Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal

Federal RegisterOct 29, 2021

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DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 10

Wage and Hour Division

29 CFR Part 531

RIN 1235-AA21

Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal

AGENCY:

Wage and Hour Division, Department of Labor.

ACTION:

Final rule.

SUMMARY:

In this final rule, the Department of Labor (Department) finalizes its proposal to withdraw one portion of the Tip Regulations Under the Fair Labor Standards Act (FLSA) (2020 Tip final rule) and finalize its proposed revisions related to the determination of when a tipped employee is employed in dual jobs under the Fair Labor Standards Act of 1938 (FLSA or the Act). Specifically, the Department is amending its regulations to clarify that an employer may only take a tip credit when its tipped employees perform work that is part of the employee's tipped occupation. Work that is part of the tipped occupation includes work that produces tips as well as work that directly supports tip-producing work, provided the directly supporting work is not performed for a substantial amount of time.

DATES:

As of December 28, 2021 the Department is withdrawing the revision of 29 CFR 531.56(e) (in amendatory instruction 11), published December 30, 2020, at 85 FR 86756, delayed until April 30, 2021, on February 26, 2021, at 86 FR 11632, and further delayed until December 31, 2021, on April 29, 2021, at 86 FR 22597. This final rule is effective December 28, 2021.

FOR FURTHER INFORMATION CONTACT:

Amy DeBisschop, Director, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-free number). Copies of this rule may be obtained in alternative formats (Large Print, Braille, Audio Tape or Disc), upon request, by calling (202) 693-0675 (this is not a toll-free number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain information or request materials in alternative formats.

Questions of interpretation or enforcement of the agency's existing regulations may be directed to the nearest WHD district office. Locate the nearest office by calling the WHD's toll-free help line at (866) 4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time zone, or log onto WHD's website at

https://www.dol.gov/agencies/whd/contact/local-offices

for a nationwide listing of WHD district and area offices.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

Section 6(a) of the FLSA requires covered employers to pay nonexempt employees a minimum wage of at least $7.25 per hour.

See

29 U.S.C. 206(a). Section 3(m)(2)(A) allows an employer to satisfy a portion of its minimum wage obligation to a “tipped employee” by taking a partial credit, known as a “tip credit,” toward the minimum wage based on the amount of tips an employee receives provided that the employer meets certain requirements.

See

29 U.S.C. 203(m)(2)(A). An employer that elects to take a tip credit must pay the tipped employee a direct cash wage of at least $2.13 per hour. Provided that the employer meets certain requirements, the employer may then take a credit against its wage obligation for the difference, up to $5.12 per hour, if the employees' tips are sufficient to fulfill the remainder of the minimum wage.

Section 3(t) defines “tipped employee” as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. 203(t). Congress left “occupation,” and what it means to be “engaged in an occupation,” in section 3(t) undefined. Thus, Congress delegated to the Department the authority to determine what it means to be “engaged in an occupation” that customarily and regularly receives tips.

See

Fair Labor Standards Amendments of 1966, Public Law 89-601, sec. 101, sec. 602, 80 Stat. 830, 830, 844 (1966).

Since 1967, the Department's dual jobs regulation has recognized that an employee may be employed both in a tipped occupation and in a non-tipped occupation, providing that in such a “dual jobs” situation, the employee is a “tipped employee” for purposes of section 3(t) only while the employee is employed in the tipped occupation, and that an employer may only take a tip credit against its minimum wage obligations for the time the employee spends in that tipped occupation.

See

32 FR 13580-81; 29 CFR 531.56(e). At the same time, the Department's regulation also recognized that an employee employed in a tipped occupation may perform related duties that are not “themselves . . . directed toward producing tips,” thus distinguishing between employees who have dual jobs and tipped employees who perform “related duties” that do not “themselves” produce tips.

For several decades, the Department issued guidance interpreting the dual jobs regulation as it applies to employees who perform both tipped and non-tipped duties, first through a series of Wage and Hour Division (WHD) opinion letters, and then through WHD's Field Operations Handbook (FOH). The 1988 FOH provision stated that the dual jobs regulation at § 531.56(e) “permits the taking of the tip credit for time spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips (

i.e.,

maintenance and preparatory or closing activities),” if those duties are “incidental” and “generally assigned” to tipped employees.

Id.

at 30d00(e). To illustrate the types of related, non-tip-producing duties for which employers could take a tip credit, the FOH listed “a waiter/waitress, who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses,” the same examples included in § 531.56(e).

Id.

But “where the facts indicate that specific employees are routinely assigned to maintenance, or that tipped employees spend a substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance, no tip credit may be taken for the time spent in such duties.” Consistent with WHD's interpretations elsewhere in the FLSA, the FOH defined a “substantial” amount of time spent performing general preparation or maintenance work as being “in excess of 20 percent,” creating a substantial but limited tolerance for this work.

Id.

This guidance (80/20 guidance) recognized that if a tipped employee performs too much related, non-tipped work, the employee is no longer engaged in a tipped occupation. A number of courts deferred to the guidance.

Both the Eighth Circuit and the Ninth Circuit deferred to the Department's dual jobs regulations and 80/20 guidance in the FOH.

See Marsh

J. Alexander's LLC,

905 F.3d 610, 632 (9th Cir. 2018) (en banc);

Fast

Applebee's Int'l, Inc.,

638 F.3d 872, 879 (8th Cir. 2011).

In 2018, the Department rescinded the 80/20 guidance. In 2018 and 2019, the Department issued new subregulatory guidance providing that the Department would no longer prohibit an employer from taking a tip credit for the time a tipped employee performs related, non-tipped duties, as long as those duties are

performed contemporaneously with, or for a reasonable time immediately before or after, tipped duties.

See

WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018); Field Assistance Bulletin (FAB) 2019-2 (Feb. 15, 2019); FOH 30d00(f) (2018-2019 guidance). The Department explained that, in addition to the examples listed in § 531.56(e), it would use the Occupational Information Network (O*NET) to determine whether a tipped employee's non-tipped duties are related to their tipped occupation. Most courts that have considered the 2018-2019 guidance, including one court of appeals, have declined to defer to the Department's interpretation of the dual jobs regulation in this guidance.

See, e.g., Rafferty

Denny's, Inc.,

No. 20-13715, 2021 WL 4189698 (11th Cir. Sept. 15, 2021).

The 2020 Tip final rule would have codified the Department's 2018-2019 guidance, although it would have used O*NET as a guide rather than as a definitive tool for determining work related to a tipped occupation.

See

85 FR 86756, 86772 (Dec. 30, 2020). Even though, as noted above, multiple circuit courts had deferred to the Department's 80/20 guidance, the Department opined that this guidance “was difficult for employers to administer and led to confusion, in part because employers lacked guidance to determine whether a particular non-tipped duty is `related' to the tip-producing occupation.”

