Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date

Citation86 FR 15811
Record Number2021-06244
Published date25 March 2021
CourtLabor Department,Wage And Hour Division
Federal Register, Volume 86 Issue 56 (Thursday, March 25, 2021)
[Federal Register Volume 86, Number 56 (Thursday, March 25, 2021)]
                [Proposed Rules]
                [Pages 15811-15817]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-06244]
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                DEPARTMENT OF LABOR
                Office of the Secretary
                29 CFR Part 10
                Wage and Hour Division
                29 CFR Parts 516, 531, 578, 579, and 580
                RIN 1235-AA21
                Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay
                of Effective Date
                AGENCY: Wage and Hour Division, Department of Labor.
                ACTION: Proposed delay of effective date.
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                SUMMARY: On February 26, 2021, the Department of Labor (Department)
                published a final rule (Delay Rule) extending until April 30, 2021, the
                effective date of the rule titled Tip Regulations Under the Fair Labor
                Standards Act (2020 Tip final rule) in order to allow the Department
                the
                [[Page 15812]]
                opportunity to review issues of law, policy, and fact raised by the
                2020 Tip final rule before it takes effect. This notice of proposed
                rulemaking (NPRM) proposes to further extend the effective date of
                three portions of the 2020 Tip final rule in order to complete a
                separate rulemaking, published elsewhere in this issue of the Federal
                Register, and to provide the Department additional time to consider
                whether to withdraw and repropose that portion of the 2020 Tip final
                rule addressing the application of the FLSA's tip credit provision to
                tipped employees who perform both tipped and non-tipped duties. The
                proposed 8-month delay, until December 31, 2021, would allow the
                Department to finalize the separate rulemaking, which would include,
                inter alia, a 60-day comment period and at least a 30-day delay between
                publication and the rule's effective date.
                DATES: The amendments to 29 CFR 10.28(b)(2), 531.56(e), 578.1, 578.3,
                578.4, 579.1, 579.2, 580.2, 580.3, 580.12, and 580.18, published at 85
                FR 86756 (December 30, 2020), and delayed at 86 FR 11632 (February 26,
                2021) until April 30, 2021, are proposed to be further delayed until
                December 31, 2021. Submit written comments on or before April 14, 2021.
                ADDRESSES: You may submit comments, identified by Regulatory
                Information Number (RIN) 1235-AA21, by either of the following methods:
                Electronic Comments: Submit comments through the Federal eRulemaking
                Portal at https://www.regulations.gov. Follow the instructions for
                submitting comments. Mail: Address written submissions to Division of
                Regulations, Legislation, and Interpretation, Wage and Hour Division,
                U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
                Washington, DC 20210. Instructions: Please submit only one copy of your
                comments by only one method. Commenters submitting file attachments on
                https://www.regulations.gov are advised that uploading text-recognized
                documents--i.e., documents in a native file format or documents which
                have undergone optical character recognition (OCR)--enable staff at the
                Department to more easily search and retrieve specific content included
                in your comment for consideration. Anyone who submits a comment
                (including duplicate comments) should understand and expect that the
                comment will become a matter of public record and will be posted
                without change to https://www.regulations.gov, including any personal
                information provided. The Department will post comments gathered and
                submitted by a third-party organization as a group under a single
                document ID number on https://www.regulations.gov. All comments must be
                received by 11:59 p.m. on April 14, 2021 for consideration in this
                proposed delay of effective date. The Department strongly recommends
                that commenters submit their comments electronically via https://www.regulations.gov to ensure timely receipt prior to the close of the
                comment period, as the Department continues to experience delays in the
                receipt of mail. Submit only one copy of your comments by only one
                method. Docket: For access to the docket to read background documents
                or comments, go to the Federal eRulemaking Portal at https://www.regulations.gov.
                FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of
                Regulations, Legislation, and Interpretation, Wage and Hour Division,
                U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
                Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
                free number). Copies of this proposal may be obtained in alternative
                formats (Large Print, Braille, Audio Tape or Disc), upon request, by
                calling (202) 693-0675 (this is not a toll-free number). TTY/TDD
                callers may dial toll-free 1-877-889-5627 to obtain information or
                request materials in alternative formats.
