Last month, an important federal court ruling wiped out a new U.S. Department of Labor Rule expanding salaried employees’ eligibility for overtime compensation by narrowing employers’ ability to apply certain exemptions. A few months earlier, a different federal court ruling from Texas also significantly impacted wage and hour law, but on a different set of employees. This ruling targeted a 2021 DOL rule regarding the tip credit. These rulings are crucial reminders that, especially under the current legal landscape, the rules and standards of wage and hour law are prone to change. With that in mind, you must work with a knowledgeable Atlanta wage and hour lawyer to ensure that your pay practices are compliant with (or taking advantage of) all the latest developments in the law.
The tip credit is the mechanism that allows employers to pay tipped workers a base hourly wage of as little as $2.13 per hour so long as the tipped worker’s base wage plus tips equals or exceeds $7.25 per hour. In 2021, the Labor Department established a rule saying that an employer could only apply the tip credit to workers if they spent 80% (or more) of their time doing tip-producing work (like serving tables in a restaurant, for example.)
The rule also established that these workers could spend no more than 20% of their time doing “directly supporting” work. (That latter category includes things like cleaning and setting tables or making coffee and tea.) An additional part of the rule said that workers could spend no more than 30 consecutive minutes doing this supporting work, or else the employer could not use the credit.
The federal 5th Circuit Court of Appeals, which covers Texas, Louisiana, and Mississippi, struck down the rule. The court said the rule failed the prohibition against arbitrary and capricious regulations. Specifically, the creation of a distinction between time spent doing things that generated tips (waiting tables) and performing tasks that did not directly produce tips (bussing tables) did not flow from the statute. “If a core duty of a server is bussing and setting up tables, the server is undoubtedly engaged in his occupation. It does not matter whether he is tipped or not for those duties,” the court stated in its opinion.
Without the 80/20/30 rule, the appropriate standard returns to what the Labor Department laid out in the original tip credit rule. The 5th Circuit’s decision has no impact on state laws or regulations that established their own 80/20 rules, but Georgia is not one of the states with such a statute or regulation.
Why Now?
Employers may have noticed a flurry of wage and hour decisions from the federal courts. This is because wage and hour law is heavily driven by federal regulations created by the U.S. Department of Labor.
For the last 40 years, a U.S. Supreme Court decision has tightly constrained the circumstances under which a party could successfully challenge a federal regulation. In 1984, the court published Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which said that federal courts should defer to the decision-making of agencies like the Labor Department as long as those decisions do not contradict actual statutory text and represent a “permissible construction” of the law.
This past June, the Supreme Court staked out a new course in Loper Bright Enterprises v. Raimondo. That decision overturned the Chevron case, stating that federal regulations and agency decision-making are not entitled to the level of deference that the Chevron ruling established. This elimination of Chevron deference raises the odds of a party succeeding in challenging the legitimacy of a federal regulation, thus raising the possibility of more court cases challenging other wage and hour regulations.
As the “playing field” of wage and hour law continues to shift and evolve, ensuring compliance means keeping up on the latest court decisions and their applicability to employers’ pay practices. If you have questions or concerns about the tip credit and your (or your employer’s) pay practices, it pays to get the right legal advice. The knowledgeable Atlanta wage and hour attorneys at the law firm of Parks, Chesin & Walbert are here to help, providing clients with answers and solutions that are experience-driven and fully up-to-date on the law. Contact us through this website or at 404-873-8048 to schedule a consultation today.