As we reported in our May 2023 E-Update, the U.S. Court of Appeals for the Fifth Circuit reversed a district court’s decision denying a restaurant association’s request to enjoin a Department of Labor final rule that reinstated the 80/20 rule applicable to tipped employees and further limited the amount of an employee’s non-tipped work time for which the employer may take a tip credit. The Fifth Circuit sent the case back to the district court for further proceedings in accordance with its analysis – but the district court has once again refused to enjoin the rule.
Under the Fair Labor Standards Act and analogous state laws, an employer of tipped employees can satisfy its obligation to pay those employees the applicable minimum wage by paying those employees a lower direct cash wage (no less than $2.13 an hour under federal law) and counting a limited amount of its employees’ tips as a partial credit (i.e. the “tip credit”) to satisfy the difference between the direct cash wage and the applicable minimum wage. The 80/20 rule, which has swung in and out of favor with the change in Presidential administrations, provides that if an employee performs work that directly supports tip-producing work either exceeding 20 percent of all of the hours worked during the employee’s workweek or exceeding 30 continuous minutes, the employee is not performing labor that is part of the tipped occupation, and the employer may not take a tip credit for that time.
In the current case, ...
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