The U.S. Court of Appeals for the Fifth Circuit (Texas, Louisiana, and Mississippi) has struck down the Department of Labor’s “80/20/30 Rule,” which had set guidelines for how tipped employees are compensated under the Fair Labor Standards Act (FLSA). To quickly put this in perspective, the Rule applied in states that allowed a tip credit. In those states, the Rule mandated that employers pay the full minimum wage (and not take a tip credit) for non-tipped duties that either lasted over 30 continuous minutes or exceeded 20% of the workweek. The Court determined that the Rule conflicted with the FLSA’s language and faulted it for improperly dividing tasks within a single occupation. Citing the recent Loper Bright case, the Court concluded that tipped employees only lose their status for tip credit eligibility when they take on completely unrelated jobs, not based on the time spent on non-tipped duties within their primary role. This ruling eliminates the 80/20/30 Rule in the Fifth Circuit and could apply nationwide. However, the application of the Rule in states outside of the Fifth Circuit could still be litigated in those states, and the question of the Rule’s nationwide applicability will remain in limbo until a higher court issues a decision or new guidance is issued by the DOL. Currently, the DOL is challenging the Fifth Circuit’s ruling, but if Donald Trump defeats Kamala Harris in the upcoming presidential election, this challenge would likely be dropped and new guidance may be issued. Importantly, states that do not allow a tip credit are unaffected by this ruling.
