Zombie 80/20 Rule for Tipped Employees Could Rise Again

Author: Michael Cardman, XpertHR Legal Editor

March 24, 2021

The last few years have been a roller coaster for employers of tipped employees like wait staff and bartenders - especially when it comes to the so-called "80/20 rule," which limits how much time these employees may spend on sidework such as cleaning tables or making coffee.

The 80/20 rule was supposed to be replaced with a more employer-friendly rule at the end of April.

But now the US Department of Labor (DOL) has opened the door for the 80/20 rule - or something like it - to rise again.

Background

A Fair Labor Standards Act (FLSA) regulation allows employers to claim the minimum wage tip credit for some of the time that a tipped employee spends in duties related to their occupation (known in the industry as "sidework"), even though the duties are not by themselves directed toward producing tips. For example, a waitperson who spends some time cleaning and setting tables, making coffee, and occasionally washing dishes or glasses is considered to be engaged in a tipped occupation even though these duties are not tip-producing.

Longstanding DOL enforcement guidance had prohibited an employer from taking a tip credit for time spent performing related duties / sidework if it took up more than 20% of an employee's workweek. Commonly referred to as the "80/20 rule," it was the basis for several lawsuits.

In 2018, under the Trump administration, the DOL issued an opinion letter, and then in 2019 followed it up with a field assistance bulletin, superseding the 80/20 rule. The DOL said it would no longer limit the amount of related duties / sidework that may be performed as long as the work is performed "contemporaneously with" or for a "reasonable time" before or after direct customer-service duties and all other requirements of the FLSA are met.

In 2020, the DOL issued a final rule that would, among other things, codify this stance into a notice-and-comment regulation entitled to deference from the courts.

Delay and Replace?

Technically, the Trump administration's rule is still scheduled to take effect April 30.

However, tomorrow the DOL, newly led by the Biden administration, will propose delaying until December 30 the portion of the rule that addresses the application of the FLSA tip credit to tipped employees who perform both tipped and non-tipped duties.

In the meantime, the DOL welcomes comment from the public as it considers whether to withdraw and replace that portion of the final rule.

Other Tip Credit Developments

The DOL will allow several parts of the 2020 final rule to take effect April 30, as originally scheduled, including provisions that:

• Codify the 2018 FLSA amendment that prohibits an employer from keeping tips received by its employees for any purpose;
• Codify the 2018 FLSA amendment that establishes a new recordkeeping requirement intended to help the DOL administer the tip-retention law; and
• Remove existing regulations prohibiting employers that pay their tipped employees a direct cash wage of at least the full federal minimum wage and do not take a tip credit from including employees who do not customarily and regularly receive tips, such as cooks and dishwashers, in mandatory tip-pooling arrangements.

The DOL also will propose to:

• Allow itself to assess civil money penalties for employers that keep tips in violation of the FLSA even if the violations are not repeated and willful;
• Expand the criteria under which minimum wage and overtime violations can be considered "willful"; and
• Seek comment about whether to revise the portion of the 2020 rule that addresses the statutory term managers or supervisors, who are prohibited from keeping any portion of employees' tips, regardless of whether or not the employer takes a tip credit.