{"id":640,"date":"2023-07-07T10:14:34","date_gmt":"2023-07-07T14:14:34","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=640"},"modified":"2023-12-01T17:51:03","modified_gmt":"2023-12-01T21:51:03","slug":"texas-federal-court-finds-that-the-final-dol-80-20-rule-is-still-in-playat-least-for-now","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2023\/07\/07\/texas-federal-court-finds-that-the-final-dol-80-20-rule-is-still-in-playat-least-for-now\/","title":{"rendered":"Texas Federal Court Finds That The Final DOL 80\/20 Rule Is Still In Play\u2026At Least For Now"},"content":{"rendered":"

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

Duane Morris Takeaways:<\/strong><\/em>\u00a0On July 6, 2023, in Restaurant Law Center, et al. v. U.S. Department of Labor, No. 1:21-CV-1106 (W.D. Tex. July 5, 2023) (ECF No. 67), federal district judge Robert Pitman of the U.S. District Court for the Western District of Texas denied<\/a> the Restaurant Groups\u2019 motion for preliminary injunction as to the new \u201c80\/20 Rule\u201d \u2013 after being reversed by the Fifth Circuit several months prior \u2013 and denied the Restaurant Groups\u2019 motion for summary judgment and granted the Department of Labor\u2019s (\u201cDOL\u201d) motion for summary judgment. Judge Pitman determined that the DOL\u2019s decision to construct and enforce the Final Rule was a permissible construction of the Fair Labor Standards Act (\u201cFLSA\u201d) and is not arbitrary and capricious.\u00a0 ECF 67 at 28.\u00a0 The ruling is nowhere close to the end of this litigation and the service and hospitality industry should pay close attention to what comes next as the Restaurant Law Center will inevitably appeal the district court\u2019s decisions to the Fifth Circuit and as the U.S. Supreme Court has decided to reconsider the authority of agencies during the next term.\u00a0 The next set of decisions will be part of a broader analysis of the rules regarding tip credit, and more generally, the DOL\u2019s authority.<\/em><\/p>\n

The Final Rule<\/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\u00a0See\u00a0<\/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<\/em>., 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 of \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

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

In December 2021, the Restaurant Law Center challenged the Final Rule in the U.S. District Court in the Western District of Texas, on the grounds that, among other things, it violated the Fair Labor Standards Act.\u00a0\u00a0Restaurant Law Center<\/em>, No. 1:21-CV-1106 at 4. The Texas federal district court denied the preliminary injunction after finding that the Plaintiffs failed to show that they would suffer irreparable harm absent the preliminary injunction. Id.<\/em><\/p>\n

On April 28, 2023, the Fifth Circuit reversed the Texas federal district court, finding that the Restaurant Groups \u201csufficiently showed irreparable harm in unrecoverable compliance costs . . . .\u201d Rest. L. Ctr. v. U.S. DOL<\/em>, 66 F.4th 593, 595 (5th Cir. 2023).\u00a0 Significantly, the Fifth Circuit noted that that compliance costs would likely be necessary to track the number of minutes worked on nontipped labor and that the new 30-minute rule would impose additional monitoring costs. Id.<\/em>\u00a0The Fifth Circuit remanded the case for further proceedings.\u00a0Id.<\/em>\u00a0[Our previous blog post on that ruling is here<\/a>.]<\/p>\n

The Texas Federal District Court\u2019s Decision on Summary Judgment<\/strong><\/p>\n

At the second go-around, the district court had two fully-briefed motions, including: (1) the Restaurant Groups\u2019 motion for preliminary injunction; and (2) the parties\u2019 cross-motions for summary judgment. The district court denied the Restaurant Groups\u2019 motion for summary judgment and granted the DOL\u2019s cross-motion for summary judgment after finding that, contrary to the Restaurant Groups\u2019 assertions, the DOL\u2019s decision to construct and implement the Final Rule was a permissible construction of the FLSA and is not arbitrary and capricious. Id.<\/em> at 28.\u00a0 In addition, the Texas federal district court denied the Restaurant Groups\u2019 motion for preliminary injunction after finding that the Restaurant Groups did not succeed, and were likely not to succeed, on the merits of the case, that the balance of equities did not tip in the Restaurant Groups\u2019 favor, and that an injunction was not in the public interest. Id.<\/em><\/p>\n

