Fifth Circuit Vacates DOL’s 80/20 Rule for Paying Tipped Workers

August 29, 2024

What's New

A federal appeals court has invalidated the 80/20 rule for paying tipped employees. In Restaurant Law Center v. U.S. Department of Labor, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held August 23 that the rule is contrary to the language of the Fair Labor Standards Act (FLSA).

For many years, DOL guidance forbade an employer to take a tip credit for employees who spent more than 20 percent of their time on work that does not generate tips. The 2021 version of the 80/20 rule required employers to carefully track employees’ tip-producing, tip-supporting, and non-tip-producing work.

Citing Loper Bright Enterprises v. Raimondo, in which the U.S. Supreme Court overturned the Chevron doctrine, the Fifth Circuit found that DOL’s interpretation of the FLSA in fashioning the 80/20 rule rendered the law’s text meaningless because it focused on individual job duties instead of the job itself.

What It Means

The Fifth Circuit suggested an alternative rule that would allow an employer to claim the tip credit when an employee in a tip-producing occupation regularly receives more than $30 monthly in tips. Because the Fifth Circuit vacated the rule, there appears to be no current compliance guidance other than the Fifth Circuit’s suggested alternative. DOL could ask the full Fifth Circuit to rehear the case, or it could seek Supreme Court review.

What You Should Do

Employers of tipped workers should comply with applicable state and local tip credit laws. CWC members can access our State Standards Resources for more information.

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