DOL Reinforces Withdrawal of 80/20 Rule for Tipped Employees

In the latest development involving the so-called “80/20 Rule” for tipped employees, the U.S. Department of Labor (DOL) has taken another step toward elimination of the rule by formally withdrawing three opinion letters that served as the basis for the rule. 

Since 1966, the federal Fair Labor Standards Act (FLSA) has permitted employers to pay “tipped employees” a lower minimum wage and take a “tip credit” to satisfy the FLSA’s minimum wage requirement. A “tipped employee” is “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). 

In 1967, the DOL issued a “dual jobs” regulation that recognized the reality that an employee may be employed to perform two or more distinct jobs for the same employer, and that a tip credit may only be taken for work in an occupation in which the employee customarily and regularly receives at least $30 per month in tips. The “dual jobs” regulation also provides that a tipped employee may perform related duties, such as cleaning and setting tables, that need not be directed toward producing tips. 29 C.F.R. § 531.56(e). 

Through opinion letters issued in 1979, 1980, and 1985, and as formalized in 1988 in the DOL’s Field Operations Handbook, the DOL took the position that the tip credit was not available when tipped employees devoted more than 20% of their time to non-tip-producing activities. This position came to be known as the “80/20 Rule.” 

Beginning in 2009, the DOL’s position on the 80/20 Rule began to fluctuate with different presidential administrations. In 2021, the DOL issued a final regulation that adopted the 80/20 Rule and added a 30-minute restriction on non-tip-producing work by tipped employees. 

On August 23, 2024, in Restaurant Law Center v. U.S. Department of Labor, the U.S. Court of Appeals for the Fifth Circuit vacated the “80/20/30 Rule,” finding it was inconsistent with the text of the FLSA, and was arbitrary and capricious. The Fifth Circuit criticized the 80/20/30 framework because it impermissibly “disaggregate[d] the component tasks of a single occupation.” The Fifth Circuit concluded that the Rule was invalid because it strayed too far from “the FLSA’s focus on employees’ occupations rather than on their discrete pursuit of tips.” The Fifth Circuit noted, however, that the 1967 “dual jobs” regulation was a permissible interpretation of the FLSA because it focused on whether the employee performed tasks for a separate occupation, not on the amount of time spent on untipped tasks. 

On January 15, 2025, the DOL removed reference to the 80/20 Rule from its Field Operations Handbook and replaced it with reference to the 1967 dual jobs regulation.  See DOL Field Operations Handbook 30d06.  

On October 19, 2026, the DOL issued a Field Assistance Bulletin (FAB) formally withdrawing the 1979, 1980, and 1985 opinion letters that served as the genesis for the 80/20 Rule. In so doing, the DOL stated “the 1979, 1980, and 1985 opinion letters no longer reflect [DOL] policy and, in some respects, do not accurately state the law. All are hereby withdrawn. This FAB confirms that any guidance that contemplates specific time limits on duties performed within a tipped occupation no longer reflects [DOL] policy.” DOL FAB No. 2026-1. 

The FAB also noted that the DOL is working on a proposed regulation related to tipped employees, and invites comments once it is published. 

Takeaways

This action further reinforces DOL’s effort to end the 80/20 Rule across the country. Employers should remain cautious, however. While the Fifth Circuit vacated the 2021 Final Rule in its entirety (rejecting both the 80/20 Rule and the 30-minute cutoff as inconsistent with the FLSA), some courts outside the Fifth Circuit (Texas, Louisiana and Mississippi) might choose to disregard the DOL’s current interpretation and look instead to caselaw that developed around the 80/20 Rule over the several decades preceding the 2021 Final Rule.