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.
On July 6, 2023, a federal court in Texas rejected a challenge to the United States Department of Labor’s 80/20 Rule, which applies to employers that take a tip credit toward their minimum wage obligation under the Fair Labor Standards Act (FLSA). This ruling is yet another step in the path toward an ultimate determination of the validity of the 80/20 Rule.
On October 20, 2021, the U.S. DOL published a final rule that reversed course from a December 2020 rule and resurrected the 80/20 Rule. A complete discussion of the DOL’s 80/20 Rule can be found here. In December 2021, the Restaurant Law Center (RLC) and the Texas Restaurant Association (TRA) brought suit in federal court in Texas challenging the validity of the 80/20 Rule. The RLC and TRA filed a motion for preliminary injunction asking the court to preclude the DOL from enforcing the rule. On February 22, 2022, Judge Robert Pitman denied the motion for preliminary injunction. Judge Pitman expressed skepticism as to the merits of the legal challenge but denied the motion for preliminary injunction solely on the basis that RLC/TRA had not shown there would be irreparable harm flowing from implementation of the 80/20 Rule.
RLC and TRA appealed to the U.S. Court of Appeals for the Fifth Circuit. On April 28, 2023, the Fifth Circuit ruled that Judge Pitman incorrectly disregarded evidence of irreparable harm. The Fifth Circuit sent the case back to the Texas court to consider the merits of the challenge to the 80/20 Rule.
In the July 6 order, Judge Pitman ruled that the text of the FLSA is ambiguous as to what it means to be engaged in a tipped occupation, and that the DOL’s 80/20 Rule is a permissible interpretation of the FLSA. In so ruling, Judge Pitman rejected RLC/TRA’s challenges that the DOL did not promulgate the 80/20 Rule within authority granted to it by Congress; that the ordinary meaning of the text of the FLSA should control; that the 80/20 Rule conflicts with the text of the FLSA; and that the 80/20 Rule is not a permissible interpretation of the FLSA.
So what’s next? RLC/TRA are expected to file another appeal to the Fifth Circuit to challenge the Texas court’s ruling, reasserting the challenges presented in the Texas court. It could take a year or more for the Fifth Circuit to hear and rule on the challenge. For now, the 80/20 Rule remains in effect.