Tips from Seyfarth is a blog series for employers, and their in-house lawyers and HR, payroll, and compensation professionals, in the food, beverage, and hospitality sector. We curate wage and hour compliance “tips” to keep this busy industry informed.

By: Ariel Cudkowicz and Michael Steinberg

Seyfarth Synopsis: After a trial court upheld the validity of the Department of Labor’s 2021 regulation codifying the 80/20 rule following an initial remand from the Fifth Circuit, the plaintiffs filed an appeal of the final judgment, sending the case back to the Fifth Circuit.

As we previously wrote about here at TIPS, an ongoing lawsuit brought on behalf of national and local restaurant industry associations seeks to invalidate the Department of Labor’s new regulation codifying the “80/20” rule—the Department’s longstanding enforcement position that an employer cannot take a tip credit when an employee spends more than 20% of their hours on non-tip-producing activities.  Under the previous administration, the Department issued an opinion letter walking back the 80/20 approach, but that rule never went into effect and the Department withdrew the regulation in 2021. The new rule largely codifies the existing 80/20 enforcement guidance, but it adds a new, potentially onerous requirement: non-tipped work could not be performed for continuous periods in excess of thirty minutes even if that work does not exceed 20% of the employee’s hours worked.

On appeal from the trial court’s denial of a preliminary injunction, the Fifth Circuit issued an opinion in April of 2023 that evinced, shall we say, a healthy dose of skepticism regarding the new regulation’s validity. On remand, though, the trial court issued a decision upholding the regulation’s validity under the Chevron doctrine of agency deference.  We predicted that the plaintiffs would appeal.  After some initial confusion, the appeal has now been filed in the Fifth Circuit, and will go forward.

So, dear readers, stay tuned as we continue to follow the latest developments in this ongoing case.

Though the 80/20 rule deals with the tip credit under federal law, restaurant and hospitality employers face a patchwork of state laws, too. Luckily, the team at Seyfarth has a repository of nifty survey charts — available for free to our clients — that map out the various federal and state requirements. Reach out to the authors if you’d like to learn more about these survey resources. And, of course, if you want more in-depth analysis of the rules of the road for taking the tip credit, do not hesitate to reach out to the authors or your favorite member of Seyfarth’s Wage and Hour Practice Group.