Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The U.S. Department of Labor (“DOL” or “the Department”) is proposing to delay and revise portions of the Trump administration regulations related to tipped employees under the Fair Labor Standards Act (“FLSA” or “the Act”). Interested stakeholders (such as employers, trade associations and labor unions) will have until April 14, 2021, to submit comments regarding the additional delay in implementation of the rules, and until May 24, 2021, to submit comments on the substantive revisions proposed. Because the DOL has historically paid close attention to comments of relevant industries and trade associations, we strongly encourage interested employers to consider providing comments to the DOL on questions it raises, which are discussed below.
By way of background, on December 22, 2020, the Trump DOL issued a final rule solidifying tip credit issues under the FLSA. The rule addressed two key areas. First, it incorporated legislative changes to the FLSA related to tip ownership, even when employers do not apply a tip credit toward employees’ wages. Second, it adopted the DOL’s 2018 opinion letter that clarified the scope of the dual jobs regulation and eliminated the so-called 80/20 Rule. The final rule was originally slated to become effective March 1, 2021, but on February 24, 2021, the Wage and Hour Division (WHD) announced that it would delay the effective date of the rule until April 30, 2021 “to allow the Department to review issues of law, policy, and fact raised by the rule before it takes effect.” The two DOL proposals published in the March 25, 2021, edition of the Federal Register are the next step in this process.
The December 2020 final rule conformed FLSA regulations to the Consolidated Appropriations Act (CAA) of 2018, including that “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” The final rule also codified the DOL’s April 2018 Field Assistance Bulletin stating that “supervisor” and “manager” are defined as those managers who meet the duties test of the FLSA’s executive overtime exemption under 29 CFR § 541.100(a)(2)-(4).
The December 2020 final rule also permitted employers that did not take the tip credit to require employees to share tips with back-of-the-house employees or other non-managers through a mandatory tip pool, and permitted an employer to exert limited control over tips in circumstances where an employer: (1) promptly distributes tips to the employees who received them; (2) requires employees to share tips with other eligible employees; or (3) facilitates tip pooling by collecting and redistributing tips to eligible employees in a tip pool by the next regularly scheduled payday. All of these portions of the December 2020 final rule will be allowed to go into effect on April 30, 2021.
DOL’s Request for Feedback from the Public
The December 2020 final rule also provided that a “manager or supervisor may keep tips that he or she receives directly from customers based on the service that he or she directly provides.” The Department is seeking comments on whether to make adjustments to this language to better address managers or supervisors who also engage in a substantial amount of tipped work. Specifically, the Department is interested in comments from the public (including employers and trade associations) on the following:
- How common is it for managers or supervisors who satisfy the duties test to perform tipped work?
- Prior to the CAA amendments, how common was it for tipped managers or supervisors who satisfied the duties test to participate in tip pools or tip-sharing arrangements?
- Is the current language that permits managers and supervisors to keep tips they receive “directly from customers” sufficient to allow tipped managers and supervisors to collect all the tips they have earned from their customer service work?
- How common is it for tips provided to a manager or supervisor to be commingled with tips provided to other tipped employees?
- Should the Department revise the rule to clarify that a manager or supervisor may keep their own tips in a scenario in which tips provided to a manager or supervisor are comingled with tips provided to other tipped employees? How would such a regulation accurately identify the manager or supervisor’s tips based on the service they provide, without allowing a manager or supervisor to keep “any portion” of another employee’s tips?
- Should the Department adjust its tip-pooling regulations to permit managers and supervisors to contribute tips to employer-mandated tip-pooling or tip-sharing arrangements, provided they do not receive any tips from other employees?
- If the Department were to allow managers and supervisors to contribute a portion of their tips to employer-mandated tip pools or sharing arrangements but not allow them to receive tips from such pools or sharing arrangements, what are the benefits and challenges of such an approach?
- Should the Department consider, instead, allowing managers and supervisors who receive tips to contribute to employer-mandated tip-pooling or tip-sharing arrangements, but receive out of the tip pool no more than what they contributed?
The rule and CAA further provided that a violation of the tip ownership provision can subject employers to civil money penalties for repeat or willful violations. The Department is now proposing to withdraw and re-propose portions of the rule that address circumstances in which the Department can assess civil money penalties. The Department also announced a delay to aspects of the final rule relating to civil money penalties until December 31, 2021.
In 1988, the DOL attempted to clarify an existing “dual jobs” regulation by inserting a provision in its Field Operations Handbook instructing DOL field investigators that the tip credit is not available when tipped employees devote more than 20% of their time to non-tip-producing activities. This concept became known as the 80/20 Rule, and was the focus of a substantial amount of tip-credit litigation.
During the Obama administration, the DOL publicly took the position that employers could only apply a tip credit for hours worked when employees spend less than 20% of those hours performing non-tipped work. This position led to more litigation and proved completely unworkable for the hospitality industry, in part due to lack of guidance on which duties qualified as tipped or non-tipped. The position also left employers with the onerous task of identifying, down to the minute, the work done by tipped employees on any given shift.
In November 2018, the DOL reissued and adopted a nearly decade-old opinion letter (and later made corresponding changes to the Field Operations Handbook) clarifying how employers must pay tipped employees who perform related non-tipped duties. That opinion letter stated there is no limit on the amount of duties related to a tip-producing occupation that may be performed, so long as the tasks are performed contemporaneously with direct customer service duties, or for a reasonable period of time immediately before or after performance of direct customer service duties. The DOL further stated that duties set out in the federal occupational database, O*NET, www.onetonline.org, are presumed to be related to the tipped occupation. The December 2020 final rule followed the language in the opinion letter.
In its March 25 proposal, the Department notes that the dual jobs aspect of the final rule has been the subject of legal challenge based on procedural and substantive concerns. The Department states that delaying the effective date of this portion of the December 2020 final rule until December 31, 2021 will enable it to fully consider the merits of these claims and to consider whether to engage in further rulemaking before it codifies such a test into regulations.
The proposed delay and revisions to these provisions further underscore that the Biden DOL is likely to regulate aggressively and, where possible, reverse policy decisions made by the prior administration. Littler’s Workplace Policy Institute (WPI) will keep readers apprised of relevant developments as they occur. In the meantime, employers should take every opportunity to make their voices heard on these very important workplace issues.