                SUPPLEMENTARY INFORMATION:
                I. Background
                 In the Consolidated Appropriations Act of 2018 (CAA), Congress
                amended section 3(m) of the FLSA to prohibit employers from keeping
                tips received by employees, regardless of whether the employers take a
                tip credit under section 3(m). On December 30, 2020, the Department
                published the 2020 Tip final rule in the Federal Register to address
                these amendments. See 85 FR 86756. The 2020 Tip final rule would also
                codify the Wage and Hour Division's (WHD) guidance, unrelated to the
                CAA amendments, regarding the application of the FLSA's tip credit
                provision to tipped employees who perform tipped and non-tipped duties.
                See id. The original effective date of the 2020 Tip final rule was
                March 1, 2021. See id. A legal challenge to the 2020 Tip final rule was
                filed on January 19, 2021 and is pending in the United States District
                Court for the Eastern District of Pennsylvania.\1\
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                 \1\ Commonwealth of Pennsylvania et al. v. Scalia et al., No.
                2:21-cv-00258 (E.D. Pa., Jan. 19, 2021).
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                 On February 26, 2021, after engaging in notice-and-comment
                rulemaking and considering the comments submitted about a proposed
                effective date delay (86 FR 8325 (February 5, 2021)), the Department
                delayed the effective date for the 2020 Tip final rule by 60 days to
                April 30, 2021, in order to provide the Department additional
                opportunity to review and consider questions of law, policy, and fact
                raised by the rule. See 86 FR 11632 (February 26, 2021). The 60-day
                delay of the 2020 Tip final rule's effective date was sought pursuant
                to the Presidential directive as expressed in the memorandum of January
                20, 2021, from the Assistant to the President and Chief of Staff,
                titled ``Regulatory Freeze Pending Review.'' See 86 FR 7424. The
                Department explained in the Delay Rule that it would use the delay to
                consider, among other things, whether the 2020 Tip final rule properly
                implements the CAA amendments to section 3(m) of the FLSA, in
                particular, the incorporation of the CAA's language regarding civil
                money penalties (CMPs) for violations of section 3(m)(2)(B) of the
                FLSA; whether the 2020 Tip final rule revisions to portions of the CMP
                regulations on willful violations were appropriate; whether the 2020
                Tip final rule adequately considered the possible costs, benefits, and
                transfers between employers and employees related to the codification
                of guidance on applying the tip credit to tipped employees who perform
                tipped and non-tipped duties; and whether the 2020 Tip final rule
                otherwise effectuates the CAA amendments to the FLSA. See id. The
                Department explained that allowing the 2020 Tip final rule to go into
                effect while the Department reviewed these issues could lead to
                confusion among workers and employers in the event that the Department
                proposed to revise the 2020 Tip final rule after its review; delaying
                the 2020 Tip final rule would avoid such confusion. Id.
                II. Proposed Second Delay of Effective Date for Three Portions of the
                2020 Tip Final Rule
                 In this NPRM, the Department is proposing to delay the effective
                date of three portions of the 2020 Tip final rule for an additional 8
                months, through December 31, 2021. Specifically, the Department is
                proposing to delay the two portions of the 2020 Tip final rule which
                address the assessment of CMPs, and to delay the portion of the 2020
                Tip final rule that addresses the application of the FLSA tip credit to
                tipped employees who perform tipped and non-tipped duties. These three
                portions of the 2020 Tip final rule encompass those parts of the rule
                that are being challenged under the Administrative Procedure Act (APA)
                in the January 19, 2021 complaint pending in the United
                [[Page 15813]]
                States District Court for the Eastern District of Pennsylvania
                (``Pennsylvania complaint'').\2\ The Department seeks comment on its
                proposed further delay of the effective date of these three portions of
                the 2020 Tip final rule. To further aid its review, the Department also
                seeks comments on these three portions of the 2020 Tip final rule, and
                in particular, on the merits of withdrawing or retaining the portion of
                the rule that amends the Department's dual jobs regulations to address
                the application of the FLSA tip credit to tipped employees who perform
                both tipped and non-tipped duties.
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                 \2\ See Commonwealth of Pennsylvania et al. v. Scalia et al.,
                No. 2:21-cv-00258, pp. 42-43 (E.D. Pa., Jan. 19, 2021).
