The organization asked the court to temporarily block the rule, but was denied.
The National Restaurant Association's battle against new federal tip credit regulations took a hit recently when a district court judge ruled against a preliminary injunction.
The ongoing lawsuit, filed by the Texas Restaurant Association and The Restaurant Law Center, an entity under the Association, takes issue with the Department of Labor's "80/20" rule.
Under federal law, employers are allowed to pay tipped employees a subminimum wage of $2.13 instead of the federal minimum wage of $7.25, with cash tips making up the difference—otherwise known as the tip credit. With the 80/20 rule, restaurants can only use the tip credit when employees spend less than 20 percent of hours worked, or less than 30 minutes continuously, on non-tip-producing tasks. Otherwise, operators must pay the full federal minimum wage.
The restaurant organizations argue the rule would "severely impair" the ability to operate. Dr. Emily Williams Knight, the Texas Restaurant Association's president and CEO, said that because employees move so quickly between tasks, there's no practical way to keep up with tipped and non-tipped work and avoid potential liability.
Victoria Vish, an associate attorney at Ogletree Deakins, told FSR in November that the rule is intentionally strict and hard to follow.
“The ultimate goal is likely for people to just pay full minimum wage," he said.
The rule went into effect on December 28. The lawsuit's preliminary injunction, if granted, would've blocked the rule from being enforced during the court case.
The lawsuit alleges the regulation is "arbitrary, capricious, and an abuse of discretion" and conflicts with the Fair Labor Standards Act. In court documents, the organizations state the Fair Labor Standards Act doesn't give the Department of Labor power to subdivide a single workweek into hours or minutes based on tipped work or to dictate the appropriate mix of tasks within a tipped occupation.
Additionally, restaurants are concerned with added costs, noting the Department of Labor used data from 2018 and 2019 to estimate economic impact of the rule, and not the COVID era. The Small Business Administration's Office of Advocacy called on the Department of Labor to withdraw the 80/20 rule, reassess cost estimates, and consider alternatives.
“The Administration’s attempt to improperly use the regulatory process to legislate changes to the Tip Credit would severely impact operators who are currently focused on labor and supply chain shortages and working to keep their doors open during an economically devastating pandemic,” Angelo I. Amador, executive director of the Restaurant Law Center, said in a statement. “As the Supreme Court recently reminded the Department of Labor, linguistic ambiguity in a statute does not confer upon the Department unfettered discretion to impose whatever requirements the Department chooses.”
The Trump administration relaxed these rules, allowing side work to be counted toward tips. But the Biden administration brought back the regulation from the Obama era.
As Vish noted, the rule is written in a way to push operators toward paying the full minimum wage, a battle that One Fair Wage is taking head on. The nonprofit, dedicated to ensuring tipped workers earn at least the full minimum wage, announced a $25 million campaign to convince 25 states to remove the tipped wage by 2026. Those states include New York, Michigan, Massachusetts, California, Illinois, and Washington, D.C.