The Fate of the DOL’s 80-20 Rule: Will the 80-20 Rule Survive?

Douglas, Jeff - 300dpi
Jeffrey Douglas

The U.S. Department of Labor’s (“DOL”) “80/20 Rule” has caused significant anxiety and concern for employers in the restaurant industry and other industries with tipped employees.  A recent spate of nation-wide class action litigation is leading to record-setting settlements for restaurant employers.  However, in a recent lawsuit filed in the Western District of Texas, Restaurant Law Center, et al. v. United States Department of Labor, 18-cv-567 (W.D.Tex.), national and local restaurant groups hope to bring an end to this wave of litigation by seeking to invalidate the 80/20 Rule.

The lawsuit challenges the 80/20 Rule on procedural grounds: specifically that the 80/20 Rule never underwent the required notice and comment period to warrant Chevron deference, which is the process by which Courts are required to provide heightened deference to an administrative agency’s regulations.  In fact, the lawsuit goes one step further by claiming that the DOL “claimed for itself regulatory authority well beyond what Congress has conferred by statute.  Through the device of an underground regulation, a provision slipped quietly into an internal agency handbook without notice to the public or an opportunity for comment.”

80 20The 80/20 Rule, which is contained in the Wage and Hour Division’s Field Operations Handbook, essentially prohibits employers from taking a tip credit when the employee in questions spends more than 20% of his or her time performing work “not related to the tipped occupation.”  As a result of this rule, employers are faced with the challenging task of monitoring the hour-by-hour, minute-by-minute tasks of each of its employees, or risking significant wage and hour liability.

The checkered history of the 80/20 Rule finds its origin in the DOL regulations pertaining to the Fair Labor Standards Act’s (“FLSA”) tip credit.  Under the FLSA, an employer may take a tip credit against their minimum wage obligations when, among other things, employees regularly receive $30 or more per month in tips.  In the regulations expounding and enforcing the tip credit, the DOL addressed the specific scenario in which an employee works “dual” occupations in a given work week.  Pursuant to the “Dual Jobs” regulation, when an employee works in two separate occupations, one tipped and one not-tipped, the employer may only take the tip credit for the tipped occupation.  The Dual Jobs regulation was promulgated without notice and comment.  Further regulating the tip credit, the DOL implemented the enforcement guidance creating the 80/20 Rule, which applies to employees in a single occupation who performed both tipped work and “side work.”  In this vein, according to the Restaurant Law Center plaintiffs, the DOL created an arbitrary rule not entitled to deference by the court.

Based on the fact that the Dual Jobs regulation never underwent a “notice and comment” period, and that the 80/20 Rule is merely a Field Operations Handbook directive, the Plaintiffs in Restaurant Law Center hope to capitalize on the Western District of Texas’s recent history of invalidating Department of Labor rules.

Recently, Courts within the Fifth Circuit have invalidated several DOL proposed rules.  The District Court for the Northern District of Texas invalidated a proposed DOL rule modifying persuader reporting obligations under the Labor-Management Reporting and Disclosure Act (known as the “Persuader Rule”).  After the District Court issued a permanent injunction, the Trump DOL withdrew the Persuader Rule.  Additionally, in March 2018, the Fifth Circuit in Chamber of Commerce of the United States of America, et al. v. United States Department of Labor (885 F.3d 360), vacated a DOL proposed rule relating to ERISA (the Fiduciary Rule) in its entirety, holding that the DOL’s proposed rule was not authorized by statute and not entitled to Chevron deference.  Furthermore, the Fifth Circuit, whose precedents are binding on the Western District of Texas, has the second lowest rate of deference to administrative agency rules. In only approximately 67% percent of cases reviewing an administrative rule have the District Courts in the Circuit upheld the rule in question.  Based on this recent history and statistical analysis, the plaintiffs appear to have strategically selected a forum that would  be receptive to their argument.

In the interim and until the 80/20 Rule is either invalidated by the Court or withdrawn by the DOL, employers are advised to abide by the requirements of the 80/20 Rule.  Additionally, regardless of the results of this lawsuit, employers may nevertheless still be subject to state law versions of the 80/20 Rule.

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