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                 In another NPRM published elsewhere in this issue of the Federal
                Register the Department is proposing to withdraw and revise the two
                portions of the 2020 Tip final rule which address the assessment of
                CMPs under the FLSA: The regulations which address the statutory
                provision establishing CMPs for violations of section 3(m)(2)(B) of the
                Act, Sec. Sec. 578.3(a)-(b), 578.4, 579.1, 580.2, 580.3, and 580.12,
                and 580.18(b)(3), and the portion of its CMP regulations which address
                when a certain violation is ``willful,'' Sec. Sec. 578.3(c) and
                579.2.\3\
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                 \3\ The sections of the 2020 Tip final rule related to CMPs that
                the Department is proposing to withdraw and revise are in Sec. Sec.
                578.3, 578.4, 579.1, 579.2, 580.2, 580.3, 580.12 and 580.18 of part
                29; the third portion of the 2020 Tip final rule that the Department
                is continuing to consider are those regulations related to the tip
                credit's application to tipped employees who perform tipped and non-
                tipped duties, Sec. Sec. 10.28(b) and 531.56(e) of part 29. The
                Department is not proposing to withdraw and reproprose the 2020 Tip
                final rule's changes to the Department's CMP regulation at Sec.
                578.1, which only generally references tip CMPs. To avoid confusion
                for the regulated community, however, the Department is delaying the
                effective date of the entire portion of its CMP regulations
                addressed in the 2020 Tip final rule. The Department's 2018 Field
                Assistance Bulletin explains the interim procedures that the
                Department is following in assessing tip CMPs. See Field Assistance
                Bulletin 2018-3 (Apr. 6, 2018).
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                 The Department is not proposing to further extend the remaining
                provisions of the 2020 Tip final rule not addressed in this NPRM. The
                remainder of the 2020 Tip final rule--consisting of those portions
                addressing the keeping of tips and tip pooling,\4\ recordkeeping,\5\
                and those portions making other minor changes to update the regulations
                to reflect the new statutory language and citations added by the CAA
                amendments and clarify other references consistent with the statutory
                text \6\--will become effective upon the expiration of the first
                effective date extension, which extended the effective date of the 2020
                Tip final rule through April 30, 2021.
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                 \4\ 29 CFR 10.28(c), (e)-(f); 531.50 through 531.52, 531.54.
                 \5\ 29 CFR 516.28(b).
                 \6\ 29 CFR 531.50, 531.51, 531.52, 531.55, 531.56(a), 531.56(c)-
                (d), 531.59, and 531.60.
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                III. Basis for Proposed Second Delay
                 The Department is proposing this second delay of the effective date
                for three portions of the 2020 Tip final rule so that it has sufficient
                time to engage in a comprehensive review of these parts of the 2020 tip
                final rule, and to take further action as needed to complete its
                review. The Department believes that review of these three portions of
                the 2020 Tip final rule before they go into effect is particularly
                important given that the Pennsylvania litigants and individuals who
                submitted comments on the Department's Delay Rule raised significant
                substantive and procedural concerns regarding these three portions of
                the 2020 Tip final rule. The Department has proposed to withdraw and
                repropose two portions of the 2020 Tip final rule relating to CMPs to
                better align them with the FLSA and Supreme Court caselaw. Allowing
                these provisions to go into effect could lead to practices the
                Department ultimately determines to be inconsistent with the FLSA and
                judicial opinions. In addition to causing confusion, this could result
                in increased compliance costs, and potentially disruptive changes in
                employment practices in the event that the Department withdraws and
                revises these portions of the 2020 Tip final rule.
                 The first portion of the 2020 Tip final rule that the Department is
                proposing to further delay addresses the assessment of CMPs for
                violations of section 3(m)(2)(B) of the FLSA, which prohibits
                employers, including managers and supervisors, from ``keeping'' tips.
                The CAA amended section 16(e)(2) of the FLSA to provide for the
                assessment of CMPs for violations of section 3(m)(2)(B) ``as the
                Secretary determines appropriate[.]'' Notwithstanding this statutory
                grant of discretion, the 2020 Tip final rule would limit the
                Secretary's ability to assess CMPs for violations of 3(m)(2)(B) to
                those instances where the violation is ``repeated'' or ``willful.''
