DOL Seeks To Delay Tip Regulations, Independent Contractor Final Rules

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One day after President Biden entered office, the White House issued a memorandum directing all agencies to review, and consider delaying, any rules that had been issued by the former administration but that were not yet effective. Following that directive, the U.S. Department of Labor (DOL) has proposed delaying the effective dates of the recently-issued Tip Regulations and Independent Contractor Final Rules. Under the proposal, the effective dates of these Final Rules would be postponed 60 days, from March 1, 2021 to April 30, 2021 for the Tip Regulations Final Rule and from March 8, 2021 to May 7, 2021 for the Independent Contractor Final Rule.

To effectuate these delays, the DOL is required to formally provide a public comment period, which it has now done. These comment periods will expire on February 17, 2021 and February 24, 2021 for the Tip Regulations Final Rule and the Independent Contractor Final Rule, respectively.

The Tip Regulations Final Rule, issued in late December 2020, implements 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. Because these aspects of the Final Rule implement statutory amendments to the FLSA, no regulatory change may alter those provisions. However, the Final Rule also clarified who is a considered to be a “manager” or “supervisor,” and thus ineligible to participate in sharing of tips, and further regulatory changes may alter those nuances. Most notably, the Final Rule also codifies, with minor changes, the DOL’s previous guidance eliminating 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 while still allowing the employer to take a tip credit. Instead, under the Final Rule, if tipped employees perform duties related to their tipped occupation, either contemporaneously or for a reasonable period before or after their tipped duties, an employer is permitted to pay them using a tip credit, regardless of whether those duties directly generate a tip. To read about the Tip Regulations Final Rule in greater detail, go to Labor Department Issues Final Rule on Tip Pooling Amendments, Elimination of ‘20%’ Dual Jobs Rule. The DOL may attempt to eliminate this regulation and revert to the DOL’s former application of the so-called “20% Rule.”

The Independent Contractor Final Rule, which was issued less than two weeks before the end of the Trump administration in January 2021, provides that “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.” Under the Final Rule, the “economic dependence” inquiry focuses on five, non-exclusive factors, two of which are considered primary – the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss – and three additional factors that come into play if the first two factors are inconclusive: the amount of skilled required, the “degree of permanence” of the parties’ work relationship, and whether the putative employee’s work is “part of an integrated unit of production.” Under the Final Rule, the actual practices of the working relationship, and not what the parties’ contract may theoretically allow, is emphasized. To read about this Final Rule in more detail, go to Department of Labor Issues Final Independent Contractor Rule.

Ultimately, the temporary delay of these Final Rules may result in their permanent withdrawal through issuance of new final rules. Jackson Lewis will continue to monitor and report any developments in this respect. 

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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