waiter.jpgCo-authored by C.J. Eaton and Michael Fleischer

On Thursday, June 16, 2011, several trade groups representing the restaurant industry filed suit against the Department of Labor (DOL) seeking to have revoked the newly amended FLSA tip credit regulations. 

As mentioned previously on this blog, the DOL issued new tip credit regulations on April 5, 2011, that made substantive changes regarding the notice that an employer seeking to use the tip credit must provide to a tipped employee before utilizing the tip credit.  Employers were not given an opportunity to comment on the new notice requirements and had only thirty days to comply with the regulation.  The trade groups allege that the new requirements are potentially costly and administratively burdensome to employers who utilize the tip credit, and could expose them to litigation or investigations by the DOL.  If an employer fails to comply with the new regulations, it could lose the right to take the tip credit, and as a result have to pay tipped employees the full minimum wage, in addition to being assessed liquidated damages or other penalties.

The lawsuit, filed by the National Restaurant Association, Council of State Restaurant Associations, and National Federation of Independent Business in federal court in Washington, D.C., alleges that the newly amended regulations violate the Administrative Procedure Act (APA), 5 U.S.C.  §§ 611, 702, for three reasons.  First, the DOL’s abrupt amendment to the regulations, issued without allowing for a public comment period, violates the APA because the DOL failed to go through the process of notice and comment rulemaking required by the statute.  Second, the trade groups assert that the new regulations must be set aside by the court because they are arbitrary and capricious.  Third, the suit alleges that the DOL failed to conduct an analysis to determine whether the amendments would result in additional compliance costs to affected industries as required by the APA.

The complaint also alleges that the DOL failed to follow the requirements set forth in Executive Orders 12866 and 13563, which require agencies to weigh the effect of new regulations on businesses and to determine whether they can be made more effective or less burdensome.  Finally, the trade groups assert that the failure to allow for public participation also violates Executive Order 13563.  Based on these grounds, the trade groups are asking that the court vacate the notice requirements and enjoin the DOL from enforcing the requirements.

Although the trade groups have filed suit, the new regulations are currently still in effect and enforceable.  Employers who take the tip credit therefore still need to review their policies and procedures to ensure that they are providing tipped employees with the proper notice regarding the tip credit.  Some states also impose tip credit notice requirements, which employers should also consult in preparing their policies and procedures.