As hospitality employers are well aware, the U.S. Department of Labor (DOL) has long promulgated the “80/20 Rule” providing that in order to take the tip credit from a tipped employee’s wages, the tipped employee must spend at least 80% of their workweek performing tip-producing duties and no more than 20% on non-tipped duties. Further, since December 2021, the DOL’s updated “80/20/30 Rule” has also restricted the performance of non-tip-producing and “directly supporting” duties (collectively “side work”) to 30 consecutive minutes and restricted the employer from taking a tip credit for time spent on side work for more than 30 consecutive minutes and in excess of 20% of the workweek. 

In a blockbuster ruling by the Fifth Circuit Court of Appeals, the 80/20/30 Rule has now been struck down – meaning the issue of an employer losing the tip credit because an employee performed too much side work during their workweek or for more than 30 consecutive minutes is now a thing of the past, at least on the federal level.

By way of brief background, restaurant industry groups challenged the 80/20/30 Rule in light of a recent Supreme Court ruling that federal agency interpretations of a statute - such as DOL constructs like the 80/20 Rule and 80/20/30 Rule - are no longer entitled to deference by a court if the question at the center of a dispute has not been addressed by Congress in the text of a law. As the federal Fair Labor Standards Act itself does not contain any restrictions on the amount of time an employee performs tipped vs. non-tipped tasks in order to be considered a “tipped employee” who can be paid a sub-minimum wage by virtue of the tip credit, the Fifth Circuit therefore held that the temporal conditions imposed by the 80/20/30 Rule, and by extension the 80/20 Rule that came before it, are improper and unenforceable.

It is important to note, however, that this ruling does not affect the DOL’s “dual jobs” regulations, which restrict an employer from taking the tip credit to the time worked in a tipped position where an employee is employed in both a tipped occupation and in a non-tipped occupation, such as an individual employed by the same restaurant as a barback on some days and a dishwasher on others.

This decision is big news for hospitality employers operating in states where there is no ancillary state or local rule limiting the time spent by a tipped employee on side work duties or prohibiting employers from taking a tip credit.

Unfortunately, the Fifth Circuit’s decision does not affect California hospitality employers as tip credits are disallowed by California law, and is of limited impact for New York hospitality employers, as New York has its own regulations regarding the amount of time a tipped employee may spend on non-tipped duties or side work in a given workday before the employer loses the tip credit for that workday (referred to as the “80/20/2 Rule”). That is, New York hospitality employers must still ensure tipped employees are not spending more than the lesser of 20% of their workday or 2 hours performing side work to preserve the tip credit.

That said, the Fifth Circuit striking down the 80/20/30 Rule does have significant benefits for New York hospitality employers. These employers can now dispense with restricting non-tipped duties or side work (such as prep work or paid break time) to 30 consecutive minutes so long as they otherwise maintain compliance with the 80/20/2 Rule. Additionally, employers that had stopped taking the tip credit from the overtime rate to avoid the need to comply with the 30-minute requirement of the 80/20/30 Rule can go back to paying the tipped overtime rate as a matter of course. Employers that elect to go back to applying the tip credit to overtime hours must notify tipped employees of that change at least one pay period in advance.

The Fifth Circuit’s decision may also be a harbinger of things to come for New York’s Hospitality Wage Order. In its decision, the Fifth Circuit recognized what hospitality employers have long argued: a server doing typical server duties remains a server, even if, in five-minute increments throughout their workweek, they spend 60 percent of their time waiting tables, 10 percent cleaning tables, 10 percent toasting bread, 10 percent making coffee, and 10 percent washing dishes – the server is not is not 60 percent a server, 10 percent a janitor, 10 percent a baker, 10 percent a barista, and 10 percent a dishwasher. 

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If you have questions or would like additional information, please contact our Labor & Employment attorneys or the primary EGS attorney with whom you work.