Id.

at 86767. This final rule was published with an effective date of March 1, 2021,

see id.

at 86756; however, the Department extended the effective date for this part of the rule until December 31, 2021,

see

86 FR 11632, 86 FR 15811, and proposed to withdraw and re-propose the dual jobs provision of the 2020 Tip final rule on June 23, 2021,

see

86 FR 32818.

In its reproposal, the Department proposed to amend its dual jobs regulation to clarify that an employee is only engaged in a tipped occupation under 29 U.S.C. 203(t) when the employee either performs work that produces tips, or performs work that directly supports the tip-producing work, provided that the directly supporting work is not performed for a substantial amount of time.

See

86 FR 32818. The Department's proposal defined work that “directly supports” tip-producing work as work that assists a tipped employee to perform the work for which the employee receives tips. The proposed regulatory text also explained that an employee has performed work that directly supports tip-producing work for a substantial amount of time if the tipped employee's directly supporting work either (1) exceeds, in the aggregate, 20 percent of the employee's hours worked during the workweek or (2) is performed for a continuous period of time exceeding 30 minutes.

This final rule withdraws that part of the 2020 rule amending the Department's dual jobs regulation at § 531.56(e) and updates that same regulation to incorporate the changes it proposed in its 2021 NPRM in § 531.56(e) and (f), with slight modifications. In finalizing this rule, the Department has taken into consideration the need to ensure that workers do not receive a reduced direct cash wage when they are not engaged in a tipped occupation, as well as the practical concerns of employers who must apply this rule in varied workplaces. The final rule amends § 531.56 to define when an employee is performing the work of a tipped occupation, and is therefore engaged in a tipped occupation for purposes of section 3(t) of the FLSA. The Department has clarified and modified some of the definitions in the final rule from the proposal in order to ensure that this rule is broadly protective of tipped employees, and that the test set forth in the rule is one that employers can comply with and that the Department can administer.

As the Department stated above, the goal of this final rule is to protect tipped employees, while also providing clarity and flexibility to employers to address the variable situations that arise in tipped occupations. The Department finalizes its test providing that work performed for which a tipped employee receives tips is part of the tipped occupation, as well as a non-substantial amount of work that assists the tip-producing work. The final rule recognizes that when a tipped employee performs a substantial amount of directly supporting work that does not itself produce tips they cease to be engaged in a tipped occupation. An employer cannot take a tip credit when a tipped employee performs work that is not part of the tipped occupation.

However, the Department recognizes that a tipped employee's tip-producing services to customers are multi-faceted. In response to comments about the administrability of the Department's proposal, the Department has modified the rule's definitions. In the final rule, the Department clarifies that its definition of

tip-producing work

was intended to be broadly construed to encompass any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips and provides more examples illustrating the scope of this term. The final rule also amends the definition of

directly supporting work

to explain that this category includes work that is performed by the tipped employee in preparation for or otherwise assists in the provision of tip-producing customer service work, and also provides more examples illustrating the scope of this term. The final rule also modifies the definition of

work that is not part of the tipped occupation

to reflect the changes to these two definitional categories. Additionally, the final rule modifies the 30-minute limitation in order to treat it uniformly with the 20 percent tolerance.

Consistent with its revisions to § 531.56(e) and (f), the Department also amends the portions of its regulations that address the payment of tipped employees under Executive Order 13658, Establishing a Minimum Wage for Contractors, to incorporate the Department's explanation of when an employee performing non-tipped work is still engaged in a tipped occupation.

The Department estimates this final rule could result in costs to employers, consisting of rule familiarization costs, adjustment costs, and managerial costs. The Department also expects that this rule could result in transfers from employers to employees in the form of increased wages. For more information on the economic impacts of this rule, please see Section V.

The Office of Information and Regulatory Affairs designated this rule as a `major rule,' as defined by 5 U.S.C. 804(2), under the Congressional Review Act (5 U.S.C. 801

et seq.

II. Background

A. FLSA Provisions on Tips and Tipped Employees

Section 6(a) of the FLSA requires covered employers to pay nonexempt employees a minimum wage of at least $7.25 per hour.

See

29 U.S.C. 206(a). Under section 3(m)(2)(A) an employer may satisfy a portion of its minimum wage obligation to any “tipped employee” by taking a partial credit, referred to as a “tip credit,” toward the minimum wage based on tips an employee receives, provided that the employer meets certain requirements.

See

29 U.S.C. 203(m)(2)(A). An employer that elects to take a tip credit must pay the tipped employee a direct cash wage of at least $2.13 per hour. The employer may then take a credit against its wage obligation for the difference, up to $5.12 per hour, if the employees' tips are sufficient to fulfill the remainder of the minimum wage among other criteria.

Section 3(t) defines “tipped employee” as “any employee engaged in

an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. 203(t). The legislative history accompanying the 1974 amendments to the FLSA's tip provisions identified tipped occupations to include “waiters, bellhops, waitresses, countermen, busboys, service bartenders, etc.” S. Rep. No. 93-690, at 43 (Feb. 22, 1974). On the other hand, the legislative history identified “janitors, dishwashers, chefs, [and] laundry room attendants” as occupations in which employees do not customarily and regularly receive tips within the meaning of section 3(t).

See id.

Since the 1974 Amendments, the Department's guidance documents have identified a number of additional occupations, including barbacks and certain sushi chefs, as tipped occupations.

See, e.g.,

Field Operations Handbook (FOH) 30d04(b). However, Congress left “occupation,” and what it means to be “engaged in an occupation,” in section 3(t) undefined. Thus, Congress delegated to the Department the authority to determine what it means to be “engaged in an occupation” that customarily and regularly receives tips.

See

Fair Labor Standards Amendments of 1966, Public Law 89-601, sec. 101, sec. 602, 80 Stat. 830, 830, 844 (1966).

B. The Department's “Dual Jobs” Regulation

The Department promulgated its initial tip regulations in 1967, the year after Congress first created the tip credit provision.

See

32 FR 13575 (Sept. 28, 1967); Public Law 89-601, sec. 101(a), 80 Stat. 830 (1966). As part of this rulemaking, the Department promulgated a “dual jobs” regulation recognizing that an employee may be employed both in a tipped occupation and in a non-tipped occupation, providing that in such a “dual jobs” situation, the employee is a “tipped employee” for purposes of section 3(t) only while the employee is employed in the tipped occupation, and that an employer may only take a tip credit against its minimum wage obligations for the time the employee spends in that tipped occupation.

See

32 FR 13580-81; 29 CFR 531.56(e). At the same time, the regulation also recognizes that an employee in a tipped occupation may perform related duties that are not “themselves . . . directed toward producing tips.” It uses the example of a server who “spends part of her time” performing non-tipped duties, such as “cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses.” 29 CFR 531.56(e). In that example, where the tipped employee performs non-tipped duties related to the tipped occupation for a limited amount of time, the employee is still engaged in the tipped occupation of a server, for which the employer may take a tip credit, rather than working part of the time in a non-tipped occupation.

