{"id":469,"date":"2023-04-29T16:38:36","date_gmt":"2023-04-29T20:38:36","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=469"},"modified":"2023-12-01T17:48:18","modified_gmt":"2023-12-01T21:48:18","slug":"fifth-circuit-casts-a-doubtful-eye-on-the-u-s-department-of-labors-final-tip-credit-rule","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2023\/04\/29\/fifth-circuit-casts-a-doubtful-eye-on-the-u-s-department-of-labors-final-tip-credit-rule\/","title":{"rendered":"Fifth Circuit Casts A Doubtful Eye On The U.S. Department of Labor\u2019s Final Tip Credit Rule"},"content":{"rendered":"

\"\"<\/a>By Gerald L. Maatman, Jr. and Shaina Wolfe<\/strong><\/p>\n

Duane Morris Takeaways:<\/strong> In Restaurant Law Center, et al. v. United States Department of Labor, et al.<\/em>, No. 22-50145 (Apr. 28, 2023), a decision of significant importance to all employers in general and the service and hospitality industry in particular, the U.S. Court of Appeals for the Fifth Circuit reversed<\/a> a Texas federal district court\u2019s order denying a preliminary injunction against enforcement of the new tip credit rule of the U.S. Department of Labor (\u201cDOL\u201d) and remanded for further proceedings. In Restaurant Law Center<\/em>, the plaintiffs seek a nationwide preliminary injunction prohibiting enforcement of the DOL Final Rule regarding tip credit and dual jobs (the \u201cFinal Rule\u201d).\u00a0 Importantly, the Final Rule reinstated the \u201c80\/20 Rule\u201d by providing that employers can utilize the tip credit so long as 80 percent or more of the work is tip-generating, and not more than 20 percent is directly supporting work. However, the Final Rule also provides that employers cannot utilize the tip credit when an employee performs non-tipped work for more than 30 consecutive minutes. Plaintiffs claim that the DOL impermissibly created a new definition of \u201ctipped occupation\u201d that lacks support in the FLSA, and that enforcement of the Final Rule will impose substantial, ongoing costs on businesses. The district court had denied Plaintiff\u2019s preliminary injunction solely because they failed to establish irreparable harm from complying with the Final Rule. The Fifth Circuit found that Plaintiffs submitted sufficient evidence that the Final Rule necessarily imposes a recordkeeping requirement and that employers who want to continue claiming the tip credit will \u201cincur ongoing management costs\u201d to ensure compliance. This decision is of signal importance as the Fifth Circuit\u2019s decision indicates that the Final Rule may be on shaky ground.<\/p>\n

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

In late 2021, the DOL revived and revised the 80\/20 Rule by providing that employers can utilize the tip credit only so long as 80 percent or more of the work is tip-producing, and not more than 20 percent is \u201cdirectly supporting work.\u201d See <\/em>29 C.F.R. \u00a7 531.56. Under the Final Rule, no tip credit can be taken for any non-tipped work. \u201cTip-producing work\u201d is defined as work the employee performs directly providing services to customers for which the employee receives tips (i.e. taking orders and serving food). \u201cDirectly supporting work\u201d is defined as work that is performed by a tipped employee in preparation of or to otherwise assist tip-producing customer service work (i.e<\/em>., rolling silverware and setting tables). Non-tipped work includes preparing food or cleaning the kitchen, dining room, or bathrooms.<\/p>\n

The Final Rule also includes a new requirement that an employer cannot utilize the tip credit when an employee performs more than 30 consecutive minutes performing \u201cdirectly supporting work.\u201d\u00a0 Directly supporting work done in intervals of less than 30 minutes scattered throughout the workday would not invalidate the tip credit, subject to the 80\/20 Rule. However, employers must pay minimum wages for \u201cdirectly supporting work\u201d performed after the lapse of the first 30 continuous minutes.<\/p>\n

In December 2021, Plaintiffs challenged the Final Rule in federal district court in Texas on the grounds, among other things, that it violated the Fair Labor Standards Act.\u00a0 Restaurant Law Center<\/em>, No. 22-50145 at 3. Plaintiffs moved for a preliminary injunction and after holding an evidentiary hearing, the district court denied the preliminary injunction. Id.<\/em> The district court did not reach the merits of Plaintiffs\u2019 claims. Id.<\/em> Rather, the district court assumed Plaintiffs were likely to succeed on the merits, but concluded they had failed to show they were irreparably harmed by the costs of complying with the new rule.\u00a0 Id.<\/em> at 3-4. The district court noted that the compliance costs had already been incurred since the Final Rule was in place for more than one month, and any other costs were speculative at best. Id.<\/em> at 4. Further, the district court found that the new Final Rule, which is similar to the 80\/20 rule, does not require employers to monitor their employees\u2019 time. Id.<\/em><\/p>\n

