{"id":1724,"date":"2024-09-06T08:19:24","date_gmt":"2024-09-06T12:19:24","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=1724"},"modified":"2025-07-18T13:00:08","modified_gmt":"2025-07-18T17:00:08","slug":"fifth-circuit-vacates-the-u-s-department-of-labors-tip-credit-final-rule","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2024\/09\/06\/fifth-circuit-vacates-the-u-s-department-of-labors-tip-credit-final-rule\/","title":{"rendered":"Fifth Circuit Vacates The U.S. Department Of Labor\u2019s Tip Credit \u201cFinal Rule\u201d"},"content":{"rendered":"

\"\"<\/a>By Gerald L. Maatman, Jr. and Jennifer A. Riley,\u00a0<\/b><\/p>\n

Duane Morris Takeaways<\/i><\/b>: In Restaurant Law Center et al v. U.S. Department of Labor, No. 23-50562, 2024 WL 3911308 (5th Cir. Aug. 23, 2024), the Fifth Circuit reversed<\/a> a decision of Judge Robert L. Pitman of the U.S. District Court for the Western District of Texas that had upheld the U.S. Department of Labor\u2019s final rule that stated that an employer could only take a \u201ctip credit\u201d against the federal minimum wage for work performed by a tipped employee that was part of the employee\u2019s tipped occupation. The Fifth Circuit held that, pursuant to the U.S. Supreme Court\u2019s holding in Loper Bright Enterprises v. Raimondo, <\/b>144 S. Ct. 2244, 2273 (2024) (which the Fifth Circuit expressly noted was rendered after Judge Pitman\u2019s trial court decision), it was not required to defer to the DOL\u2019s interpretation of the Federal Labor Standards Act. Accordingly, it found the Final Rule contrary to the express language of the FLSA, and that it should be vacated because it was arbitrary and capricious. <\/i><\/p>\n

This case previews the likely new federal circuit court regime regarding agency interpretations of ambiguous statutes post-Loper Bright. The ruling is also a required read for all hospitality industry organizations.<\/i><\/p>\n

Case Background<\/b><\/p>\n

The Fair Labor Standards Act (\u201cFLSA\u201d) permits employers to take a \u201ctip credit\u201d when paying the wages of any \u201ctipped employee,\u201d such that employers may pay tipped employees $2.13 per hour \u201cunder the theory that a large portion of such employees\u2019 total earnings comes from tips.\u201d Id<\/i>. at *2. If the difference between the $2.13 wage and the general minimum wage of $7.25 per hour is not paid by tips, the FLSA requires the employer to pay the remainder to ensure that the tipped employee makes at least $7.25 an hour. Id<\/i>.<\/p>\n

The DOL is permitted to promulgate rules interpreting and clarifying the FLSA, and issued an 80\/20 guidance concerning the tip credit in its sub-regulatory Field Operations Handbook in 1988. Id<\/i>. at *3. The 80\/20 guidance provided that an employer was permitted to take a full tip credit for employees that provided both tipped and non-tipped work, so long as the employee\u2019s non-tipped work did not constitute more than 20% of that employee\u2019s work. Id<\/i>.<\/p>\n

In 2021, the DOL issued a \u201cFinal Rule\u201d concerning the 80\/20 guidance, which mandated that \u201c[a]n employer may only take a tip credit for work performed by a tipped employee that is part of the employee\u2019s tipped occupation.\u201d Id<\/i>. at *4 (citing 29 C.F.R. \u00a7531.56(f) (2021)). Notably, the term \u201ctipped occupation\u201d is not defined in the FLSA. Id<\/i>. However, the Final Rule demarcated three categories of work, including: (a) directly tip-producing work (e.g., a server); (b) directly supporting work (e.g., bussing tables); and (c) work not part of the tipped occupation (e.g., preparing food). Id<\/i>. The Final Rule stated that an employer could take the tip credit for \u201ctip-producing work,\u201d but that if more than 20 percent of an employee\u2019s workweek is spent on \u201cdirectly supporting work,\u201d then the employer cannot claim the tip credit for the excess. Id<\/i>. Moreover, the Tip Credit stated that any \u201cdirectly supporting work\u201d could not be performed for more than 30 minutes at a time. Id<\/i>.<\/p>\n

Thereafter, in December 2021, the Restaurant Law Center and the Texas Restaurant Association (collectively, the \u201cAssociations\u201d) filed suit against the DOL, seeking to permanently enjoin the DOL\u2019s enforcement of the Final Rule, and moved for a preliminary injunction. Id<\/i>. at 5. The district court denied the preliminary injunction, and the Associations appealed to the Fifth Circuit. Id<\/i>.<\/p>\n

The Fifth Circuit\u2019s Decision<\/b><\/p>\n

The Fifth Circuit held that the DOL\u2019s 2021 Final Rule was contrary to the FLSA\u2019s text, was arbitrary and capricious, and should be vacated. Id<\/i>. at *2.<\/p>\n