See id.

Section 531.56(e) thus distinguishes between employees who have dual jobs and tipped employees who perform “related duties” that are not themselves directed toward producing tips.

C. The Department's Dual Jobs Guidance

Over the past several decades, the Department has issued guidance interpreting the dual jobs regulation as it applies to employees who perform both tipped and non-tipped duties. The Department first addressed this issue through a series of Wage and Hour Division (WHD) opinion letters. In a 1979 opinion letter, the Department considered whether a restaurant employer could take a tip credit for time servers spent preparing vegetables for use in the salad bar before the establishment was open to the public.

See

WHD Opinion Letter FLSA-895 (Aug. 8, 1979) (“1979 Opinion Letter”). Citing the dual jobs regulation and the legislative history distinguishing between tipped occupations, such as servers, and non-tipped occupations, such as chefs, the Department concluded that “salad preparation activities are essentially the activities performed by chefs,” and therefore “no tip credit may be taken for the time spent in preparing vegetables for the salad bar.”

Id.

A 1980 opinion letter addressed a situation in which tipped restaurant servers performed various non-tipped duties including cleaning and resetting tables, cleaning and stocking the server station, and vacuuming the dining room carpet after the restaurant was closed.

See

WHD Opinion Letter WH-502 (Mar. 28, 1980) (“1980 Opinion Letter”). The Department reiterated language from the dual jobs regulation distinguishing between employees who spend “part of [their] time” performing “related duties in an occupation that is a tipped occupation” that do not produce tips and “where there is a clear dividing line between the types of duties performed by a tipped employee, such as between maintenance duties and waitress duties.”

Id.

Because in the circumstance presented the non-tipped duties were “assigned generally to the waitress/waiter staff,” the Department found them to be related to the employees' tipped occupation. The letter suggested, however, that the employer would not be permitted to take the tip credit if “specific employees were routinely assigned, for example, maintenance-type work such as floor vacuuming.”

Id.

In 1985, the Department issued an opinion letter addressing non-tipped duties both unrelated and related to the tipped occupation of server.

See

WHD Opinion Letter FLSA-854 (Dec. 20, 1985) (“1985 Opinion Letter”). First, the letter concluded (as had the 1979 Opinion Letter) that “salad preparation activities are essentially the activities performed by chefs,” not servers, and therefore “no tip credit may be taken for the time spent in preparing vegetables for the salad bar.”

Id.

Second, the letter explained, building on statements in the 1980 Opinion Letter, that although a “tip credit could be taken for non-salad bar preparatory work or after-hours clean-up if such duties are incidental to the [servers'] regular duties and are assigned generally to the [server] staff,” if “specific employees are routinely assigned to maintenance-type work or . . . tipped employees spend a substantial amount of time in performing general preparation work or maintenance, we would not approve a tip credit for hours spent in such activities.”

Id.

Under the circumstances described by the employer seeking an opinion—specifically, “one waiter or waitress is assigned to perform . . . preparatory activities,” including setting tables and ensuring that restaurant supplies are stocked, and those activities “constitute[] 30% to 40% of the employee's workday”—a tip credit was not permissible as to the time the employee spent performing those activities.

Id.

WHD's FOH is an “operations manual” that makes available to WHD staff, as well as the public, policies “established through changes in legislation, regulations, significant court decisions, and the decisions and opinions of the WHD Administrator.” In 1988, WHD revised its FOH to add section 30d00(e), which distilled and refined the policies established in the 1979, 1980, and 1985 Opinion Letters.

See

WHD FOH Revision 563. According to the 1988 FOH entry, the dual jobs regulation at § 531.56(e) “permits the taking of the tip credit for time spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips (

i.e.,

maintenance and preparatory or closing activities),” if those duties are “incidental” and “generally assigned” to tipped employees.

Id.

at 30d00(e). To illustrate the types of related, non-tip-producing duties for which employers could take a tip credit, the FOH listed “a waiter/waitress, who spends some

time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses,” the same examples included in § 531.56(e).

Id.

This guidance recognized that if a tipped employee performs too much related, non-tipped work, the employee is no longer engaged in a tipped occupation.

WHD did not revisit its 80/20 guidance until more than 20 years later, when it briefly superseded its 80/20 guidance in favor of guidance that placed no limitation on the amount of duties related to a tip-producing occupation that may be performed by a tipped employee, “as long as they are performed contemporaneously with the duties involving direct service to customers or for a reasonable time immediately before or after performing such direct-service duties.”

See

WHD Opinion Letter FLSA2009-23 (dated Jan. 16, 2009, withdrawn Mar. 2, 2009). This guidance further stated that the Department “believe[d] that guidance [was] necessary for an employer to determine on the front end which duties are related and unrelated to a tip-producing occupation . . . .”

Id.

Accordingly, it stated that the Department would consider certain duties listed in O*NET for a particular occupation to be related to the tip-producing occupation.

See id.

The guidance cited

Pellon

Bus. Representation Int'l, Inc.,

291 F. App'x 310 (11th Cir. 2008) (unpublished),

aff'g

528 F. Supp. 2d 1306 (S.D. Fla. 2007), in which the district court granted summary judgment to the employer based in part on the infeasibility of determining whether the employees spent more than 20 percent of their work time on such duties; significantly, however, the court believed such a determination was unnecessary because the employees had not shown that their non-tipped work exceeded that threshold.

See

528 F. Supp. 2d at 1313-15. However, WHD later withdrew this guidance on March 2, 2009, and reverted to and followed the 80/20 approach for most of the next decade.

See

WHD Opinion Letter FLSA2009-23 (dated Jan. 16, 2009, withdrawn Mar. 2, 2009); WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018).

Between 2009 and 2018, both the Eighth Circuit and the Ninth Circuit deferred to the Department's dual jobs regulations and 80/20 guidance in the FOH.

See Marsh

J. Alexander's LLC,

905 F.3d 610, 632 (9th Cir. 2018) (en banc);

Fast

Applebee's Int'l, Inc.,

638 F.3d 872, 879 (8th Cir. 2011). Both courts of appeal concluded that the Department's dual jobs regulation at 531.56(e) appropriately interprets section 3(t) of the FLSA which “does not define when an employee is `engaged in an [tipped] occupation.' ”

Applebee's,

638 F.3d at 876, 879;

see also

WHD FOH Revision 767 (Feb. 15, 2019). WHD explained that it would no longer prohibit an employer from taking a tip credit for the time an employee performed related, non-tipped duties as long as those duties were performed contemporaneously with, or for a reasonable time immediately before or after, tipped duties.

See

WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018),

see also

FOH 30d00(f)(3). WHD also explained that it would use O*NET, a database of worker attributes and job characteristics and source of descriptive occupational information,

to determine whether a tipped employee's non-tipped duties were related to the employee's tipped occupation.

See id.

