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Window Closing on FLSA Claims Based on 80/20 Rule

    Client Alerts
  • February 10, 2020

The U.S. Department of Labor is still working to finalize the withdrawal of the 80/20 rule, which had forced employers to pay the full minimum wage to employees who spend more than 20 percent of their time on non-tipped work. But recently, federal courts have refused to defer to DOL’s plan to withdraw the rule. 

In 1988, the Department of Labor first adopted the 80/20 rule, which interpreted the Fair Labor Standards Act’s “dual jobs” regulation to require employers to pay tipped employees the full federal minimum wage of $7.25, rather than the lower tipped minimum wage of $2.13, for time spent performing non-tipped duties. In November 2018, DOL attempted to retract the 80/20 rule by issuing an opinion letter, and then on October 8, 2019, published a notice of proposed rulemaking codifying the withdrawal of the rule.

Generally, the proposal replaces the 80/20 rule by allowing employers to use the tip credit for any amount of time spent performing related, non-tipped duties contemporaneously with, or within a reasonable time before or after, tipped duties. Those duties that are considered related to tip-producing duties are listed on DOL’s Occupational Information Network (O*NET). The comment period for the proposal closed in December 2019, and DOL has yet to publish its final rule. 

Practically, the 80/20 rule has proved difficult to administer and created a boon for enterprising plaintiffs’ attorneys. Employers who are unable to account for each minute of their employees’ time and the specific breakdown between tipped and non-tipped work have been targeted with litigation that one court described as a “discovery nightmare.” Therefore, employers have generally supported DOL’s withdrawal of the 80/20 rule. Courts, however, have so far taken a more skeptical view of DOL’s proposed rulemaking.

On January 14, 2020, in O’Neal v. Denn-Ohio, LLC, the Northern District of Ohio denied a motion to dismiss a collective action against a Denny’s franchisee who allegedly violated the 80/20 rule. The court declined to give any deference to DOL’s new guidance, which it found to be unreasonable because it would lead to results inconsistent with the purpose of the dual jobs regulation. The Eastern District of Pennsylvania has also declined to extend deference to DOL’s new policy.

Until DOL issues its final rule and courts consider whether to extend any deference, prudent employers should not entirely rely on the apparent safe harbor provided by the new guidance. Despite its impracticality, employers should continue to adhere to the 80/20 rule by tracking time worked on tipped and non-tipped duties as closely as possible.