IMPORTANT UPDATE ON TIP CREDIT REGULATIONS

RESTAURANT LAW CENTER vs. U.S. DEPARTMENT OF LABOR

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A recent Fifth Circuit Court decision in Restaurant Law Center v. United States Department of Labor impacts how restaurants can apply the federal "tip credit," carrying significant implications for businesses employing tipped workers.

Summary of the Decision

The Restaurant Law Center and Texas Restaurant Association successfully challenged a Department of Labor (DOL) rule that restricted the use of the tip credit under the Fair Labor Standards Act (FLSA). The rule barred employers from claiming the credit if tipped employees spent more than 20% of their time on non-tip-generating tasks, such as setting tables or cleaning. The Fifth Circuit struck down the rule, deeming it "arbitrary and capricious" under the Administrative Procedure Act and finding it contradicted the FLSA, effectively nullifying the DOL's 2021 regulation.

What This means for Your Business

This decision clarifies and simplifies the use of the tip credit for restaurant owners:

1. Flexibility in Employee Duties: Employers can continue to use the tip credit even if tipped employees spend time on non-tip-producing tasks, without needing to track specific percentages of their time spent on those activities.

2. No Need for Minute-by-Minute Tracking: The ruling eliminates the requirement to monitor and log non-tip-producing activities, relieving restaurants of the administrative burden imposed by the previous DOL rule.

3. Financial Impact: The court's decision minimizes financial exposure by allowing employers to maintain the tip credit without requiring full minimum wage compensation for non-customer service tasks.

In summary, this decision reduces both the administrative burden and financial uncertainty associated with the tip credit, allowing restaurant owners to focus on running their businesses more efficiently.

For any questions or concerns regarding this or other matters that may impact your business, please feel free to contact our law firm at 954-990-8639.