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Volume XIII, Number 266


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Federal Court to Reexamine Merits of a Nationwide Injunction to Tip Credit Rule

On April 28, 2023, the U.S. Court of Appeals for the Fifth Circuit found that enforcing the Department of Labor’s (DOL) tip credit rule could cause irreparable harm to restaurants and other employers with tipped employees. Now, a federal district court in Texas will have a second opportunity to consider if a nationwide preliminary injunction should be entered, halting enforcement while the regulation is litigated.

In October 2021, the DOL issued its final 80/20 tip credit rule. See CFR § 531.56. As business owners with tipped workers know, the tip credit allows employers to pay a smaller base wage ($2.13) and account for tips the employees earn toward the minimum wage rate ($7.25). The tip credit rule provides that an employer cannot take the tip credit if an employee spends more than 20% of their time weekly or 30 minutes continuously engaged in non-tip-producing work.

For instance, a server cannot spend a substantial amount of their time on tasks that only indirectly support the tip-producing work of table service. Thus, under the regulation, an employer would lose the tip credit if a server spent more than 20% or 30 continuous minutes on “dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, sweeping or vacuuming under tables in the dining area, and setting and bussing tables.” § 531.56(f)(3)(ii). What’s more, a tipped employee must be paid the full minimum wage for any time spent on tasks that are not part of the tipped occupation — i.e., a server cannot clean bathrooms or prepare food.

The Restaurant Law Center sued the DOL in December 2021, seeking to invalidate the tip credit rule and to have its enforcement enjoined while the matter was litigated. The district court denied the Restaurant Law Center’s motion for a preliminary injunction, finding that it did not provide sufficient evidence of irreparable harm from the tip credit rule’s implementation. The Fifth Circuit disagreed, noting that the tip credit rule imposes significant costs on employers and additional monitoring and recordkeeping requirements. The plaintiffs provided evidence that compliance with the tip credit rule would require an additional eight to ten hours weekly for management and nationwide would cost approximately $177 million annually.

Because the Fifth Circuit found sufficient evidence of substantial harm, it remanded the case to determine if the remaining preliminary injunction factors could be met, including the plaintiff’s likelihood of success on the merits.

© Steptoe & Johnson PLLC. All Rights Reserved.National Law Review, Volume XIII, Number 151

About this Author

Allison B. Williams, Employment Attorney, Steptoe Johnson Law Firm

Allison Williams focuses her practice in the area of labor and employment law, litigation, and higher education law.  Ms. Williams' practice includes cases pending in state and federal courts, as well as actions pending before the West Virginia Public Employees Grievance Board, the West Virginia Human Rights Commission, and the Equal Employment Opportunity Commission. 

(304) 933-8144
Ashley Faulkner Labor Employment Associate Attorney West Virginia Morgantown Steptoe & Johnson PLLC

Ashley Faulkner was drawn to practice law to make a positive impact on her hometown and state. She is a labor and employment lawyer working with clients in a variety of industries to creatively solve problems, often before litigation occurs. Ashley appreciates the human side of her practice and enjoys uncovering the “why” behind the matters she works on. She is often described as a “go-getter,” taking advantage of every opportunity to gain practical and leadership experience. Ashley strives to be known as more than a good lawyer and is often seen as a zealous advocate...