                See, e.g., 85 FR 86772-73. The Pennsylvania litigants argue that this
                portion of the 2020 Tip final rule addressing CMP assessments for
                violations of section 3(m)(2)(B) is inconsistent with the plain
                language of the statute and Congressional intent, noting that, unlike
                in the case of CMPs for minimum wage and overtime violations,
                ``Congress did not make the imposition of civil money penalties for
                violations of section 3(m)(2)(B) of the Act contingent upon a finding
                of willfulness.'' \7\ Stakeholders who submitted comments in support of
                the Department's proposal to delay the effective date of the 2020 Tip
                final rule for 60 days expressed this same concern, similarly noting
                that section 16(e)(2) of the FLSA does not require a finding of
                willfulness to assess a CMP for a violation of section 3(m)(2)(B). See,
                e.g., National Employment Law Project (NELP); National Women's Law
                Center (NWLC); NETWORK Lobby for Catholic Social Justice. Upon review
                of the Pennsylvania complaint and the comments received regarding its
                Delay Rule, the Department is concerned that the 2020 Tip Final rule
                unlawfully circumscribes its discretion to issue CMPs for section
                3(m)(2)(B) violations. Accordingly, as explained in the NPRM published
                separately in this edition of the Federal Register, the Department is
                proposing to withdraw and repropose this part of the 2020 Tip final
                rule. To avoid codifying a limitation on the Department's ability to
                assess CMPs that may lack a basis in law, the Department believes that
                it may be necessary to delay that portion of the 2020 Tip final rule
                regarding CMPs for section 3(m)(2)(B) while it completes this
                rulemaking.
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                 \7\ See Commonwealth of Pennsylvania et al. v. Scalia et al.,
                No. 2:21-cv-00258, p. 98 (E.D. Pa., Jan. 19, 2021).
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                 The second portion of the 2020 Tip final rule that the Department
                is proposing to further delay addresses those parts of the Department's
                FLSA regulations which address when a violation of that Act is
                ``willful.'' The Department's definition of a ``willful'' violation in
                Sec. Sec. 578.3(c) and 579.2 of its regulations is based on the
                Supreme Court's opinion in McLaughlin v. Richland Shoe Co., 486 U.S.
                128, 133 (1988), which held that a violation is willful if the employer
                ``knew or showed reckless disregard'' for whether its conduct was
                prohibited by the FLSA. Among the concerns raised by the Pennsylvania
                litigants regarding this portion of the 2020 Tip final rule is the
                rule's removal of language regarding the meaning of ``reckless
                disregard'' from these regulations.\8\ According to the Pennsylvania
                litigants, this and other changes to these regulations ``contradict the
                Supreme Court's long-established
                [[Page 15814]]
                definition of willfulness.'' \9\ In its comment on the proposed Delay
                Rule, NELP similarly argued that the 2020 Tip final rule's revisions
                addressing when a violation is ``willful'' ``do[ ] not comport with
                Congress's intent or with longstanding U.S. Supreme Court precedent and
                its progeny,'' including McLaughlin v. Richland Shoe.\10\ Following its
                review of the Pennsylvania complaint and comments on the proposed Delay
                Rule, the Department is proposing in an NPRM published separately in
                this edition of the Federal Register to withdraw and repropose this
                part of the 2020 Tip final rule to make changes to the portion of the
                rule regarding the meaning of ``willfulness'' under the Department's
                CMP regulations; these changes include reinserting language addressing
                the meaning of reckless disregard. The Department believes that
                delaying the effective date of the portion of the 2020 Tip final rule
                while it completes rulemaking on this issue is necessary to ensure that
                the new regulations comport with the Supreme Court's decision in
                Richland Shoe and will prevent confusion and uncertainty among the
                regulated community regarding what constitutes a ``willful'' violation.
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                 \8\ See Commonwealth of Pennsylvania et al. v. Scalia et al.,
                No. 2:21-cv-00258, pp. 23-24; see also p. 94 (E.D. Pa., Jan. 19,
                2021) (``The Final Rule also removes an employer's failure to
                inquire further into whether its conduct was in compliance with the
                Act from the Department's description of willfulness.'')
                 \9\ Id.
                 \10\ NELP specifically argued that the 2020 Tip final rule's
                revisions to the regulations regarding the meaning of
                ``willfulness'' ``make[ ] it easier for employers to either ignore
                compliance advice from the Department, or to fail to pursue inquiry
                regarding compliance with minimum wage and overtime protections.''
