In the wake of the U.S. Supreme Court’s rejection of its Chevron deference precedent, federal courts have begun to grapple with administrative agencies’ discretion to issue regulations implementing less than precise legislation. Last week in Restaurant Law Center v. USDOL, the Fifth Circuit Court of Appeals directly used the absence of Chevron deference to block a Department of Labor wage payment rule it said could not be found in the text of the Fair Labor Standards Act.

The DOL’s 2021 tip rule tries to draw a regulatory line between jobs that qualify for the FLSA’s special reduced minimum wage and tip credit for workers who receive gratuities. The rule said that if an employee spends more than 20% of their working time in a given week on non-tipped tasks, they do not qualify for the tip credit, and must be paid the applicable full minimum wage. Restaurant industry groups sued, claiming that the rule was arbitrary and capricious.

The Fifth Circuit agreed, reversing a district court decision that was premised on a grant of Chevron deference to DOL. The court said that FLSA never mentions a 20% threshold, and that the tip credit applies to traditionally tipped occupations regardless of the amount of non-tipped work performed. Federal courts would make the distinction as to when a particular worker is deemed to no longer work in a covered job based on the overall tasks performed.

The court issued a nationwide injunction blocking the rule, and DOL may appeal this decision to the Supreme Court. This decision demonstrates the potential impact of the post-Chevron legal landscape. More conservative federal courts are likely to use this decision to reject attempts by federal agencies to issue regulations when they cannot point to specific language in the underlying statute that authorizes that particular regulatory approach.

For more information, please contact me or your regular Parker Poe contact. You can also subscribe to our latest alerts and insights here.