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States challenge ‘last ditch effort’ removing 20-percent cap on non-working time under tip rules

By Pamela Wolf, J.D.

The DOL’s final rule eliminates the 30-year-old 80/20 rule.

On January 19, 2021, the attorneys general of Delaware, District of Columbia, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, and Pennsylvania filed a lawsuit challenging the Trump Administration’s “last ditch effort” to allow employers to withhold tips from their employees, as the coalition described it.

30-year-old-rule upended. The lawsuit challenges the Department of Labor’s final rule that removes the limit on non-tipped work a tipped worker may complete and still receive only the federal tipped minimum wage, $2.13 per hour. The FLSA permits employers to take a credit against their minimum wage obligations for the tips that workers receive.

For 30 years, the DOL’s regulations have capped the amount of non-tipped work a tipped worker may do at 20 percent of their working time—the 80/20 rule. The final rule eliminates that cap, among other provisions.

Harming workers. The final rule also adopts an overbroad test to determine whether employees are managers or supervisors—who are ineligible to participate in mandatory tip pools—that will exclude certain low-wage workers from access to tip pools, the AGs contend. The final rule “will lead to tipped employees spending a more significant amount of time each shift performing non-tipped work while earning the lower tipped minimum wage rate, thus reducing their opportunity to earn more tips,” according to the complaint.

The rule will, by significantly reducing tipped workers’ wages, exacerbate the impact that the COVID-19 pandemic has had on millions of tipped workers nationwide, the AGs also contend.

Challenges. The complaint raises challenges under the Administrative Procedure Act. The AGs argue that:

  • The final rule contradicts the text and purpose of the FLSA;
  • The DOL violated the rulemaking process requirements, including failing to analyze the impact the rule would have on tipped workers;
  • The final rule fails to justify its departure from the longstanding 80/20 rule; and
  • The final rule will harm the states by reducing income tax revenue, increasing public benefits expenditures, and imposing administrative costs.

“This new rule issued by the U.S. Dept. of Labor is indefensible and would result in tipped workers doing more work for less pay, all in the midst of a global pandemic,” said Pennsylvania Attorney General Shapiro. “Businesses and employers are struggling and need real relief during this pandemic, but it cannot come out of the pockets of their employees.”

Relief. The two-count complaint asks the court to declare that the challenged provisions of the final rule are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, and to vacate and set them aside. The AGs also ask the court to preliminarily and permanently enjoin the DOL from implementing, applying, or taking any action whatsoever under the final rule’s challenged provisions.

The AGs filed their lawsuit in the Eastern District of Pennsylvania; the case is No. 2:21-cv-00258.