In determining the Final Rule\u2019s validity, the district court used a two-step framework articulated in Chevron, USA, Inc. v. Natural Resources Def. Council, Inc.<\/em>, 467 U.S. 837 (1984). Id.<\/em> at 8. Under Chevron<\/em>, if a statute has a gap that needs to be filled, Congress gave the agency administering the rule, rather than courts, authority to resolve it. Id.<\/em> The district court found that Chevron<\/em> deference applied to the case because Congress \u201cdelegated authority to the agency generally to make rules carrying the force of law,\u201d and that the Final Rule \u201cwas promulgated in the exercise of that authority.\u201d\u00a0 Id.<\/em> at 10.<\/p>\n

The federal district court also analyzed the FLSA\u2019s text, structure and purpose, and legislative history, and found that, contrary to the Restaurant Group\u2019s assertions, the statute was ambiguous. Id.<\/em> at 17. The district court explained that \u201cCongress has crafted an ambiguous statute and tasked DOL with implementing the ambiguous provisions,\u201d and the Court \u201cmust defer to the agency\u2019s regulation so long as it is not arbitrary, capricious, or manifestly contrary to the statute.\u201d Id.<\/em> at 17. The district judge further found that the Final Rule \u201caccomplishes\u201d the purposes of the FLSA \u201cby adopting a \u2018functional test\u2019 to determine when an employee may be considered engaged in a tipped occupation.\u201d Id.<\/em> at 19.<\/p>\n

Significantly, the district court also considered whether the Major Questions Doctrine was triggered, as discussed in West Virginia v. EPA<\/em>, 142 S. Ct. 2587 (2022). Id. <\/em>at 24.\u00a0 The district court found that the Major Questions Doctrine was not triggered because an agency action was only considered to be of \u201cvast economic significance\u201d if it requires \u201cbillions of dollars in spending.\u2019\u201d\u00a0 Id.<\/em> at 25.\u00a0 The district court found that the DOL \u201cpointed out that the average annual cost of the Rule in this case is $183.6 million\u201d and explained that this amount was \u201cfar less than the billions considered in the cited cases.\u00a0 Id.<\/em> The district court further opined that the \u201cDOL has been interpreting the tip credit provision of the FLSA, as well as its other provisions, for decades.\u201d\u00a0 Id.<\/em><\/p>\n

The Texas Federal District Court\u2019s Decision on the Preliminary Injunction<\/strong><\/p>\n

In addition, as instructed by the Fifth Circuit, the district court reconsidered the Restaurant Groups\u2019 Motion for Preliminary Injunction.\u00a0 At the outset, the district court noted that \u201c[a]lthough a failure to show likelihood of success on the merits is grounds alone for denial of a preliminary injunction, the Court will address the two remaining Rule 65 factors pursuant to the Fifth Circuit\u2019s mandate to \u2018proceed expeditiously to consider the remaining prongs of the preliminary injunction analysis.\u2019\u201d Id.<\/em> at 26 (citing Rest. L. Ctr<\/em>., 66 F.4th at 600). Despite the Fifth Circuit\u2019s finding that Restaurant Groups will suffer irreparable harm because their compliance costs are non-recoverable, Rest. L. Ctr<\/em>, 66 F.4th at 595, in balancing the equities, the district court essentially found the opposite – – that the Restaurant Groups, again, failed to show irreparable harm from complying with the Final Rule.\u00a0 See<\/em> id.<\/em> at 26-27.<\/p>\n

Significantly, the Fifth Circuit previously 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\u00a0 Rest. Law Ctr.<\/em>, 66 F.4th at 599 (\u201cNo 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\u00a0exact number of consecutive minutes<\/em>\u00a0an employee works.\u201d).\u00a0 Contrary to the Fifth Circuit, the district court agreed with the DOL and found that \u201crestaurants must already monitor the amount of time employees spend on non-tipped labor under the 80\/20 rule, and the new 30-minute rule does not impose a new form of monitoring.\u201d\u00a0 ECF 67 at 26.\u00a0 In addition, the district court noted that it is not clear that the Rule imposes significantly greater costs than restaurants incurred under the preexisting guidance because the Restaurant Groups failed to \u201cprovide an estimate of this additional monitoring.\u201d\u00a0 Id.\u00a0 <\/em>In essence, contrary to the Fifth Circuit\u2019s Order, the district court, again, \u201cemphasized the weakness of [the Restaurant Groups\u2019] evidence.\u201d\u00a0 Rest. Law Ctr.<\/em>, 66 F.4th at 598 (\u201cFor instance, the court found [the Restaurant Groups] claimed ongoing costs \u201cto be overstate[d]\u201d because the rule does not require \u201cthe level of detailed monitoring of which [the Restaurant Groups] warn. . . [this point is] meritless\u201d).<\/p>\n