In so holding, the Fifth Circuit first focused on the impact of the U.S. Supreme Court\u2019s recent holding in Loper Bright<\/i>. Prior to Loper Bright<\/i>, \u201c[u]nder Chevron<\/i>, a court reviewing agency action for compliance with [a] relevant statute had to defer to \u2018permissible\u2019 agency interpretations, \u2018even if not the reading the court would have reached if the question initially had arisen in a judicial proceeding.\u2019\u201d Id<\/i>. (citing Loper Bright<\/i>, 144 S. C.t at 2264).<\/p>\n

However, post-Loper Bright<\/i>, the Fifth Circuit noted that it was required \u201cto return to the APA\u2019s basic textual command: independently interpret [an ambiguous] statute and effectuate the will of Congress\u201d and \u201cuse every tool at [its] disposal to determine the best reading of the statute and resolve the ambiguity.\u201d\u201d Id<\/i>. (citing Loper Bright<\/i>, 144 S. Ct. at 2263, 2266). And, since the Supreme Court\u2019s holding in Loper Bright<\/i> came out after the district court\u2019s holding, the Fifth Circuit reasoned that it was required \u201cto depart from the district court\u2019s analysis at the very start.\u201d\u00a0 Id<\/i>. at *10.<\/p>\n

As such, the Fifth Circuit\u2019s analysis started with the express text of the FLSA, which states that a \u201ctipped employee\u201d means \u201cany employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.\u201d Id<\/i>. at *11 (citing 29 U.S.C. \u00a7 203(t)). Importantly, the FLSA does not define the terms \u201cengaged in\u201d or \u201coccupation.\u201d Id<\/i>. Since the terms were not expressly defined, the \u201cordinary meaning of these terms in 1966, when the tip credit was added to the FLSA, controls.\u201d Id<\/i>.<\/p>\n

After reviewing the \u201ccontemporary dictionary definitions\u201d of the words \u201cengaged\u201d and \u201coccupation,\u201d the Fifth Circuit found that the phrase \u201c\u2018engaged in an occupation\u2019 most naturally indicate[d] a focus \u2018on the field of work and the job as a whole,\u2019 rather than specific tasks.\u201d Id<\/i>. at *11-13. Importantly, the Fifth Circuit noted that \u201c[t]he FLSA does not ask whether duties composing [a] given occupation are themselves each individually tip-producing.\u201d Id<\/i>. at *14. Accordingly, the Fifth Circuit held that \u201cthe Final Rule applies the tip credit in a manner inconsistent with the FLSA\u2019s text.\u201d Id<\/i>.<\/p>\n

Finally, the Fifth Circuit noted that the plain language of the FLSA \u201casked only whether the employee is engaged in an occupation in which he receives tips.\u201d Id<\/i>. at *20. As such, the Fifth Circuit determined that the Final Rule \u201creplace[d] the Congressionally chosen touchstone of the tip-credit analysis \u2014 the occupation \u2014 with one of the DOL\u2019s making \u2014 the timesheet.\u201d Id<\/i>. For these reasons, the Fifth Circuit concluded that the Final Rule was arbitrary and capricious. Id<\/i>. at 821.<\/p>\n

Implications For Employers<\/b><\/p>\n

This decision has wide-ranging implications. The Fifth Circuit\u2019s ruling in Restaurant Law Center<\/i> sets aside 36 years of precedent upholding the 80\/20 standard contained in the Final Rule. It arms employers with additional ammunition to fight wage & hour class and collective actions brought by private plaintiffs who have relied on the DOL\u2019s Final Rule to position their lawsuits. It also previews what could be the new federal circuit court regime regarding agency interpretations of ambiguous statutes post-Loper Bright<\/i>. As the Fifth Circuit stated, Congressional intent controls, and \u201cwhile longstanding agency practice might have the power to persuade, it has never had the power to control.\u201d Id<\/i>. at *16 (citing Skidmore v. Swift & Co.<\/i>, 323 U.S. 134, 140 (1944)).<\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr. and Jennifer A. Riley,\u00a0 Duane Morris Takeaways: In Restaurant Law Center et al v. U.S. Department of Labor, No. 23-50562, 2024 WL 3911308 (5th Cir. Aug. 23, 2024), the Fifth Circuit reversed a decision of Judge Robert L. Pitman of the U.S. District Court for the Western District of Texas … <\/p>\n

Continue reading “Fifth Circuit Vacates The U.S. Department Of Labor\u2019s Tip Credit \u201cFinal Rule\u201d”<\/span><\/a><\/p>\n","protected":false},"author":583,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[42],"tags":[],"ppma_author":[30],"class_list":["post-1724","post","type-post","status-publish","format-standard","hentry","category-wage-hour-litigation"],"authors":[{"term_id":30,"user_id":583,"is_guest":0,"slug":"classactiondefense","display_name":"Class Action Defense","avatar_url":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-content\/uploads\/sites\/56\/2020\/10\/dmlogo.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts\/1724","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/users\/583"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/comments?post=1724"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts\/1724\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/media?parent=1724"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/categories?post=1724"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/tags?post=1724"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/ppma_author?post=1724"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}