On Feb. 22, 2022, the U.S. District Court for the Western District of Texas denied the Restaurant Law Center and Texas Restaurant Association’s much-watched emergency motion seeking to enjoin nationwide enforcement of the U.S. Department of Labor’s (DOL) new rule regulating when employers may take a tip credit against their employees’ wages under federal law.
Restaurants and other businesses employing tipped workers (many of whom may have been taking a “wait and see” approach in light of the litigation) must now review their tip credit and pooling practices. The DOL’s changes to the regulations pose significant practical challenges for operators seeking to take a tip credit and, if not followed, could result in costly litigation and significant liability.
Generally, under the Fair Labor Standards Act (FLSA), employers may take a tip credit against their tipped employees’ wages and pay them at lower hourly wage rates, provided employees customarily and regularly receive at least $30 per month in tips, are given proper notice of the tip credit, and receive enough tips to earn at least the full minimum wage. At present, 43 states and the District of Columbia provide for a tip credit. Only Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington prohibit tip credits.
The DOL historically has limited the amount of non-tip-producing work tipped employees can perform at a tip credit rate to 20% of their work time (commonly referred...
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