O*NET is developed under the sponsorship of the Department's Employment and Training Administration through a grant to the North Carolina Department of Commerce.

See https://www.onetcenter.org/overview.html.

The Eleventh Circuit recently considered the 2018 Opinion Letter and 2019 FAB and declined to grant deference to the Department's interpretation of the dual jobs regulation in this guidance.

See Rafferty

Denny's, Inc.,

No. 20-13715, 2021 WL 4189698 at *18 (11th Cir. Sept. 15, 2021). The Court determined that the Department's interpretation of the dual jobs regulation in this guidance was not a reasonable one, concluding that “the removal of any limit on the time a tipped employee may perform [related] non-tipped duties flatly contradicts . . . the ceiling on related duties” imposed by the regulation's use of the terms “occasional” and “part of the time.”

Id.

at *15. The Court also criticized the 2018-2019 guidance's use of O*NET to define related duties, concluding that it risked creating “a fox-guarding-the-henhouse situation” whereby employers could “effectively render . . . untipped duties `related,' ” by “requiring tipped employees to perform” them, “whether [such] duties are, in fact, related or not to their tipped duties.”

Id.

Pointing to statements in the NPRM for the 2020 Tip final rule and the NPRM for this final rule in which the Department noted that the removal of time limits on related work could lead to a loss of earnings for tipped employees, the Court also concluded that the 2018-2019 guidance “tramples the reasons for the dual-jobs regulation's existence and is inconsistent with the FLSA's policy of promoting fair conditions for workers.”

Id.

at *16.

The Eleventh Circuit went on to conclude that a 20 percent limitation on the amount of related non-tipped duties that an employee can perform and still be considered a tipped employee was a reasonable interpretation of the dual jobs regulation and section 3(t) of the FLSA.

Id.

at *18. After reviewing section 3(t), the court stated “we must construe the dual-jobs regulation to ensure that the reduced direct wage for tipped employees is available to employers only when employees are actually engaged in a tipped occupation that will allow them to earn the remainder of at least the minimum wage.”

Id.

The court further concluded that “[t]he plain language of [the definition of a tipped employee in 3(t)] tells us that for the employer to qualify to take the tip credit, the employee's job must, by tradition

and in reality,

be one where she consistently earns tips.”

Id.

(emphasis added). The Court also concluded that a 20 percent threshold “aligns with the general meaning” of “infrequently” in the dual jobs regulation; noted that “the Department

often invokes a” 20 percent limitation in “distinguishing substantial and nonsubstantial work in different contexts within the FLSA”; and noted that a 20 percent limitation on related duties “is consistent with [30] years of DOL interpretation of the dual jobs regulation—through administrations of both political parties.”

A large number of district courts have also considered and declined to defer to the 2018-2019 guidance. Among other concerns, these courts have noted that the guidance: (1) Does not clearly define what it means to perform related, non-tipped duties “contemporaneously with, or for a reasonable time immediately before or after, tipped duties,” thus inserting “new uncertainty and ambiguity into the analysis,”

see, e.g., Flores

HMS Host Corp.,

No. 18-3312, 2019 WL 5454647 at *6 (D. Md. Oct. 23, 2019), and companion case

Storch

HMS Host Corp.,

No. 18-3322; (2) is potentially in conflict with language in 29 CFR 531.56(e) limiting the tip credit to related, non-tipped duties performed “occasionally” and “part of [the] time,”

see Belt

P.F. Chang's China Bistro, Inc.,

401 F. Supp. 3d 512, 533 (E.D. Pa. 2019); and (3) potentially “runs contrary to the remedial purpose of the FLSA—to ensure a fair minimum wage,”

see Berger

Perry's Steakhouse of Illinois,

430 F. Supp. 3d 397 (N.D. Ill. 2019).

In addition, some courts have also expressed doubts about whether it is reasonable to rely on O*NET to determine related duties.

See O'Neal,

2020 WL 210801, at *7 (employer practices of requiring non-tipped employees to perform certain duties would then be reflected in O*NET, allowing employers to influence the definitions).

After declining to defer to the Department's 2018-2019 guidance, many of these district courts have, like the Eleventh Circuit, independently concluded that the 80/20 approach is reasonable, and applied a 20 percent tolerance to the cases before them.

see also

85 FR 86771 (noting that the 2020 Tip final rule addressed this criticism by explaining through the notice-and-comment rulemaking process its reasoning for replacing the 80/20 approach with an updated related duties test).

See, e.g., Rorie,

485 F. Supp. 3d at 1042;

Sicklesmith,

440 F. Supp. 3d at 404-05;

Belt,

401 F. Supp. 3d at 536-37;

Esry

P.F. Chang's,

373 F. Supp. 3d at 1211;

Berger,

430 F. Supp. 3d at 412;

Cope,

354 F. Supp. 3d at 987;

Spencer,

399 F. Supp. 3d at 554;

Roberson,

2020 WL 7265860, at *7-*8;

Williams,

2020 WL 4692504, at *10;

Esry

OTB Acquisition,

2020 WL 3269003, at *1;

Reynolds,

2020 WL 2404904, at *6.

D. The 2020 Tip Final Rule

The NPRM for the 2020 Tip final rule (2019 NPRM) proposed to codify the Department's 2018-2019 guidance regarding when an employer can continue to take a tip credit for a tipped employee who performs related, non-tipped duties.

See

84 FR 53956, 53963 (Oct. 8, 2019). Although, as noted above, multiple circuit courts had deferred to the Department's 80/20 guidance, the Department opined in its 2019 NPRM that this guidance “was difficult for employers to administer and led to confusion, in part because employers lacked guidance to determine whether a particular non-tipped duty is `related' to the tip-producing occupation.”

Id.

Some employer representatives raised similar criticism in their comments on the 2019 NPRM.

The 2020 Tip final rule amended § 531.56(e) to largely reflect the Department's guidance issued in 2018 and 2019 that addressed whether and to what extent an employer can take a tip credit for a tipped employee who is performing non-tipped duties related to the tipped occupation.

See

85 FR 86771. The 2020 Tip final rule reiterated the Department's conclusion from the 2019 NPRM that its prior 80/20 guidance was difficult to administer “in part because the guidance did not explain how employers could determine whether a particular non-tipped duty is `related' to the tip-producing occupation and in part because the monitoring surrounding the 80/20 approach on individual duties was onerous for employers.”

Id.

at 86767. The 2020 Tip final rule provided, consistent with the Department's 2018-2019 guidance, that “ an employer may take a tip credit for all non-tipped duties an employee performs that meet two requirements. First, the duties must be related to the employee's tipped occupation; second, the employee must perform the related duties contemporaneously with the tip-producing activities or within a reasonable time immediately before or after the tipped activities.”

Id.

at 86767.

