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Federal Court Rejects Challenge to DOL Tip Credit Rule

    Client Alerts
  • July 21, 2023

In recent years, persons or groups unhappy about a new federal law or regulation have chosen to file suit in a selected federal district court, often in Texas, seeking a nationwide injunction to prohibit the new measure from taking effect. This tactic appears to have backfired on the restaurant industry’s attempt to invalidate the Department of Labor’s changes to the tip credit rule when a Texas federal judge recently rejected its challenge to the regulation.

Restaurant Law Center v. USDOL involved a challenge to the DOL’s 2021 rule that distinguishes between tipped and non-tipped work. Only tipped work qualifies for the $2.13 minimum wage for tipped workers, and other work must be separately tracked and paid at the full applicable minimum wage. Under a prior DOL proposal, this distinction was made using a calculation of the total time spent on non-tipped tasks such as preparation for service. Under the 2021 rule, non-tipped work is defined both as the amount of time spent on these activities, as well as the type of work performed regardless of the time spent.

The Texas federal court granted summary judgment to the DOL, finding that the rule complies with both the Fair Labor Standards Act and Administrative Procedures Act. While the plaintiffs are likely to appeal this decision to the Fifth Circuit, this decision means that absent a reversal by that court, restaurants and other employers that claim the tip credit must account for both tipped and non-tipped work by eligible employees. Failure to comply with these new guidelines could result in expensive suits or DOL complaints seeking payment of the full minimum wage and penalties.

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