DOL Pulls The String On Tip Credit Regulation… Again


By: Justin Boron

The regulatory yo-yo on servers’ tips continues.

On Wednesday, the U.S. Department Labor recoiled a rule set to take effect today, March 1st that would have made it easier for restaurants to comply with a regulation governing the amount of hours tipped employees like servers—who typically earn a lower minimum wage because their tips more than compensate for the minimum wage gap—could spend engaged in non-tipped tasks such as folding napkins or prepping the dining room.

Referred to as the 80/20 rule, the regulation currently prohibits an employer from paying lower minimum wage to a tipped employee if more than 20 percent of their time on a shift was spent performing non-tipped tasks. Because of the practical difficulties in tracking that time, restaurants were left without a clear way to comply with the regulation. And the ambiguity has been a boon to plaintiff’s attorney litigation for the past decade.

The standard for proper tip management has been a tough one to track since 2017 when the DOL moved to unwind the decades-old 80/20 rule. The change would have permitted restaurants to pay servers a lower minimum base rate even when they spent more than 20 percent of their time performing tasks that didn’t produce tips, as long as their tips received from customers caused their hourly rate to exceed state or federal minimum wage.

But federal courts quickly pulled back that change by holding that the attempt at de-regulation did not deserve Chevron deference and held that the 80/20 rule remained in effect.

That triggered the DOL’s attempt to unspool the 80/20 rule again through formal rulemaking procedures aimed at withstanding federal court challenges.

Now less than a week before the rule was set to take effect, the DOL has reversed course again and delayed the rule until April 30. It could let it take effect then, or withdraw or it, or propose a new rule.

But absent a clear standard on how a restaurant can practically comply with the 80/20 rule, it is likely to invite more litigation in the restaurant industry at a time when the industry has been ravaged by pandemic restrictions and economic downturn.

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