A U.S. appeals court has vacated a rule from the Department of Labor that restricted when employers could pay workers who receive tips less than minimum wage.
The three-judge panel said the department (DOL) in 2021 improperly issued a rule that said in part that employers could only pay workers $2.13 an hour when the workers were engaged in work that is part of their job but not when the same workers were engaged in other work.
As an example, an employer could pay waitresses $2.13 an hour when they were providing service to tables but not when they were preparing food.
The Fair Labor Standards Act (FLSA) lets employees pay sub-minimum wage to a tipped worker who is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”
“Under the final rule, if an employee is not engaged in her occupation at a given moment, then she is not a ’tipped employee‘ at that moment. The final rule necessarily means, therefore, that when an employee is not engaged in her ’tipped occupation,’ as the regulatory language puts it, she is engaged in some other occupation. Because the final rule is so granular in divvying up component tasks, a single occupation could quickly break apart, implausibly, into many,” U.S. Circuit Judge Jennifer Walker Elrod, writing for the judges, said in the Aug. 23 opinion.
The term “tipped occupation” was created by the DOL, as was a cap of 30 minutes at a time of work that directly supports tipped work, such as a server setting and bussing tables.
“In summary, the final rule applies the tip credit in a manner inconsistent with the FLSA’s text,” Elrod said. “Whatever benefit may result from the final rule’s ‘functional’ test, we are guided instead by the ‘core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.’ We must therefore conclude that the Final Rule is ‘not in accordance with law.’”
Elrod was joined by U.S. Circuit Judge James E. Graves Jr. and U.S. District Judge Barry W. Ashe, who was sitting by designation.
The DOL did not respond to a request for comment on the ruling, which vacated the rule and reversed a previous decision by a different U.S. district judge.
Judge Robert Pitman ruled in 2023, in light of a U.S. Supreme Court decision known as Chevron, that the court must show deference to the DOL’s interpretation of the term engaged in an occupation.
Pitman correctly applied the test laid out in Chevron but now that the test is no longer in place, the appeals court said, the DOL overstepped in using unusual interpretations in the new rule.
The ruling came in favor of the Restaurant Law Center and the Texas Restaurant Association, which sued in 2021 shortly after the rule was announced.
A spokesperson for the association told The Epoch Times in an email that the ruling “is a resounding victory over two years in the making for restaurants across the United States.”
The spokesperson added, “The Texas Restaurant Association is grateful to our members and our partners at the Restaurant Law Center for working hand-in-hand with us to vacate a rule that contradicted the laws passed by Congress and empower restaurants to refocus on what they do best—serving their communities.”
The appeals court panel said it was not ruling against the DOL’s longstanding regulation on dual jobs, which targets employees who regularly engage in distinct occupations for the same employer, like a maintenance man in a hotel also working as a waiter. The DOL has said that employers are only allowed to pay sub-minimum wage to such workers with respect to jobs that pay tips, not other jobs.
“The dual-jobs regulation, unlike the final rule, does not countenance a percentage-based—much less a 30-minute-increment-cutoff-based—approach to identifying how much untipped work is too much,” Elrod said. “Indeed, it focuses on ‘whether the employee performs tasks unrelated to his or her tipped occupation,’ not the ‘amount of time’ spent on untipped tasks. It therefore suffers from none of the infirmities that we have identified with the final rule.”