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                 The third portion of the 2020 Tip final rule that the Department is
                proposing to further delay addresses the amendment of its ``dual jobs''
                regulation to address when an employer can continue to take an FLSA tip
                credit for an employee who is engaged in a tipped occupation and
                performs both tipped and non-tipped duties, see Sec. 531.56(e).\11\
                The Pennsylvania litigants and commenters on the Department's proposal
                to delay the 2020 Tip final rule for 60 days raised significant
                substantive and procedural concerns regarding this portion of the 2020
                Tip final rule. Regarding the economic analysis, the Pennsylvania
                litigants argue that the Department ``failed to consider or quantify
                the effect'' that this portion of the rule ``would have on workers and
                their families'' and ``disregarded'' the data and analysis provided by
                a commenter on the NPRM for the 2020 Tip final rule, the Economic
                Policy Institute (EPI).\12\ In its comment regarding the Delay Rule,
                EPI stated that the final rule's response to its analysis and its
                qualitative discussion of benefits and transfers associated with this
                portion of the rule ``is not sufficient and delaying the effective date
                of the rule is highly appropriate to give the Department time to
                reassess the rule.'' This concern strongly suggests that the Department
                should revisit the economic analysis regarding the portion of the 2020
                Tip final rule addressing the application of the FLSA tip credit to
                tipped employees who perform tipped and non-tipped work, and calls into
                question whether this portion of the rule would withstand a challenge
                under the Administrative Procedure Act claiming that the Department's
                failure to include a quantitative economic analysis for this portion of
                the rule was arbitrary and capricious.
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                 \11\ See also Sec. 10.28(b) (incorporating the same guidance on
                when an employer can continue to take an FLSA tip credit for an
                employee who is engaged in a tipped occupation and performs both
                tipped and non-tipped duties in the Department's regulations
                relating to Executive Order 13658, ``Establishing a Minimum Wage for
                Contractors'').
                 \12\ See Commonwealth of Pennsylvania et al. v. Scalia et al.,
                No. 2:21-cv-00258, pp. 103, 109 (E.D. Pa., Jan. 19, 2021)
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                 Regarding the substance of this portion of the rule, the
                Pennsylvania litigants argue that the 2020 Tip final rule's new test
                for when an employer can take a tip credit for a tipped employee who
                performs non-tipped, related duties--limiting the tip credit to non-
                tipped related duties performed ``contemporaneously with'' or for a
                ``reasonable time before or after tipped duties--relies on ``ill-
                defined'' terms and fails to ``provide any guidance as to when--or
                whether--a worker could be deemed a dual employee during a shift or how
                long before or after a shift constitutes a reasonable time.'' \13\
                District courts have also found these terms in the Department's current
                guidance, which the 2020 Tip final rule largely codified, to be unclear
                and have refused to follow it.\14\ Additionally, the Pennsylvania
                litigants challenged the 2020 Tip final rule's use of the Occupational
                Information Network (O*NET) to define ``related duties,'' which,
                according to their complaint, authorizes employers to engage in
                ``conduct that has been prohibited under the FLSA for decades.'' \15\
                Commenters who supported the proposed Delay Rule argued that the 2020
                Tip final rule's new test for when an employer can take a tip credit
                for a tipped employee who performs non-tipped, related duties ``does
                not comply with the CAA Amendments,'' since it ``permits employers to
                take tips that belong to employees.'' See NELP; see also NWLC; National
                Employment Lawyers Association (NELA). These commenters also asserted
                that most courts that have considered the Department's current guidance
                on this issue, which the 2020 Tip final rule largely codified, have not
                afforded it any deference.\16\
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                 \13\ Id. at 128, 131; see also id. at p. 129 (``The Department
                never provides a precise definition of `contemporaneous,' simply
                stating that it means `during the same time as'' before making the
                caveat that it ``does not necessarily mean that the employee must
                perform tipped and non-tipped duties at the exact same moment in
                time.' '')
                 \14\ The preamble to the 2020 Tip final rule lists many of these
                decisions. See 85 FR 86770-71. In Belt v. P.F. Chang's China Bistro,
                Inc., 401 F. Supp. 3d 512, 533 (E.D. Pa. 2019), for example, the
                district court held that the dual jobs guidance was unreasonable
                because ``the temporal limitations it imposes on untipped related
                work conflict with'' certain language (``occasionally,'' ``part of
                [the] time'') that remains in ``the text of the Dual Jobs
                regulation.'' See also Berger v. Perry's Steakhouse of Ill., LLC,
                430 F. Supp. 3d 397, 411-12 (N.D. Ill. 2019) (same). Another
                district court stated that 2018 DOL guidance ``inserts new
                uncertainty and ambiguity into the analysis'' and noted that the
                Department ``fails to explain how long a `reasonable time' would be,
                or what is meant by performing non-tipped work `contemporaneously'
                with tipped work.'' Flores v. HMS Host Corp., No. 18-3312, 2019 WL
                5454647 (D. Md. Oct. 23, 2019).
