Court Overturns DOL Tipped Wage Rule

The 5th U.S. Circuit Court of Appeals Aug. 23 struck down the federal Department of Labor’s rule governing how tipped employees are paid under the Fair Labor Standards Act.

The three-judge panel of the New Orleans-based court called the rule “arbitrary and capricious,” and said it was inconsistent with the text of the FLSA.

In its unanimous decision, the court also cited a recent U.S. Supreme Count ruling limiting federal agencies’ ability to issue regulations.

The court said the rule was invalid as it was outside “the FLSA’s focus on employees’ occupations rather than on their discrete pursuit of tips.”

“Because the final rule is contrary to the Fair Labor Standards Act’s clear statutory text, it is not in accordance with law,” Judge Jennifer Walker Elrod wrote on behalf of the panel.

“The FLSA does not ask whether duties composing that given occupation are themselves each individually tip producing.”

Tipped Employees

The rule, adopted in December 2021, required employers to pay tipped workers the federal hourly minimum wage of $7.25—not the lower $2.13 minimum wage for tipped work—for non-tipped tasks that take up more than 20% of their time or 30 consecutive minutes.

The so-called 80/20/30 rule identified three categories of work:

• Tip-producing: work that “provides service to customers for which tipped employees receive tips”
• Directly supporting: work “performed in preparation of or to otherwise assist tip-producing customer service work”
• Not part of the tipped occupation: work that is neither tip-producing nor directly supporting

It replaced a previous Trump administration regulation that determined workers could be paid the tipped minimum wage if they primarily performed tipped duties.

The Restaurant Law Center and the Texas Restaurant Association filed suit in Texas after the rule was adopted. The Fifth Circuit was ruling on the groups’ appeal of a court decision last year that upheld the rule.

The Fifth Circuit’s decision means tipped employees cease to be tipped employees if and when they engage in unrelated occupations.

Connecticut Law

The court’s decision does not apply in Connecticut, where more protective state law and regulations supersede the FLSA.

In Connecticut, employers in the hotel and restaurant industry must pay wait staff at least $6.38 hourly and bartenders $8.23 hourly.

This means employers can take a tip credit of $9.31 hourly for wait staff and $7.46 for bartenders, as long as an employee’s tips bring their total hourly wage to the state minimum wage (currently $15.69).

In Connecticut, an employer can claim the tip credit for any employee performing any of 23 specific service duties.

The state Department of Labor issued revised regulations in September 2020 listing 23 specific duties considered incidental to service work.

An employer can claim the tip credit for any employee performing any of defined service duties.

Legislative proposals eliminating the tip credit failed in each of the last two sessions of the Connecticut General Assembly.