Major Victory for US Restaurants As Appeals Court Overturns 2021 Tip Credit/Dual Jobs Rule

chef kitchen franchise risk mitigation dual jobs
Chef kitchen franchise risk mitigation dual jobs

In a landmark decision, the U.S. Court of Appeals for the Fifth Circuit late last month overturned the Department of Labor’s (DOL) 2021 amendments to the dual jobs regulation, known as the 80/20/30 rule.

This ruling is a significant win for restaurant operators across the country, bringing an end to a contentious regulation that many in the industry viewed as both impractical and financially burdensome.

The 80/20/30 rule was part of the DOL’s effort to redefine how employers could apply the tip credit under the Fair Labor Standards Act (FLSA). This rule limited the amount of time tipped employees could spend on non-tip-producing tasks while still being paid a reduced tipped minimum wage.

Specifically, it prohibited employers from using the tip credit if an employee spent more than 20% of their workweek or more than 30 continuous minutes on non-tip-producing tasks that were related to their tipped duties.

  • Imperial Dade
  • Red Gold BBQ
  • RATIONAL USA
  • Easy Ice
  • Food Export Northeast USA
  • SFA Winter Fancy Faire
  • Day & Nite
  • ERA Group
  • BelGioioso Burrata

The controversy surrounding the 80/20/30 rule began almost immediately after it was introduced. Many restaurant owners and industry groups argued that the rule was not only confusing but also nearly impossible to implement without significant operational disruption.

The National Restaurant Association, along with other trade organizations, challenged the rule, asserting that it was arbitrary, capricious, and contrary to the text of the FLSA.

The legal battle was long and arduous. Initially, the lawsuit filed by the Restaurant Law Center faced setbacks. The district court ruled against the plaintiffs, refusing to grant a preliminary injunction that would have halted the rule’s enforcement. Despite this initial loss, the plaintiffs persisted, appealing the decision to the Fifth Circuit Court of Appeals.

The Restaurant Law Center is the only independent public policy organization created specifically to represent the interests of the food service industry in the courts. This labor-intensive industry is comprised of over one million restaurants and other food-service outlets employing about 16 million people—approximately 10 percent of the U.S. workforce.

Restaurants and other food-service providers are the second largest private sector employers in the United States. In addition, the Law Center represents the interests of its state restaurant association affiliates, many of which have both food service establishments and hotels as members as well as other hospitality interests. The Law Center serves as the industry’s voice in the judicial system.

Through its initiatives, the Restaurant Law Center works to protect and advance the restaurant industry and promote pro-business laws and regulations that allow restaurants to continue to grow, create jobs and contribute to a robust American economy.

The Law Center offers courts and regulatory agencies with the industry’s perspective on significant legal and regulatory issues to ensure that the views of America’s restaurants are taken into consideration.

The turning point in the case came after the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which significantly curtailed the Chevron deference doctrine.

This doctrine had previously required courts to defer to a federal agency’s interpretation of ambiguous statutes within its jurisdiction. With Chevron deference weakened, the Fifth Circuit was able to scrutinize the DOL’s 80/20/30 rule more critically.

In its August 23, 2024, ruling, the Fifth Circuit found that the DOL’s rule was inconsistent with the statutory language of the FLSA. The court noted that the FLSA defines a tipped employee as one who “customarily and regularly receives more than $30 a month in tips,” without any reference to the specific distribution of their duties.

The court further criticized the rule as being arbitrary and capricious, highlighting that it imposed rigid standards without clear statutory authority.

The overturning of the 80/20/30 rule has brought a sigh of relief to restaurant operators across the nation. The rule had been seen as a significant burden, not just financially but also operationally.

The requirement to meticulously track and record the time employees spent on various tasks created a logistical nightmare for many businesses, especially smaller establishments that lacked the resources to implement such detailed monitoring systems.

Financially, the rule threatened to increase labor costs substantially. The DOL itself had estimated that the rule would cost the restaurant industry over $2 billion over ten years—a figure that many industry experts believed to be an underestimation.

For individual operators, especially those running multiple locations, the cost could easily run into the millions annually. This potential financial strain came at a time when the industry was already grappling with the economic fallout from the COVID-19 pandemic, making the rule even more contentious.

With the 80/20/30 rule now vacated, restaurants can return to the previous tip credit regulations, which are seen as more flexible and manageable. This means that operators can once again take the tip credit for employees performing tasks related to their tipped occupation without worrying about the rigid 20% and 30-minute thresholds.

Beyond the immediate impact on restaurant operators, the court’s decision has broader implications for how federal agencies regulate industries.

The ruling serves as a reminder that agencies like the DOL must operate within the bounds of the law and cannot impose regulations that exceed their statutory authority. It also underscores the importance of judicial oversight in preventing regulatory overreach.

For the restaurant industry, this decision is a clear victory, not only in terms of immediate financial relief but also as a reaffirmation of the industry’s ability to challenge and overturn regulations that are deemed unjust or impractical. The case highlights the critical role that trade associations and legal advocacy play in protecting the interests of businesses.

The Fifth Circuit’s ruling against the 80/20/30 rule marks a significant win for restaurant operators, allowing them to focus on running their businesses without the looming threat of costly and burdensome regulations.

This decision will likely be remembered as a pivotal moment in the ongoing dialogue between industry and regulators, emphasizing the need for clear, fair, and legally sound rules that support rather than hinder economic activity.

  • Food Export Northeast USA
  • BelGioioso Burrata
  • Day & Nite
  • ERA Group
  • RATIONAL USA
  • SFA Winter Fancy Faire
  • Imperial Dade
  • Red Gold BBQ
  • Easy Ice
Total Food Service
Total Food Service is a monthly B2B foodservice publication and website covering foodservice and hospitality news, industry trends and exclusive interviews.
Subscribe
Notify of
guest

0 Comments
Inline Feedbacks
View all comments