Update: Federal Judge Rejects Motion to Halt the DOL’s 80/20 Rule for Tipped Employees

At a glance

• The main takeaway: A recent federal court case out of Texas aimed to block the DOL’s reinstated 80/20 rule for tipped employees, citing costly compliance challenges and an overstepping of authority on the part of the DOL.
• Impact on your business: The judge in the case denied the motion to halt the rule, meaning that the regulations will move forward as intended for all restaurants and hospitality businesses that employ tipped workers.
• Next steps: Restaurants will need to make key process and operational changes to comply with the DOL’s ruling. Aprio’s Restaurant, Franchise & Hospitality team is here to help.

Schedule a consultation with an Aprio advisor.

The full story:

At the end of last year, the United States Department of Labor (DOL) made effective a final ruling on “dual jobs,” which reinstated the 80/20 rule and introduced a new 30-minute rule for tipped employees.

Under the regulations, restaurants can apply a tip credit for the hours in which an employee is performing “tip-generating duties,” or duties that support tip-generating work, as long as they follow the 80/20 rule. The 80/20 rule states that employees spend no more than 20% of their work week performing duties that are not tipped (refreshing table settings between customers or replenishing salt and pepper shakers, for instance). In addition, the rule requires restaurants to pay their employees the full minimum wage if they spend at least 30 minutes consecutively on activities that don’t produce tips.

Prior to the reinstatement, we published a detailed summary of the new rule and its potential impact on restaurants and their employees, which you can read here. Below, we explore the results of a lawsuit out of Texas that aimed to contest the rule and its application, plus preliminary action steps restaurants and hospitality businesses can start taking today.

The case: Restaurant Law Center v. U.S. Department of Labor

In December, the Restaurant Law Center and the Texas Restaurant Association issued a complaint for “declaratory and injunctive relief,” and then filed an Emergency Motion for Preliminary Injunction. The defendants argued that the DOL overstepped its authority and created a new definition for what the industry considers a tipped occupation, one that does not align with the definition under the Fair Labor Standards Act (FLSA). The defendants’ decision to seek a preliminary injunction rested on concerns about how costly the compliance process would be for restaurants to adopt and operationalize the new rule. The injunction would effectively stop the implementation of the rule while the court contemplated the case.[1]

A report on the case from the Society for Human Resource Management (SHRM) summarized appeals from both sides. One Texas restaurant owner claimed they could not feasibly accept the tip credit under the regulations, while attorneys from the DOL asserted that the cost of compliance was exaggerated by restaurateurs and owners.[2]

Ultimately, on February 22, the U.S. District Court for the Western District of Texas denied the defendants’ emergency motion.

What’s next for restaurants and hospitality businesses?

Though the court ruled in favor of the DOL, there is no question that restaurateurs will need to make key changes to adhere to the new regulations. Aprio’s Restaurant, Franchise & Hospitality professionals are here to help guide you through the process and mitigate compliance risks and the chance of penalties. Some preliminary steps include:

• Re-evaluating your tipped employees’ job descriptions, your scheduling and timekeeping processes, and work assignments (especially side responsibilities your employees handle between patrons) to make sure you’re properly keeping track of tip-generating work.
• Reassessing your wage and hour practices, such as wage statements, tip policies, tip credit notices, etc.
• Creating training programs for your managers and supervisors so they are well-versed in the DOL’s regulations and expectations.

In addition to working with a professional team like Aprio, it’s also important to work with a qualified labor relations attorney to ensure that any changes to your standard operating procedures and processes are well-documented and compliant with the DOL’s regulations.

Schedule a consultation with us today.

[1] “RESTAURANT LAW CENTER ET AL V. UNITED STATES DEPARTMENT OF LABOR ET AL.,” on the Restaurant Law Center website, https://restaurantlawcenter.org/case/restaurant-law-center-et-al-v-united-states-department-of-labor-et-al/, accessed March 2022.

[2] Lisa Nagele Piazza, “Judge Won’t Block DOL Rule on Paying Tipped Workers,” SHRM®, February 28, 2022, https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/dol-rule-on-paying-tipped-workers.aspx, accessed March 2022.