The 5th Circuit Court of Appeals vacated the U.S. Department of Labor’s (DOL) dual jobs final rule and said it “is contrary to the Fair Labor Standards Act’s (FLSA) clear statutory text” [Restaurant Law Center v. U.S. Department of Labor, No. 23-50562, 2024 U.S. App. LEXIS 21449 (5th Cir., 8-23-24)].
The final rule went into effect in December 2021 and created a functional test to measure whether a tipped employee is engaged in their tipped occupation under the FLSA. The final rule permitted an employer to take a tip credit for an employee’s tip-producing work and also for other work that “directly supports tip-producing work, provided that the employee does not perform that work for a substantial amount of time.” An employee performed directly supporting work for a substantial amount of time if the work either: (1) exceeded 20% of the hours worked during the employee’s workweek or (2) was performed for a continuous period of time exceeding 30 minutes.
In June, the U.S. Supreme Court’s decision in the Loper Bright case overturned what was known as the Chevron doctrine. Under the doctrine, courts generally gave deference to a federal agency’s interpretation of a statute. After Loper Bright, the appeals court said it was required to “parse the text of the FLSA using the traditional tools of statutory interpretation.”
The appeals court said that the final rule attempted to answer a question that the DOL, not the FLSA, posed. The appeals court said the FLSA is clear: “an employer may claim the tip credit for any employee who, when ‘engaged in’ her given ‘occupation … customarily and regularly receives more than $30 a month in tips.’” The appeals court said the “FLSA does not ask whether duties composing that given occupation are themselves each individually tip-producing.”
The appeals court held that the final rule applied the tip credit in a manner inconsistent with the FLSA’s text. It also held that the final rule was “arbitrary and capricious because it draws a line for application of the tip credit based on impermissible considerations and contrary to the statutory scheme enacted by Congress.”
The appeals court rendered summary judgment for the Restaurant Law Center and vacated the final rule. The DOL may appeal the ruling.
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Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for PayrollOrg.