a rule defining when a server is “engaged in a tipped occupation.” This most recent iteration of the rule not only required that a server be compensated by mandatory minimum wage payments for performing related (or “directly supporting”) side work for more than 20% of a server’s workweek, but also inserted a new requirement, prohibiting an employer from requiring a server to perform directly supporting side work for more than 30 minutes at any given time (the “Final Rule”). The Final Rule adopted in December 2021 effectively codified the DOL’s longstanding 80/20 guidance along with the new 30-minute requirement.
After analyzing the background and underlying rationale for these pronouncements and calling attention to the fact that the Chevron doctrine—which previously required a court’s deference to “permissible” agency interpretation of a law—had been overruled, the Court ultimately held that the DOL had exceeded its authority in interpreting and applying the wording of the FLSA. Particularly noting the anomaly of the DOL’s guidelines concerning what does or does not constitute “related” or “directly supporting” side work being undertaken for more than 20% of a server’s workweek, further exacerbated by the Final Rule’s recently adopted 30-minute requirement, the Court stated that the problem with such guidelines “is especially driven home” by the manner in which the Final Rule deals with a server’s idle time. If a server is standing idly by while waiting to serve customers for 21 percent of the server’s workweek, or 31 continuous minutes, that server is no longer engaged in his occupation and is no longer a tipped employee for the remainder of that excess time. To the Court, the existence of the 80/20 rule for almost forty years did not legitimize the DOL’s interpretation of it as a core characteristic of the FLSA, as it cannot defeat the FLSA’s plain text.
The Court thus vacated all aspects of the DOL’s Final Rule, including the 80/20 rule and the 30-minute requirement, and its attempts to regulate the compensation of tipped employees based upon a structure that triggered the obligation of additional compensation based on how much time a server spends on matters related to the tipped occupation. The Court does point out that its ruling in no way affects the validity of the DOL’s dual-jobs regulation, as that regulation’s focus is on “whether the employee performs tasks unrelated to his or her tipped occupation,” not the “amount of time” spent on untipped tasks.
In light of the Fifth Circuit’s landmark decision, employers in this Circuit should revisit their policies and procedures that have an impact on servers.