                 \15\ See Commonwealth of Pennsylvania et al. v. Scalia et al.,
                No. 2:21-cv-00258, p. 115 (E.D. Pa., Jan. 19, 2021) (``Because it
                seeks to describe the work world as it is, not as it should be,
                O*NET cannot and does not account for FLSA violations in industries
                known to have high violation rates like the restaurant industry;
                therefore, using it to determine related duties will sanction
                conduct that has been prohibited under the FLSA for decades.''); id.
                at p. 117 (``O*NET tasks for waiters and waitresses include
                `cleaning duties, such as sweeping and mopping floors, vacuuming
                carpet, tidying up server station, taking out trash, or checking and
                cleaning bathrooms'--when from 1988 until 2018, the Department's
                Field Operations Handbook specified as an example, `maintenance work
                (e.g., cleaning bathrooms and washing windows) [is] not related to
                the tipped occupation of a server; such jobs are non-tipped
                occupations.' ''). Some district courts have levied this same
                criticism against the use of O*NET to perform this test. See, e.g.,
                O'Neal v. Denn-Ohio, LLC, No. 19-280, 2020 WL 210801 at *7 (N.D.
                Ohio Jan. 14, 2020) (declining to defer to the 2018 guidance in part
                because O*NET relies in part on data obtained by asking employees
                which tasks their employers assign them to perform, which ``would
                allow employers to ``re-write the regulation without going through
                the normal rule-making process,'' and is therefore unreasonable).
                 \16\ In support of this assertion, commenters cited a variety of
                cases, including Belt v. P.F. Chang's China Bistro, Inc., 401 F.
                Supp. 3d 512, 533 (E.D. Pa. 2019), Spencer v. Macado's, Inc., 399 F.
                Supp. 3d 545, 553 (W.D. Va. 2019), and Cope v. Let's Eat Out, Inc.,
                354 F. Supp. 3d 976, 986 (W.D. Mo. 2019). See NELP; see also
                NETWORK, Restaurant Opportunities Center United, NELA (cross-
                referencing NELP's citations to these cases).
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                 These arguments by the Pennsylvania litigants and commenters on the
                proposed Delay Rule further call into question whether this portion of
                the rulemaking can withstand judicial review, as well as whether the
                2020 Tip final rule accurately identifies when a tipped employee who is
                performing non-tipped duties is still engaged in a tipped occupation
                under the auspices of
                [[Page 15815]]
                the statute, such that an employer can continue to take a tip credit
                for the time the tipped employee spends on such non-tipped work. The
                Department's test for determining when a tipped employee can continue
                to be paid with a tip credit when he or she is not performing tip-
                generating work has always been contained in subregulatory guidance.
                Given the serious concerns noted with this portion of the rulemaking,
                the Department believes that delaying the effective date of this
                portion of the 2020 Tip final rule so that it can fully consider the
                merits of these claims and to consider whether to engage in further
                rulemaking on this issue may be prudent before it codifies such a test
                for the first time into its regulations. For example, employers have
                already adjusted their practices to accommodate the Department's 2019
                guidance addressing when they can continue to take a tip credit for
                tipped employees who perform non-tipped work that is related to their
                tipped occupation. It would be disruptive to these employers to adjust
                their practices to accommodate the new test articulated in the 2020 Tip
                final rule, and then have to readjust if that test does not survive
                judicial scrutiny or if the Department decides to propose a new test.
                Delaying the effective date while the Department undertakes its review,
                instead of allowing these portions of the rule to be implemented,
                addresses this concern and before employers change their practices to
                accommodate a new test that ultimately may not survive judicial
                scrutiny.
                 The Department's ongoing review of these three portions of the 2020
                Tip final rule has identified similar concerns to those noted above,
                including potential legal issues and the sufficiency of the economic
                analysis for the third portion of the rule. Accordingly, the Department
                believes that this proposed delay may best inform the Department's
                comprehensive review of these parts of the 2020 Tip final rule and
                consideration of alternate paths, and provide it a meaningful
                opportunity to do so, which is of paramount importance given the
                pending challenge to these parts of the rule in the Pennsylvania
                litigation.