Rather than using O*NET as a definitive list of related duties, the final rule adopted O*NET as a source of guidance for determining when a tipped employee's non-tipped duties are related to their tipped occupation. Under the 2020 Tip final rule, a non-tipped duty is presumed to be related to a tip-producing occupation if it is listed as a task of the tip-producing occupation in O*NET.

See id.

at 86771. The 2020 Tip final rule included a qualitative discussion of the potential economic impacts of the rule's revisions to the dual jobs regulations but “[did] not quantify them due to lack of data and the wide range of possible responses by market actors that [could not] be predicted with specificity.”

Id.

at 86776. The Department noted that one commenter, the Economic Policy Institute (EPI), provided a quantitative estimate of the economic impact of this portion of the rule but concluded that its estimate was not reliable.

See id.

at 86785. The 2020 Tip final rule was published with an effective date of March 1, 2021,

see id.

at 86756; however, the Department extended the effective date for this part of the rule until December 31, 2021, 86 FR 22597.

E. Legal Challenge to the 2020 Tip Final Rule

On January 19, 2021, while the 2020 Tip final rule was pending, Attorneys General from eight states and the District of Columbia (“AG Coalition”) filed a complaint in the United States District Court for the Eastern District of Pennsylvania, in which they argued that the Department violated the Administrative Procedure Act in promulgating the 2020 Tip final rule, including that portion amending the dual jobs regulations. (

Pennsylvania

complaint or

Pennsylvania

litigation).

The

Pennsylvania

complaint alleges that this portion of the 2020 Tip final rule is contrary to the FLSA. Specifically, the complaint alleges that the rule's elimination of the 20 percent limitation on the amount of time that tipped employees can perform related, non-tipped work contravenes the FLSA's definition of a tipped employee: An employee “engaged in an occupation in which [they] customarily and regularly” receive tips, 29 U.S.C. 203(t).

According to the complaint, “when employees ‘spend more than 20 percent

of their time performing untipped related work' they are no longer `engaged in an occupation in which [they] customarily and regularly receive[] . . . tips.' ”

See

Compl.,

Pennsylvania

Scalia,

No. 2:21-cv-00258 (E.D. Pa. Jan. 19, 2021).

Id.,

¶¶ 87-89.

Id.

¶ 87 (citing

Belt,

401 F. Supp. 3d at 526).

The complaint also alleges that this portion of the 2020 Tip final rule is arbitrary and capricious for several reasons. First, the complaint alleges that the 2020 Tip final rule's new test for when an employer can continue to take a tip credit for a tipped employee who performs related, non-tipped duties relied on “ill-defined” terms—“contemporaneously with” and “a reasonable time immediately before or after tipped duties”

—which some district courts have also found to be unclear when construing the 2018-2019 guidance.

According to the complaint, the 2020 Tip final rule failed to “provide any guidance as to when—or whether—a worker could be deemed a dual employee during a shift or how long before or after a shift constitutes a `reasonable time.' ”

The complaint also alleges that the Department failed to offer a valid justification for replacing the 80/20 guidance with a new test for when an employer can take a tip credit for related, non-tipped duties. The complaint disputes the Department's conclusion in the 2020 Tip final rule that its former 80/20 guidance was difficult to administer, noting that courts consistently applied and, in many cases, deferred to the 80/20 guidance.

The complaint argues that the 2020 Tip final rule's new test, in contrast, will invite “a flood of new litigation” due to its “murkiness” and its reliance on “ill-defined” terms.

Id.

¶ 128.

See, e.g., Belt,

401 F. Supp. 3d at 533;

Flores,

2019 WL 5454647, at *6.

Compl. ¶ 131,

Pennsylvania

(No. 2:21-cv-00258);

see also

Seyfarth Shaw.

NRA/RLC asserted that “most tipped occupations involve a mix of tasks that directly and immediately generate tips and tasks that do not directly and immediately generate tips”; thus, “[a] server does not cease to be a server” based on the amount of time they spend on “non-tipped tasks.” Some individual restaurant owners also criticized the Department because it did not explain what non-tipped occupation a tipped employee engages in when they perform more than a substantial amount of directly supporting work.

The Department also received many comments from employers raising concerns about the practical application of the definition of work that is part of the tipped occupation, particularly when tipped employees perform work that the commenters stated would be directly supporting work according to the Department's proposal, but that is performed in the course of performing their tip-producing customer service work. Additionally, some commenters stated that tipped employees may perform work that would be considered directly supporting under the Department's proposal when they are also actively engaged in work that would be considered tip-producing. These comments, discussed in more detail in Section E, asserted the Department's proposal would oblige employers to carefully distinguish between and monitor the time employees spend performing tip-producing work and directly supporting work, and that doing so would be difficult and burdensome.

See, e.g.,

AHLA; CWC; Chamber of Commerce; Franchise Business Services; WPI; NFIB; Landry's.

As an alternative to the Department's proposal, some commenters representing employers asked that the Department eliminate the proposed

limits on directly supporting work entirely, and define work that is part of the tipped occupation to include all tip-producing and directly supporting work.

See

Chamber; NFIB. The Chamber of Commerce, for instance, asserted that “[t]ip-supporting work is tip-supporting work, regardless of how long it occurs, and constitutes a legitimate aspect of a tipped occupation.” Employer representatives argued that the limits on related duties in the Department's 80/20 guidance led to significant litigation for employers in the past, and that the limitations on directly supporting work in the proposal will lead to more litigation in the future.

See, e.g.,

WPI, Seyfarth.

Seyfarth Shaw and CFCBA urged the Department to create an exception from its proposed limitation on directly supporting work for employees who regularly earn tips that bring their total earnings above the Federal minimum wage. Seyfarth recommended that the Department create a presumption of compliance with the FLSA's minimum wage requirements for employees who earn at least $29.00 per hour in cash wages plus tips. CFCBA stated that employers that are required by State law to or otherwise “guarantee to bring the tipped employees' average pay, inclusive of tips, for the week up to 25% more than Federal minimum should be exempt from this extra administrative burden” of ensuring that they pay employees who perform as substantial amount of non-tipped, directly supporting work a direct cash wage equal to the full minimum wage.

In addition, commenters representing employers generally asserted that the Department's proposed test distinguishing between work that is and is not part of the employee's tipped occupation failed to provide clear guidance about the types of work that would fall into each definitional category and as a result would prompt significant litigation over the scope of the terms.

See, e.g.,

AHLA, Chamber, Seyfarth. For example, Seyfarth commented that the proposed rule “lacks clear guidance defining and distinguishing [the three categories of work],” and that “[a]bsent clear guidance as to each category, it will be difficult to reliably structure, schedule, and supervise tipped employees' job duties to ensure that they do not run afoul of the proposed time-based limitations on the amount of `directly supporting' work that may be performed when the tip credit is claimed.” RLC/NRA challenged the Department's basis for distinguishing between these categories of work, and commented that WHD does not have any evidentiary support for its conclusion that certain tasks are either tip-producing, directly supporting, or not part of a tipped occupation. A number of groups representing employers, such as the Chamber of Commerce, criticized the proposed rule's test, and particularly its definitions, as being “administratively unworkable” and said that the uncertainty would lead to litigation over the scope of the terms used within the test. Groups such as the AG Coalition, on the other hand, commented that because the rule did not identify every tipped occupation, such as delivery drivers and baristas, employers with workers in such “unidentified tipped occupations” may believe that DOL's revised regulation does not apply to its employees. The AG Coalition urged the Department to preface the rule, if finalized as proposed, with a disclaimer that the regulatory list of tipped occupations and list of tasks within those occupations under each definitional category are illustrative, not exhaustive.