The Fifth Circuit\u2019s Ruling Reversing The Denial Of The Preliminary Injunction<\/strong><\/p>\n

The Fifth Circuit reversed the district court\u2019s denial of the preliminary injunction and remanded the case for further proceedings with the expectation that the district court \u201cwill proceed expeditiously\u201d to reconsider the preliminary injunction motion with the benefit of the Fifth Circuit\u2019s ruling. Id.<\/em> at 11.<\/p>\n

In reversing the district court, the Fifth Circuit found that employers who want to continue claiming the tip credit will \u201cincur ongoing management costs\u201d to ensure employees do not spend more than 30 minutes continuously performing directly supporting work. Id.<\/em> at 9. Significantly, the Fifth Circuit commented that compliance with the Final Rule requires employers to record their employees\u2019 time. The Fifth Circuit explained that it \u201ccannot fathom how an employer could honor these specific constraints without recording employee time. What if an employer is investigated by the Department or sued by an employee for wrongly claiming the tip credit? Without time records, how could an employer defend itself?\u201d Id.<\/em> at 7.<\/p>\n

The Fifth Circuit also disagreed with the DOL\u2019s assertion that \u201cemployers need not engage in \u2018minute to minute\u2019 tracking of an employee\u2019s time in order to ensure that they qualify for the tip credit.\u201d Id.<\/em> The Fifth Circuit opined that \u201c[n]o explanation is given (nor can we imagine one) why an employer would not have to track employee minutes to comply with a rule premised on the exact number of consecutive minutes an employee works\u201d and that an employer will need to account for blocks of employee time, \u201cespecially if an employer is accused <\/em>of violating the rule.\u201d Id. <\/em>(emphasis in original).<\/p>\n

Circuit Judge Higginbotham dissented from the majority opinion. He explained that \u201cthe majority yields to the temptation to insert its own logic to fill the void,\u201d insinuating that the majority substituted its own reasoning (and potentially desire for a particular outcome) for Plaintiffs\u2019 lack of a \u201cclear showing they were harmed.\u201d Id.<\/em> at 17.<\/p>\n

The Texas district court now has two important rulings to make. First, according to the Fifth Circuit, it will need to analyze the other preliminary injunction factors and issue another ruling on the motion for preliminary injunction. Second, the district court will need to analyze and issue its opinion on the parties\u2019 fully-briefed motion for summary judgment. It is likely that the district court will issue one ruling tackling both motions. Regardless of the outcome, this case will likely be heavily litigated in the Fifth Circuit.<\/p>\n

Implications For The Service & Hospitality Industry<\/strong><\/p>\n

The Fifth Circuit\u2019s decision indicates that a nationwide preliminary injunction preventing enforcement of the Final Rule may be on the horizon. The Fifth Circuit\u2019s decision showcases the unreasonable and costly task of complying with the Final Rule. The service and hospitality industry should stay tuned for the Texas federal district court\u2019s imminent rulings on Restaurant Law Center\u2019s motion for preliminary injunction and motion for summary judgment.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr. and Shaina Wolfe Duane Morris Takeaways: In Restaurant Law Center, et al. v. United States Department of Labor, et al., No. 22-50145 (Apr. 28, 2023), a decision of significant importance to all employers in general and the service and hospitality industry in particular, the U.S. Court of Appeals for the … <\/p>\n

Continue reading “Fifth Circuit Casts A Doubtful Eye On The U.S. Department of Labor\u2019s Final Tip Credit Rule”<\/span><\/a><\/p>\n","protected":false},"author":575,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"ppma_author":[7],"class_list":["post-469","post","type-post","status-publish","format-standard","hentry","category-general"],"authors":[{"term_id":7,"user_id":575,"is_guest":0,"slug":"gmaatman","display_name":"Gerald L. Maatman, Jr.","avatar_url":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-content\/uploads\/sites\/56\/2022\/09\/maatmangerald-100x100.jpg","author_category":"","last_name":"Maatman Jr.","first_name":"Gerald L.","job_title":"","user_url":"https:\/\/www.duanemorris.com\/attorneys\/geraldmaatman.html","description":"Read Gerald's bio.<\/a>"}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts\/469","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\/575"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/comments?post=469"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts\/469\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/media?parent=469"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/categories?post=469"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/tags?post=469"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/ppma_author?post=469"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}