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DOL tip rule comment period closes as provision comes under growing scrutiny

The DOL’s proposed tip rule has been the subject of growing controversy in the wake of news reports that the agency had buried an internal analysis indicating that, if enacted, tipped employees stood to lose billions of dollars in tips.

On December 5, 2017, the Trump administration published a proposed rule in the Federal Register that would rescind an Obama administration regulation prohibiting all employers from retaining workers’ tips and clarifying that tips were the property of employees. Previously, the restrictions were only imposed upon employers that apply the FLSA’s “tip credit” to tipped workers’ minimum wage obligations. Practically speaking, the rule change would mean restaurants, hospitality employers, and other businesses could choose to include non-tipped employees (like cooks and other “back of the house” workers) in their mandatory tip pools. Notably, it also would allow employers to simply retain their employees’ tip earnings.

Recent news reports indicated that the DOL withheld internal estimates that show the rule change would mean $4.6 billion in lost tips for workers. Reportedly, Labor Secretary R. Alexander Acosta took issue with the estimate, which he thought was inaccurate, and balked at its assumption that employers would withhold tips rather than distribute them among their employees. Consequently, the agency apparently did not release a quantitative analysis of the likely impact of its proposed rule change on workers, as procedurally required.

In developments this week:

  • In a February 5 memorandum, DOL assistant inspector general Elliott P. Lewis notified Bryan Jarrett, acting administrator of the Wage and Hour Division, that the office was initiating an audit of the rulemaking process used in deciding to rescind the Obama-era tip rule.
  • Democratic senators slammed the Labor Secretary’s decision to conceal “the potentially catastrophic impact” of the rule on workers. In a February 6 letter to Acosta, they discussed news reports that the DOL did in fact conduct a quantitative analysis, found the rule would cost workers billions, and chose to bury the analysis and instead “issue the proposed rule that stated that uncertainties were too great to perform an analysis.” (Senator Patty Murray (D-WA), Ranking Member of the Senate HELP Committee, had specifically asked DOL if any such data existed or analysis had been conducted, but the agency has yet to respond.).
  • More than 120 Congressional Democrats signed off on a formal comment submitted in response to the agency’s NPRM, urging the DOL to withdraw the proposed change. The Members noted their concerns with the DOL’s failure to provide a quantitative impact analysis. “If DOL decides to push through this rule and ignore its costs to workers or the public’s concerns, there will be a real erosion of trust in the DOL’s commitment to protecting workers,” said Bobby Scott (D-VA), ranking member on the Education and the Workforce Committee.
  • A coalition of 17 state attorneys general fronted by California AG Xavier Becerra filed a strong opposition to the rule change. In their formal comment, the state AGs took issue with one of the DOL’s justification for the rulemaking—that a revision was necessitated by changes in state wage law. “This assertion misconstrues the relationship between state wage laws and the FLSA,” the AGs stated. As courts have “consistently recognized,” the FLSA sets a floor, not a ceiling, and the statute’s savings clause makes it clear that states can enact wage laws that are more protective than the FLSA. They also contend that the DOL’s failure to release the relevant data rendered the rulemaking arbitrary and capricious and that enacting the measure would violate the Administrative Procedures Act.

The comment period on the proposed tip rule closed on February 5.