Tipped Employees

1 week ago

On August 23, 2024, the Fifth Circuit (Western District of Texas) made a determination in an appeal received from the Restaurant Law Center and the Texas Restaurant Association against the US Department of Labor (DOL) challenging restrictions to the tipped credit rule.

As noted by the plaintiff, ‘The FLSA (Fair Labor Standards Act) defines a “tipped employee” as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips” and makes a distinction between employees who have two separate and distinct positions, one of which is tipped and one which is not, versus a tipped position which requires performing occasional work of an untipped nature. For work of a tipped nature, the employer can use tips to make up the difference between the employee’s hourly rate (In New Mexico, the tip minimum for employees performing tipped work is $3.00 per hour) and minimum wage (currently $12.00 for employees in New Mexico but other local laws may apply).

The Final Rule disallowed employers from using the tip towards the achievement of minimum wage for those employees who performed more than 30 minutes of supporting work that was not directly tip producing per week or who produced non-tip supporting work of more than 20% per week. Similar to last week’s posting on the Non-Compete Agreement finding, the plaintiffs claim that the Final Rule is “arbitrary” and “capricious” and that it is an “abuse of discretion, or otherwise not in accordance with the law.”

The court determined that “…the Final Rule applies the tip credit in a manner inconsistent with the FLSA’s text” and that “…an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” The court also determined the Final rule to be arbitrary and capricious. Accordingly, the court vacated the final rule. As the situation with last week’s case, the defendant may file an appeal.

Southwestern HR Consulting (SWHRC) will continue monitoring HR Compliance issue and providing updates as they become available. At SWHRC we have a team of experts who follow compliance issues related to laws that delineate how you can work with your employees. Contact us today to speak with a representative and learn about our services.