Commenters that opposed the proposed rule also generally preferred the 2020 rule's use of O*NET to identify duties related to a particular tipped occupation.

See

Seyfarth, CFCBA, WPI. Landry's, for example, argued that DOL should retain the 2020 rule and its use of O*NET because O*NET is a list of tipped duties compiled by surveying employees in the restaurant industry and reflects the tasks that they perform. RLC/NRA similarly argued that DOL's line-drawing between categories of work in the proposed rule was arbitrary compared to O*NET. Seyfarth noted that the 2020 Tip Rule's incorporation of O*NET offers employers an “objective and consistent

up-front

tool for managing tip credit compliance.”

see also

AHLA; ROC. If the Department were to publish a fixed list of duties, this list could not reflect such changes as they developed; likewise there would inevitably be a delay before a general resource such as O*NET would be updated to accommodate such changes. The Department's functional test, however, means that employers and employees can apply the flexible definitions as needed if and when the landscape of tip-producing work changes. If during the COVID-19 pandemic, a server receives tips from serving customers by taking their phone orders and providing them with carry-out meals, employers can properly categorize those tasks as tip-producing. Similarly, the Department's functional test is sufficiently flexible to capture duties that might arise unexpectedly or infrequently in the course of serving customers, but are tip-producing, such as when a family checking in for vacation asks a bellhop who has carried

their luggage to their hotel room to take their photograph.

The Department appreciates the comments from employers that its dual jobs test should rely on or use O*NET as guidance to determine what work is part of and not part of, or directly supporting of, a particular tipped occupation. However, these commenters misapprehended the nature of the Department's test. As explained above, the dual jobs test set out in the final rule, including the definitional section setting out examples for each category of work for various tipped occupations, is not intended to be a substitute for O*NET's fixed list of duties that tipped employees are required by their employers to perform as part of their work. Rather, the final rule creates a functional test to measure whether a tipped employee is engaged in their tipped occupation, and uses examples to explain the application of that functional test. The Department believes that its revised test allows employers to determine the nature of their tipped employees' work prior to that work being performed, and, as explained above, is also is flexible enough to be applied to new variations on tipped work. As the NPRM noted, O*NET was not created to identify an employer's legal obligations under the FLSA.

See

86 FR 32825. Further, as groups representing employees also pointed out, O*NET only reflects what tipped employees are required to do by their employers, not the tasks that actually make up part of their tipped occupation, and is consequently not a helpful tool to use in determining whether an employee is engaged in their tipped occupation, even if, as under the 2020 rule, it is only used as a guide. As the Eleventh Circuit noted in

Rafferty

Denny's,

using O*NET to define what duties are part of a tipped occupation risks creating “a fox-guarding-the-henhouse situation” whereby employers, by regularly assigning certain non-tipped duties to their tipped workers, could “effectively render” such duties part of a tipped occupation, “whether those duties are, in fact, related or not to their [employees'] tipped duties.”

See

2021 WL 4189698 at *18. In addition, unlike the Department's functional test, O*NET does not distinguish between tip-producing and directly supporting duties. For these reasons, the Department believes that its revised test is clearer and more accurate to use than the 2020 rule's dual jobs test and in particular its use of O*NET.

i. Tip-Producing Work—§ 531.56(f)(2)

Proposed § 531.56(f)(1)(i).

The NPRM proposed to define

tip-producing work

as “[a]ny work for which tipped employees receive tips,” and included a number of examples illustrating the application of this definition to a number of occupations. The proposed rule explained, for example, that “[a] server's tip-producing work includes waiting tables [and] a bartender's tip-producing work includes making and serving drinks and talking to customers.” The final rule adopts the definition of tip-producing work as proposed with slight modifications to reflect comments received on the proposed rule and to include additional examples of work that fit within that definitional category.

(a.) Comments

As explained above, the Department received a number of comments about the definition of tip-producing work, arguing that it did not provide enough clarity about the kinds of tip-producing work that are included within the occupations listed as well as other occupations that were not listed, and that it was unclear what tasks were encompassed within the examples of tip-producing work listed in the NPRM. Several commenters representing employers said that the proposed rule's references to types of tip-producing work, such as its reference to “waiting tables” as an example of a server's tip-producing work, were vague, and asked the Department in a final rule to set forth specific examples of tasks that are encompassed within those broad categories of work. For example, several commenters noted that the proposal's example of the tip-producing work of a server, waiting tables, was insufficiently clear.

See, e.g.,

Littler (“For example, the Proposed Rule states that `waiting tables' by a server is tip-producing, but nowhere does it explain what is encompassed by `waiting tables.' ”); AHLA (“DOL's categorization . . . of servers into a single duty of `waiting tables' . . . comes with no reference or explanation”). WPI noted, for example, that tasks logically included within the scope of table service includes walking to the kitchen or bar to retrieve prepared food and drink and delivering those items to the customers; filling and refilling drink glasses; attending to customer spills or items dropped on the floor adjacent to customer tables; processing credit card and cash payments; and removing plates, glasses, silverware, or other items on the table during the meal service. NELP proposed that the Department should clarify in a final rule that “tip producing” work must “be customer-facing, to ensure that workers paid a subminimum wage are truly in a position to earn tips that would bring them up to the minimum wage,” arguing that without such a bright-line clarification, employers could continue to pay its tipped employees $2.13 an hour for work that is not tip-producing.

As noted above, commenters stated that tipped employees may perform work that would be considered directly supporting under the proposal while they are also actively engaged in work that would be considered tip-producing, and expressed concern with the difficulty of categorizing such time.

See

Landry's; WPI; Small Business Administration (SBA) Office of Advocacy. For instance, Landry's noted that bartenders may perform tasks such as cleaning bar glasses and preparing drink garnishes while they are also taking orders from customers.

see also

MRA (stating that servers frequently perform “one or more” directly supporting tasks “between seating customers and waiting on tables.”).

For such tasks, which “must be performed on an immediate, time-sensitive basis,” Seyfarth Shaw disagreed with the Department's statement in the NPRM that employers could “adjust their business practices and staffing to reassign such duties from tipped employees to employees in non-tipped occupations,”

see

86 FR 32833. The NRF/NCCR asserted that because employees can complete many tasks that are interspersed with customer service in very little time—including sometimes only a “few seconds”—it will take employers “longer to track, quantify, and record many tasks than it would to actually do them.” The Chamber of Commerce and other commenters representing employers asserted that employees would need to “constantly enter their time spent on specific activities into the payroll system,” in order to track tasks performed when the tipped employee is providing service to customers, which would disrupt workflow and productivity.

