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Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal rule (2021)
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The Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal rule is a significant rule issued by the Wage and Hour Division, U.S. Department of Labor (DOL) effective December 28, 2021, that withdrew one portion of the Tip Regulations under the Fair Labor Standards Act (FLSA), and revised another portion of the Act regulating when employers can take a tip credit. DOL aimed to create fair and clear standards to protect tipped employees. DOL issued this rule under the authority granted it by the FLSA.[1]
Timeline
The following timeline details key rulemaking activity:
- December 28, 2021: The final rule took effect.[1]
- October 29, 2021: DOL issued the final rule.[1]
- August 23, 2021: The comment period closed.[1]
- June 23, 2021: DOL issued the proposed rule and opened the comment period.[1]
Background
The Fair Labor Standards Act (FLSA) required employers to pay their employees $7.25 per hour, as of the time DOL published the rule. However, if the employee is in a tipped profession, the employer can take a tip credit of up to $5.12; the employer must pay at least $2.13 to an employee. DOL defined a tipped employee as making at least $30 a month in tips. A tipped employee may only be counted as such when they are performing the duties of the tipped occupation, as some employees may have other jobs where they do not meet the classification for being a tipped employee. DOL issued guidance on whether a job was a tipped occupation if 80% of the duties were tipped duties, and 20% of the duties were supportive of the tip-generating duties, but not in themselves being tipped. In 2018, DOL rescinded the 80/20 rule and issued alternative guidance to which many courts declined to defer. DOL proposed new guidance in 2021 to redefine "tipped occupation" that DOL believed was clear and fair to both employees and employers, and this final rule codified the guidance.[1]
Summary of the rule
The following is a summary of the rule from the rule's entry in the Federal Register:
| “ | In this final rule, the Department of Labor (Department) finalizes its proposal to withdraw one portion of the Tip Regulations Under the Fair Labor Standards Act (FLSA) (2020 Tip final rule) and finalize its proposed revisions related to the determination of when a tipped employee is employed in dual jobs under the Fair Labor Standards Act of 1938 (FLSA or the Act). Specifically, the Department is amending its regulations to clarify that an employer may only take a tip credit when its tipped employees perform work that is part of the employee's tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work, provided the directly supporting work is not performed for a substantial amount of time.[1][2] | ” |
Summary of provisions
The following is a summary of the provisions from the rule's entry in the Federal Register:[1]
| “ |
In its reproposal, the Department proposed to amend its dual jobs regulation to clarify that an employee is only engaged in a tipped occupation under 29 U.S.C. 203(t) when the employee either performs work that produces tips, or performs work that directly supports the tip-producing work, provided that the directly supporting work is not performed for a substantial amount of time. The Department's proposal defined work that “directly supports” tip-producing work as work that assists a tipped employee to perform the work for which the employee receives tips. The proposed regulatory text also explained that an employee has performed work that directly supports tip-producing work for a substantial amount of time if the tipped employee's directly supporting work either (1) exceeds, in the aggregate, 20 percent of the employee's hours worked during the workweek or (2) is performed for a continuous period of time exceeding 30 minutes. This final rule withdraws that part of the 2020 rule amending the Department's dual jobs regulation at § 531.56(e) and updates that same regulation to incorporate the changes it proposed in its 2021 NPRM in § 531.56(e) and (f), with slight modifications. In finalizing this rule, the Department has taken into consideration the need to ensure that workers do not receive a reduced direct cash wage when they are not engaged in a tipped occupation, as well as the practical concerns of employers who must apply this rule in varied workplaces. The final rule amends § 531.56 to define when an employee is performing the work of a tipped occupation, and is therefore engaged in a tipped occupation for purposes of section 3(t) of the FLSA. The Department has clarified and modified some of the definitions in the final rule from the proposal in order to ensure that this rule is broadly protective of tipped employees, and that the test set forth in the rule is one that employers can comply with and that the Department can administer.[2] |
” |
Significant impact
- See also: Significant regulatory action
Executive Order 12866, issued by President Bill Clinton (D) in 1993, directed the Office of Management and Budget (OMB) to determine which agency rules qualify as significant rules and thus are subject to OMB review.
Significant rules have had or might have a large impact on the economy, environment, public health, or state or local governments. These actions may also conflict with other rules or presidential priorities. Executive Order 12866 further defined an economically significant rule as a significant rule with an associated economic impact of $100 million or more. Executive Order 14094, issued by President Joe Biden (D) on April 6, 2023, made changes to Executive Order 12866, including referring to economically significant rules as section 3(f)(1) significant rules and raising the monetary threshold for economic significance to $200 million or more.[1]
The text of the Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal rule states that OMB deemed this rule economically significant under E.O. 12866:
| “ | OIRA has determined that this rule is economically significant under section 3(f) of Executive Order 12866.[2] | ” |
Text of the rule
The full text of the rule is available below:[1]
Noteworthy events
Fifth Circuit rules against DOL tip credit regulations, citing Loper Bright
The United States Court of Appeals for the Fifth Circuit ruled on August 23, 2024, to block the Department of Labor's (DOL) 2021 tip credit rule, reversing a district court decision. Appeals Judge Jennifer Walker Elrod said the court based the reversal on Loper Bright Enterprises v. Raimondo, which overturned Chevron deference on June 28, 2024. [3]
The lower court's July 2023 decision upholding the tip credit rule relied on Chevron deference. Elrod said in the Fifth Circuit's decision, "While the district court was of course correct to apply the Chevron framework at the time of its decision, the Supreme Court’s intervening opinion in Loper Bright requires us to depart from the district court’s analysis at the very start. We must parse the text of the FLSA using the traditional tools of statutory interpretation."[4][5]
See also
External links
Footnotes
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Federal Register, "Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal," January 9, 2024.
- ↑ 2.0 2.1 2.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ U.S. Courts of Appeal for the Fifth Circuit, "Restaurant Law Center v. DOL," September 19, 2024
- ↑ U.S. Courts of Appeal for the Fifth Circuit, "Restaurant Law Center v. DOL," September 19, 2024
- ↑ In the United States District Court for the Western District of Texas Austin Division, "Restaurant Law Center v. DOL," September 19, 2024
