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Tipped Occupations: Is the 80/20 Rule Dead? That’s a Geography Question!

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The final rule for tipped employees is dead.

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The 80/20 rule is not necessarily dead if the employee works outside of the Fifth Circuit.

Look for employers to challenge the 80/20 rule outside of the Fifth Circuit similarly relying on Loper Bright.

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On August 23, 2024, in Restaurant Law Center v. DOL, the Fifth Circuit vacated the Department of Labor’s (DOL) final rule concerning tipped employees. Citing the Supreme Court’s recent decision in Loper Bright v. Raimondo, overruling Chevron, the Fifth Circuit did not give deference to the DOL’s interpretation of the Fair Labor Standards Act’s (FLSA) tip credit provision 29 U.S.C. § 203(t), finding the final rule to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Even though the case vacated the DOL’s final rule codifying the 80/20 rule, the 80/20 rule is not necessarily dead outside of the Fifth Circuit.

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On December 28, 2021, the Department of Labor’s final rule regarding tipped occupations [located at 29 C.F.R. §&nbsp;531.56(f)] became effective. The final rule, which has now been vacated on a national scale, limited the 20 percent of allowable non-tipped duties to only duties that “directly support[] the tip-producing work.” To further the purpose of this rule, the DOL narrowly defined what duties directly support tip-producing work. Finally, the final rule would have required full minimum wage to be paid for time when an employee performs non-tipped duties continuously for 30 minutes or more.

While the Fifth Circuit’s decision in Restaurant Law Center explicitly vacated the DOL’s final rule nationally, it does not overturn the application of the 80/20 rule on a national basis. This is because vacating the DOL’s final rule concerning tipped employees does not affect the law in the other circuits that existed prior to the enactment of the final rule. Employers in the Fifth Circuit can ignore the 80/20 rule because the court in Restaurant Law Center made a separate finding regarding the 80/20 rule, stating “[w]e are not persuaded that the 80/20 standard, however longstanding, can defeat the FLSA’s plain text.” The Fifth Circuit determined that the 80/20 rule contravened the statutory language of the FLSA under its own interpretation of the rule as it relates to the FLSA.

Outside the Fifth Circuit, employers must look to the law as it existed prior to the effective date of the final rule (and any future interpretations). Before the enactment of the final rule, the 80/20 rule existed as sub-regulatory guidance and was followed in numerous jurisdictions. So, by way of example, that means the following circuits currently look to the cases below:

8th Circuit: Fast v. Applebee’s International, Inc., 638 F.3d 872 (8th Cir. 2011).

9th Circuit: Marsh v. J. Alexander’s LLC, 905 F.3d 610 (9th Cir. 2018).

11th Circuit: Rafferty v. Denny’s Inc., 13 F.4th 1166 (11th Cir. 2021).

Employers in circuits not listed above must similarly look to the status of the law prior to the enactment of the final rule. Certain jurisdictions also have specific laws defining tipped employees and/or addressing how to handle tips and tip credits.

As a final positive note, nationally, employers do not have to rely on the new 30-minute rule that was included in (and vacated with) the final rule. Undoubtedly, employers will be pushing courts in their circuits to follow the Fifth Circuit and similarly apply Loper Bright to eliminate the 80/20 rule.

BakerHostetler’s Labor and Employment Group will continue to monitor the interpretation and application of the 80/20 rule nationwide. BakerHostetler’s Labor and Employment team is comprised of dozens of experienced individuals prepared to assist and advise businesses as they navigate requirements of the FLSA and as they work to stay in compliance with the ever-evolving regulatory landscape. If you have any questions about this alert, please feel free to contact any one of our experienced professionals.

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