Further, the district court explained that eighteen months had passed since the parties filed their briefs on the preliminary injunction, and that the Rule took effect on December 28, 2021 and has remained in place.\u00a0 Id.\u00a0 <\/em>Without citing to any evidentiary support, the district court noted that \u201c[r]estaurants and DOL have complied with the Rule since that time.\u201d\u00a0 Id. <\/em>at 27.<\/p>\n

Moreover, similar to the district\u2019s court\u2019s first order, which was reversed by the Fifth Circuit, the district court explained \u201cthat even if there are ongoing management costs, the most significant compliance costs associated with the Rule were familiarization and adjustment costs, which have now already been incurred, and that granting an emergency motion to rescind the Rule now cannot undo these costs, and may very well force restaurants to incur additional costs adjusting to the policy that takes its place.\u201d\u00a0 Id. <\/em>Ultimately, the district court found that the Restaurant Groups\u2019 \u201ccompliance costs do not outweigh the substantial harm that DOL may endure from essentially starting from scratch on a rule that serves to codify long-standing guidance.\u201d\u00a0 Id. <\/em><\/p>\n

Thus, the district court found that even if Restaurant Groups showed a likelihood of success on the merits, \u201cneither the balance of equities nor the public interest would support a nationwide preliminary injunction.\u201d\u00a0 Id.<\/em> at 28.<\/p>\n

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

The fight to end and\/or limit the Department of Labor\u2019s authority and promulgation of the tip credit rule is far from over.\u00a0 Although the Texas federal district court sent a clear indication that it did not agree with the Fifth Circuit\u2019s decision, and that it would not disturb the Department of Labor\u2019s authority, the service and hospitality industry should be watchful for what has yet to come.\u00a0 The Restaurant Law Center will undoubtedly appeal both of the Texas federal district court\u2019s rulings, and the Fifth Circuit has already indicated that preventing enforcement of the Final Rule may be on the horizon.\u00a0 Moreover, the Supreme Court\u2019s decision to reconsider the Chevron<\/em> doctrine in Loper Bright Enterprises v. Gina Raimondo<\/em>, Case No. 22-451 \u2013 which will be heard in the next term \u2013 to the extent that it narrows or eliminates federal courts\u2019 deference to agencies\u2019 decisions, could substantially impact the agenda the Department of Labor can pursue.\u00a0 The service and hospitality industry should stay tuned for the Fifth Circuit\u2019s rulings in Restaurant Law Center <\/em>and Supreme Court\u2019s forthcoming ruling Loper Bright Enterprises.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Shaina Wolfe Duane Morris Takeaways:\u00a0On July 6, 2023, in Restaurant Law Center, et al. v. U.S. Department of Labor, No. 1:21-CV-1106 (W.D. Tex. July 5, 2023) (ECF No. 67), federal district judge Robert Pitman of the U.S. District Court for the Western District of Texas denied … <\/p>\n

Continue reading “Texas Federal Court Finds That The Final DOL 80\/20 Rule Is Still In Play\u2026At Least For Now”<\/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":[42],"tags":[],"ppma_author":[7,9],"class_list":["post-640","post","type-post","status-publish","format-standard","hentry","category-wage-hour-litigation"],"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","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""},{"term_id":9,"user_id":576,"is_guest":0,"slug":"jariley","display_name":"Jennifer A. Riley","avatar_url":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-content\/uploads\/sites\/56\/2023\/08\/rileyjennifer-100x100.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts\/640","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=640"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/posts\/640\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/media?parent=640"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/categories?post=640"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/tags?post=640"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/classactiondefense\/wp-json\/wp\/v2\/ppma_author?post=640"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}