Because of these stated difficulties in tracking tasks performed during customer service, some commenters representing employers argued that the Department's proposal would compel employers to stop taking advantage of the FLSA's tip credit provision.

See e.g.,

CWC; AHLA. AHLA and other employer commenters claimed that the proposal would make it so difficult to use the tip credit as to effectively disallow it, contrary to Congressional intent.

See

AHLA (stating that the proposal “seems to ultimately eliminate the tip credit by regulatory fiat”); Chamber (“The DOL cannot substitute its [will] for that of Congress.”); NRF (claiming that the Department's intention was to eliminate the tip credit “through the promulgation of a regulation with which even the best intentioned employer could not possibly comply”). CWC requested that if the Department maintains time limits on directly supporting work it include “regulatory language or specific examples showing how employers could comply in a more practical way that would not create a significant disincentive toward use of the tip credit.” CWC also suggested that the Department “consider borrowing concepts from other regulations interpreting the FLSA focusing on the importance of various job duties rather than focusing on the time spent performing specific tasks.”

Given concerns about tracking directly supporting work performed when the tipped employee is providing service to customers, Seyfarth Shaw urged the Department to adopt a “safe harbor” provision shielding employers from liability for a tip credit violation when an employee fails to promptly inform the employer that they spent a substantial amount of time on directly supporting work.

Several commenters also urged the Department to consider retaining the related duties test from the 2020 Tip final rule, which did not include bright-line quantitative limits on directly supporting work and which they asserted would be more workable for employers than the proposal.

See

AHLA; CWC; Landry's; Chamber;

see also

CFCBA (arguing that “the average person” would find the NPRM proposal “more confusing” than the 2020 Tip final rule). As noted above, under the 2020 Tip final rule, an employer could continue to take a tip credit for “any hours” that an employee performed

related, non-tipped duties either “contemporaneously” with their tipped duties,” or for “a reasonable time” immediately before or after performing the tipped duties.”

See

85 FR 86790. In the NPRM to this final rule, the Department explained its concern that the 2020 Tip final rule failed to provide clear definitions of either “contemporaneously” or “for a reasonable time,” leaving unresolved the boundaries on non-tipped work that is part of an employee's tipped occupation, and employers uncertain and employees unprotected as a result. 86 FR 32825. The Chamber of Commerce, however, asserted that “[w]hile some may question whether a `reasonableness' standard would create greater predictability, a reasonableness standard at least allows for a less microscopic analysis of records.” WPI expressed a preference for the 2020 Tip final rule because it provided that a tipped employee could perform “any tasks that are usually and customarily part of the tipped occupation” and thus, “dispensed with the need to determine which duties count as `tip-producing' or `related duties'.”

2. Discussion of Comments and Explanation of Final Rule Modifications

The Department has evaluated the comments it received and has decided to retain the proposed time limits on directly supporting work in its definition of substantial amount of time, with modifications. Under § 531.56(f)(4), as finalized, an employee has performed directly supporting work for a substantial amount of time if the tipped employee's directly supporting work either (1) exceeds 20 percent of the hours worked during the employee's workweek or (2) is performed for a continuous period of time exceeding 30 minutes.

The Department agrees with commenters representing employees that it is important to maintain bright-line limits on the amount of time an employer can pay an employee a cash wage of $2.13 per hour during which the employee does not have an opportunity to earn tips. The Department believes, moreover, that the modifications to this final rule resolve employers' practical concerns about complying with quantitative limits on directly supporting work. In particular, the Department clarifies in this final rule that some of the tasks that commenters representing employers may have understood as “directly supporting” tasks—which count toward the time limits—are tip-producing tasks when a tipped employee performs the task to serve their own customer—and do not count toward the time limits. As explained above, the final rule provides that tip-producing work encompasses all aspects of the service performed by a tipped employee for their customers, for which the tipped employee receives tips. Directly-supporting work, in contrast, is performed either in preparation of or to otherwise assist the tip-producing customer service work. As explained above, the tip-producing work of some tipped employees may also include tasks that are identified as examples of directly supporting work when those tasks are performed as part of service that the tipped employee is providing to a customer.

For example, if a server takes customer orders at a table, sets the table she is serving, brings beverages to a third table, picks up a slice of pie, adds ice cream, and delivers it to the first table, and puts on a fresh pot of coffee at the beverage station for all of her tables, before heading back to the second table to take customer orders, the server is performing tip-producing work for the entire time. Accordingly, there is no need for the server's employer to count any of this work toward the 20 percent or 30-minute limits. Likewise, if a bartender takes a customer's order and prepares them a drink, takes a second customer's order and leaves the bar area to retrieve a particular wine for the customer, returns to the bar area and wipes down the bar where customers are seated, the bartender is performing tip-producing work for the entire time and there is no need to count any of this work toward the 20 percent limit or 30-minute limit.

On the other hand, if a server folds napkins for the dinner rush after her lunch customers leave, or rolls silverware for 15 minutes at the end of the night while waiting for their last table to pay their bill, or if a bartender is assigned to stock the bar generally between serving customers (as opposed to more specifically retrieving a particular bottle of alcohol to fulfill a customer's order), such side work would be categorized as directly supporting work because this work is not being performed as part of the tipped employee's service to customers for which they receive tips. Similarly, if a server is assigned to a general task such as filling condiment containers to be completed during the breakfast shift during lulls in customer service, that would be directly supporting work since it is preparatory work and is not part of providing service to a customer for which the employee receives tips. As a result, these tasks would count against the 20 percent and 30-minute limits.

But employees do not perform such tasks on an “immediate, time-sensitive basis,” as they might perform tasks for their customers and for which they receive tips.

See

Seyfarth. Nor do employees need to “quickly pivot” or “switch” between such tasks while serving customers.

See

WPI; Landry's. To the contrary, as mentioned above in Section D.1, many of the commenters who are tipped workers stated that they regularly performed such tasks in scheduled blocks of time. The Department believes, therefore, that employers can assign directly supporting work so that employees do not perform this work for more than a substantial amount of time. Alternatively, employers can monitor (or even track, if the employer so chooses) such tasks with relative ease, and without needing to account for employees' duties minute-by-minute. Thus, by clarifying its definitions of tip-producing and directly supporting work, the Department believes that it has substantially alleviated employers' concerns about complying with quantitative limits on directly supporting duties.

The Department declines to eliminate the time limits on directly supporting work and retain the qualitative limits on related duties test in the 2020 Tip final rule, as several commenters representing employers suggested. As the Department noted in the proposal, and as the AG Coalition and numerous employee advocates noted in their comments, the 2020 Tip final rule failed to define the key terms “contemporaneously” and “for a reasonable time immediately before or after.”

