In an effort to “undo” the Department of Labor’s (“DOL”) actions under the Trump administration, on June 23, 2021, the agency published a Notice of Proposed Rulemaking (“NPRM”), revising how it will regulate the minimum wage pay of tipped employees.
Under the Fair Labor Standards Act (“FLSA”), employers must pay non-exempt hourly employees a minimum wage for all hours worked (currently $7.25 per hour). Under certain circumstances, for tipped employees receiving at least $30.00 per week in tips, employers may pay only $2.13 per hour in direct wages and may take a credit for tips received by the employee, making up the difference for any shortfall in a workweek. For example, if the employee only makes only $4.00 per hour in tips in a workweek, in addition to the $2.13 per hour direct wage, the employer would have to make up the difference so that the employee receives a minimum of $7.25 per hour.
For the past 30 years leading up to the DOL’s actions under the Trump administration (discussed below), the DOL applied what is known as the “80/20 Rule.” Under the 80/20 Rule, if a tipped employee spent more than 20% of the employee’s time performing duties that were not tip-generating or related to tip-generating duties, the DOL required employers to pay the tipped employee the full minimum wage.
Previously, because the DOL provided little guidance on what duties were “not tip-generating or related to tip-generating duties,” there was substantial wage and hour litigation on this issue.
In a November 2018 Opinion Letter, the DOL withdrew the 80/20 Rule, and in February 2019, amended the DOL Field Operation Handbook, replacing the 80/20 Rule with a “reasonable time” standard. The “reasonable time” standard provided that “[a]n employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related, non-tipped duties contemporaneously with, or within a reasonable time before or after, his tipped duties.” A non-tipped duty was considered as “related” to a tip-producing occupation if the duty was listed as a task of the tip-producing occupations in the Occupational Information Network (O*NET), a DOL-sponsored website identifying job duties performed in thousands of occupations.
Following the DOL’s November 2018 Opinion Letter, many courts refused to apply the DOL’s new “reasonable time” standard, concluding that it did not warrant deference under the Auer doctrine. In response, the DOL undertook the formal rulemaking process to remove and replace the 80/20 Rule by regulation, and subsequently issued the Tip Regulation Final Rule in December 2020, which formally replaced the 80/20 Rule with the “reasonable time” standard.
Under the DOL’s new NPRM published in June 2021, employee time spent on tip-generating duties remains eligible for employer credit. However, work unrelated to tip-generating duties is ineligible. As to the phrase “related, but non-tip-generating” duties, the DOL intends to replace it with the phrase “work that directly supports tip-producing work.” Further, time spent on such work will be eligible for the tip credit only if “it is not performed for a substantial amount of time.”
In addition, in place of the detailed list of tip-related tasks in O*NET, the NPRM provides only the following:
Work performed by a server that directly supports the tip-producing work includes, for example, preparing items for tables so that the servers can more easily access them when serving customers or cleaning tables to prepare for the next customers. Work that directly supports the work of a bartender would including slicing and pitting fruit for drinks so that the garnishes are more readily available to bartenders as they mix and prepare drinks for customers. Work that directly supports the work of a nail [salon] technician would include cleaning the pedicure baths between customers so that the nail technicians can begin customers’ pedicures without waiting.
As for what constitutes a “substantial amount of time,” the NPRM provides that the amount of time spent on “directly supporting” tasks or activities are deemed “substantial” if they exceed 20% of the hours worked by an employee in a workweek. In that event, the employer cannot take a tip credit for any time that exceeds 20% in a workweek. Alternatively, if for any continuous period of time, the directly supporting work exceeds 30 minutes, the employer cannot take a tip credit for any of that time.
While the DOL’s new NPRM is still in the rulemaking process, if a new Final Rule is implemented, the DOL will reinstate the 80/20 Rule by regulation, along with the new 30-Minute Rule. The DOL also will eliminate the O*NET occupational activities list as a reference of tip-related duties. In so doing, the DOL will narrow the scope of duties that can be performed by a tipped employee and limit the amount of time those duties can be performed in.
Based on the foregoing, employers can expect these issues to remain fertile ground for wage and hour litigation in the years to come.
Employers have until August 23, 2021, to make comments to the DOL regarding the proposed rule. Thereafter, it is likely that the DOL will publish a new Final Rule, which Dickinson Wright expects will become effective in late 2021 or early 2022.