Recently, in Restaurant Law Center, et al. v. U.S. Dep’t of Labor, the U.S. District Court for the Western District of Texas affirmed the validity of a new Department of Labor (DOL) rule, known as the “80-20-30” or “dual jobs” rule, which limits the ability of employers to satisfy a portion of tipped employees’ wages with earned tips.

As background, the Fair Labor Standards Act permits employers to satisfy a portion of their minimum wage obligations (currently $7.25 per hour) to tipped employees by allocating a tip credit toward the minimum wage. Accordingly, the employer can pay an hourly rate as low as $2.13 per hour as long as the employee’s tips make up the difference. However, under the DOL’s “80-20-30” rule, an employee may only spend 20% of their time on directly supporting tip work (for example, a bartender making garnishes or a server rolling silverware). The rule also imposes a 30-minute per shift limit for the amount of time the employee can spend directly supporting tip work.

In upholding the DOL’s rule, the court determined under the Chevron two-step test that the DOL has Congressional authority to implement regulations under the FLSA, and that the definition of “tipped employee” as an employee “engaged in an occupation in which he customarily and regularly receives more than $30 per month in tips” is ambiguous because there is no additional definition of “engaged in” or “occupation.” The court further determined that the rule is a reasonable interpretation of the terms.

Although an appeal of the district court’s ruling is possible, employers with tipped employees in the Western District of Texas are faced with a significant challenge in the face of already high labor costs unless the district court’s decision is overruled. Specifically, the regulation forces employers to choose between extremely burdensome monitoring of their employees’ activities, or paying a minimum wage without taking any tip-credit. Employers who choose to satisfy the minimum wage requirements with earned tips should work closely with counsel to ensure compliance.