See

86 FR 32855. This led to confusion and also failed to provide sufficient guidelines to determine when an employee ceased to be engaged in a tipped occupation. For instance, although the Department did not specifically define the term “reasonable time” in the 2020 Tip final rule, it stated that the standard still provides a “sufficiently intelligible” basis for distinguishing between duties for which an employer could and could take a tip credit; the Department also attempted to illustrate the reasonable time principle with an example.

See

85 FR 86768 (comparing a hotel bellhop who spends 2 hours performing related non-tipped duties after spending their first 8 hours of their shift continuously performing tipped duties with one who spends 12 minutes of every hour over a 10-hour shift performing related duties). However, commenters representing employers and employees alike interpreted the 2020 Tip final rule's

“reasonable time” language not as a means for determining when an employee has performed so much related non-tipped duties that they may no longer be paid with a tip credit but as an authorization to employers to take a tip credit for essentially

any

related non-tipped duties.

See, e.g.,

WPI (“The December 2020 Rule dispensed with the need to determine which duties count as `tip-producing' or `related duties,' and provided that a tipped employee could perform any tasks that are usually and customarily part of the tipped occupation.”); NWLC (arguing that the “ `reasonable time' language” in the 2020 Tip final rule “removed any meaningful temporal restriction on the non-tipped duties for which an employer may claim a tip credit.”).

The Department did not intend the 2020 Tip final rule to provide no limits at all on the amount of non-tipped duties that a tipped employee can perform and for which an employer can a tip credit. However, given that the 2020 Tip final rule did not specifically define its key terms and did not have any of the quantitative limitations on non-tipped work that the Department is adopting in this final rule, the Department believes that, under the 2020 Tip final rule, employers would have been able to require tipped employees to perform a substantial amount of non-tipped work, preventing those employees from either earning tips or in the alternative, earning the full minimum wage as the cash wage. Such an outcome is contrary to the Department's longstanding interpretation of the section 3(t) of the FLSA, affirmed by multiple circuit courts, pursuant to which an employee is no longer engaged in a tipped occupation when they perform so much non-tipped work that the employee is unable to earn tips for a substantial portion of their time.

See Rafferty,

2021 WL 4189698 at *18;

Marsh,

905 F.3d at 633;

Fast,

638 F.3d at 881. The Eleventh Circuit has also suggested that, by removing quantitative limits on non-tipped duties that a tipped employee can perform, the 2020 Tip final rule is in tension with the fundamental protective purpose of the FLSA.

See Rafferty,

2021 WL 4189698 at *16 (concluding that the 2018-2019 guidance, which the 2020 Tip final rule largely codified, “tramples the reasons for the dual-jobs regulation's existence and is inconsistent with the FLSA's policy of promoting fair conditions for workers” because, as the Department acknowledged in the NPRM for the 2020 Tip final rule, it could lead to a loss of earnings for tipped workers).

By replacing inadequately-defined, qualitative limits on non-tipped work (“contemporaneous” and “reasonable time”) with bright-line quantitative limits, this rule will ensure that employees compensated with the tip credit do not perform a substantial amount of non-tipped, directly supporting work. This rule thus accords with the Department's longstanding interpretation of section 3(t) and better effectuates the purpose of the statute. The Department agrees with commenters such as NELP, WLP, and ROC that clear, bright-line limits on the amount of directly supporting work that can be performed by a tipped employee facilitate compliance by helping make employees aware of their rights and helping make employers aware of their responsibilities. The Department also believes that bright-line limits on employers' use of the tip credit are important to protect both protect vulnerable tipped employees and well-meaning employers from unscrupulous employers that might abuse the tip credit by shifting significant amounts of non-tipped work onto tipped workers.

The Department also declines to specifically adopt the proposal by two commenters that the Department lift any “temporal limit or cap” on directly supporting work that is performed “contemporaneously with customer service.” The Department believes that clarifying its definitions of tip-producing and directly supporting work in the final rule will address the concerns animating this request.

The Department does not agree with commenters that argued that its proposal would have effectively eliminated the tip credit. The Department cannot amend the FLSA, but is tasked with enforcing it. As the Department stated in the NPRM, because employers can pay as little as $2.13 in direct cash wages, it is important to ensure that this reduced direct cash wage is only available to employers when their employees are actually engaged in a tipped occupation. However, to the extent that commenters argued that overly burdensome tracking and task-by-task monitoring would have effectively disallowed the tip credit, the Department believes that the modifications in the final rule that more clearly explain and distinguish between tip-producing and directly supporting work resolve those concerns.

Likewise, the Department declines to adopt a “safe harbor” provision requiring employees to promptly notify their employers that they have spent a substantial amount of time on directly supporting work or forfeit their right to be paid a cash wage equal to the full minimum when they are no longer engaged in a tipped occupation. Such a policy would improperly place the burden for compliance with employer's minimum wage obligations on employees, and is inconsistent with the FLSA.

See, e.g., Barrentine

Arkansas-Best Freight Sys.,

450 U.S. 728, 740 (1981) (quoting

Brooklyn Savings Bank

O'Neil,

324 U.S. 697, 707 (1945)) (“FLSA rights cannot be . . . waived because this would `nullify the purposes' of the statute and thwart the legislative policies it was designed to effectuate.”). Moreover, the Department believes that the concerns motivating this request from commenters representing employers—namely, the difficulty of tracking tasks performed while tipped employees are serving customers—are ameliorated by the modifications the Department made described above.

The Department also disagrees with those commenters representing employers who suggested that the proposal is in tension with

Encino Motorcars, LLC

Navarro,

which provides that the FLSA's exemptions should be given a fair, rather than narrow, reading. 138 S.Ct. 1134, 1142 (2018).

See

AHLA; WPI. The tip credit is not an exemption to the minimum wage and

Encino

does not disturb circuit court precedent affirming that it is within the Department's broad delegated authority to define when an employee is engaged in a tipped occupation based on an analysis of the employee's duties, as it has done here.

See Applebee's,

638 F.3d at 876, 879;

Marsh,

905 F.3d at 623.

a. 20 Percent of the Workweek—§ 531.56(f)(4)(i)

Multiple commenters representing employees supported the Department's proposal to apply a 20 percent workweek tolerance to non-tipped, directly supporting work.

See, e.g.,

IWPR; ROC; WLP (describing it as a “crucial limit” when employers are paid a direct cash wage as low as $2.13 an hour). In addition, the Scott letter stated that 20 percent of the workweek was “a reasonable standard for restricting the use of the tip credit.” Other commenters representing employees, however, urged the Department to reduce the tolerance to five or 10 percent, arguing that the FLSA permits “a more stringent threshold for the tasks for which an employer can pay a worker just $2.13 an hour.”

See, e.g.,

Network; CLASP. NWLC asked the Department to consider the r

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