DOL Delays Tip Regulations Final Rule, Independent Contractor Final Rule Likely Next

Jackson Lewis P.C.

As expected, the U.S. Department of Labor (DOL) has formally delayed the effective date of the Tip Regulations Final Rule, from March 1, 2021 to April 30, 2021. The Tip Regulations Final Rule, issued in late December 2020, implemented a 2018 amendment to the FLSA that permits tipped employees, such as restaurant servers, to pool tips with non-tipped workers, such as cooks and dishwashers, so long as the employer does not take a “tip credit,” while prohibiting employers, including managers and supervisors, from keeping tips received by employees under any circumstances. The Final Rule also codified, with minor changes, the DOL’s elimination of the so-called “20%” or “80/20” Rule, limiting the percentage of time (i.e., 20%) a tipped worker could spend performing allegedly non-tipped duties and still take a tip credit. Because the change to the law permitting tipped and non-tipped workers to share tips (when a tip credit is not taken) is set forth in an amendment to the FLSA, no regulation can change that rule. But the Final Rule also provides details of who qualifies as a “supervisor” or “manager” and thus is excluded from receiving tips, issues not specifically addressed in the statute.

The DOL received only 19 comments regarding its proposed delay of the effective date of the Final Rule and agreed with the vast majority of those comments supporting the delay. The DOL noted that shortly after the Final Rule was published, nine attorneys general filed a lawsuit in a Pennsylvania federal court seeking to upend the Rule, and the delay would provide time for the Agency to evaluate that complaint. The lawsuit focuses primarily on the 80/20 Rule, asserting that the DOL’s elimination of that Rule was arbitrary and thus violates the Administrative Procedures Act because, among other things, the DOL did not adequately identify and weigh the costs and benefits of the Rule’s elimination.

At about the same time as it sought to delay the Tip Regulations Final Rule, the DOL also proposed delaying the effective date of the Independent Contractor Final Rule, published in the waning days of the previous administration. We anticipate that this delay is forthcoming soon.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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