This GT Alert covers the following:

• Western District of Texas holding in Restaurant Law Center v. U.S. Department of Labor denying motion to enjoin DOL’s new rule regulating when employers may take a tip credit against employee wages.
• DOL’s tip credit regulations.
• Next steps for restaurant and hospitality industry employers.
• Litigation over the new tip credit regulations continues.

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.

The DOL’s Tip Credit Regulations

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...

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