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.

Seyfarth Synopsis: On October 29, 2024, the Fifth Circuit granted the Department of Labor’s Petition for Panel Rehearing in the 80/20 Rule Litigation, Which Sought Clarification About the Scope of the Court’s Ruling.

Here at TIPS, we’ve been closely following the ongoing litigation in the Fifth Circuit surrounding the U.S. Department of Labor’s December 2021 codification of the “80/20 Rule.”  In our last update, we wrote about the Fifth Circuit’s opinion granting summary judgment to the challengers of the DOL’s 80/20 Rule, which would have both codified longstanding DOL guidance requiring that tipped employees spend no more than 20% of their workweek on tasks that “directly support” their tip producing work (“directly supporting work”) and added a completely new requirement that any such directly supporting work not be performed for more than 30 continuous minutes at a time.  The Fifth Circuit held that the DOL’s regulation ran afoul of the plain text of the FLSA’s tip credit provision. It therefore vacated the rule.

After the Fifth Circuit issued its decision, though, the DOL asked the Court to clarify the scope of the vacatur in a narrow petition for panel rehearing.  In its petition, DOL pointed out that the DOL’s 2021 regulation—in addition to making changes to the existing dual jobs regulation—also withdrew a December 2020 rule published under the Trump-era DOL that, if it had ever gone into effect, would have replaced the DOL’s dual jobs regulation with much squishier language permitting employers to take a tip credit so long as the non-tip producing duties were performed “contemporaneously with tipped duties” or for a “reasonable time.” (What is a “reasonable time,” you ask? The rule didn’t say.) In its petition for panel rehearing, the DOL argued that the Fifth Circuit’s opinion could not have intended to resurrect a withdrawn rule from 2020 in vacating the DOL’s 2021 regulation.

On October 29, 2024, the Fifth Circuit granted the petition, and substituted its previous opinion with a new one. The only change: at the end of the opinion, the Court clarified that its vacatur of the new 80/20 regulation only vacated the rule “insofar as it modifies” the Department’s 1967 dual jobs regulation. In other words, the court clarified that its ruling was not intended to resurrect the withdrawn Trump-era dual jobs rule.

Although the Fifth Circuit’s opinion means that the DOL’s 2021 80/20 regulation is no longer operative, that does not mean that there are no longer any limitations on the amount of non-tip-producing work permitted for an employer to be able to take the tip credit. As readers of this blog will be well familiar with by now, the 80/20 rule has its roots in DOL sub-regulatory guidance—in particular, the Department’s Field Operations Handbook—going at least as far back as 1988.  Other federal appellate courts, including the en banc Ninth Circuit in 2018 and the Eleventh Circuit in 2021, have previously found that guidance to be a reasonable interpretation of the statute. So, while the DOL’s 2021 regulation may no longer be operative, restaurant and hospitality employers should tread carefully in determining their policies and practices around timekeeping and assignment of non-tip producing tasks.

If you are a restaurant or hospitality employer and are looking for guidance on how to proceed in the wake of these recent developments regarding the 80/20 Rule, we encourage you to reach out to one of us—or your favorite member of Seyfarth’s Wage and Hour Litigation Practice Group!

And, stay tuned.