Restaurant Trade Association Complains about Tip-Credit Policies in Lawsuit Against the U.S. Department of Labor

In an effort to curb recent litigation against restaurants for violating tip-credit policies, the Restaurant Law Center sued the Department of Labor last week claiming the DOL exceeded its authority by issuing an “underground regulation” on tip-credits and including a related provision in the DOL’s handbook.

Under the federal Fair Labor Standards Act, employers may pay restaurant workers, such as servers and bartenders, $2.13 an hour instead of the full minimum wage of $7.25 per hour by complying with certain requirements, such as ensuring that the workers’ hourly wages plus tips bring the workers’ pay equal to or above minimum wage. To address employees who work two or more jobs—one that generates tips and one that does not, such as a server and janitor—the DOL issued a regulation, 29 C.F.R. § 531.56(e), known as the “dual jobs” regulation. It prohibits an employer from taking advantage of the tip credit for hours the employee worked as a non-tipped employee.

The DOL also included in its handbook a provision that prohibits an employer from taking a tip credit under what is known as the “80/20 rule.” While the “dual jobs” regulation permits an employer to take a tip credit for time spent related to the tipped occupation (even though such duties do not directly produce tips), such as rolling silverware, making coffee, and cleaning and setting tables, if the tipped employee spends more than 20% of his or her time performing such duties, the employer may not take a tip credit for the time spent performing those duties.

The RLC asserts that the “dual jobs” regulation is “not a logical outgrowth of the original Notice of Proposed Rulemaking,” and so the DOL did not provide a notice and comment period it claims is required. The RLC further challenges the DOL’s “80/20 rule” in its handbook, arguing the policy is arbitrary and capricious under the Administrative Procedure Act.

The case is Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567, filed in the United States District Court for the Western District of Texas. Nichols Kaster will be tracking this case and will provide updates when they become available.