                 The Department believes that the proposed delay of these three
                portions of the 2020 Tip final rule through December 31, 2021, is
                reasonable given the numerous issues of fact, law, and policy raised by
                these portions of the 2020 Tip final rule. In light of the claims
                raised in the Pennsylvania litigation and the comments received on the
                Delay NPRM, which highlight very serious concerns with the substance of
                the dual jobs portion of the 2020 Tip final rule and the process
                through which it was promulgated, as well as the two portions of the
                2020 Tip final rule addressing CMPs, the Department believes additional
                action may be needed and it proposes to delay implementation of these
                portions of the rule until it determines an appropriate method to
                determine when a tipped employee is engaged in a tipped occupation and
                to conduct a rulemaking to ensure that the two CMP portions of the rule
                are consistent with the FLSA and Supreme Court precedent interpreting
                what constitutes a ``willful'' violation under that Act. As explained
                above, allowing these provisions to go into effect could lead to
                practices the Department ultimately determines to be inconsistent with
                the FLSA and judicial opinions. In addition to causing confusion, this
                could result in increased compliance costs, and potentially disruptive
                changes in employment practices in the event that the Department
                withdraws and revises these three portions of the 2020 Tip final rule.
                Further, the three portions of the 2020 Tip final rule that the
                Department is proposing to delay also encompass those parts of the rule
                that are being challenged in the Pennsylvania lawsuit.
                 The Department has considered allowing these three portions of the
                rule to take effect pending its review and the assessment of potential
                new rulemaking; however, the Department believes that the concerns
                discussed above call into question fundamental aspects of the
                rulemaking to such a degree that the best approach is to propose to
                delay these three portions of the rulemaking rather than allow them to
                take effect without seeking additional public input. Relatedly, the
                Department preliminarily believes that delaying the effective date for
                these three portions of the rule will prevent confusion and uncertainty
                among the regulated community while the Department conducts its review.
                 Therefore, the Department believes that the prudent and reasonable
                approach is to propose to delay the effective date, and thus the
                implementation of these three portions of the 2020 Tip final rule while
                it undertakes its review. While the Department acknowledges that the
                proposed delay is significant, based on its initial review and given
                the concerns described above, it is clear that a significant amount of
                time is necessary to consider all aspects of these portions of the
                rulemaking. This proposed delay will allow the Department sufficient
                time to conduct rulemaking on two portions of the 2020 Tip final rule,
                and evaluate commenters' concerns and consider whether to propose
                withdrawing and reproposing the third portion of the rule. The
                Department seeks public comment on the proposed delay, including
                whether it should delay the effective date for these portions of the
                2020 Tip final rule and whether the proposed period of delay is an
                appropriate length of time or whether other lengths of time may be more
                appropriate. The Department specifically seeks comment on whether,
                rather than delaying implementation as proposed herein, the Department
                should allow these portions of the rule to take effect while it
                conducts its review and considers any new proposal(s) to amend the
                regulations in question. The Department also invites the public to
                share any relevant knowledge and specific facts about any benefits,
                costs, or other impacts of this proposal on the regulated community,
                workers, and other relevant stakeholders. Lastly, the Department
                solicits comment on any other potential consequences of not delaying
                the effective date of these portions of the 2020 Tip final rule.
                 In sum, this NPRM seeks comment on the Department's proposal to
                further delay the effective date for three portions of the 2020 Tip
                final rule, to December 31, 2021, in order to complete the rulemaking
                published elsewhere in this issue of the Federal Register, and to
                further review and consider one additional portion of the 2020 Tip
                final rule. This NPRM also seeks comment on the substance of these
                three portions of the 2020 Tip final rule, and in particular, its
                amendment of the Department's dual jobs regulation to address the
                application of the FLSA's tip credit to tipped employees who perform
                both tipped and non-tipped duties. The remainder of the 2020 Tip final
                rule will become effective upon the expiration of the first effective
                date extension, which extended the effective date of the 2020 Tip final
                rule through April 30, 2021.
                IV. Executive Order 12866, Regulatory Planning and Review; and
                Executive Order 13563, Improved Regulation and Regulatory Review
                A. Introduction
                 Under Executive Order 12866, OMB's Office of Information and
                Regulatory Affairs (OIRA) determines whether a regulatory action is
                significant and, therefore, subject to the requirements of the
                Executive Order and OMB review.\17\ Section 3(f) of Executive Order
                12866 defines a ``significant regulatory action'' as a regulatory
                action that is likely to
                [[Page 15816]]
                result in a rule that may: (1) Have an annual effect on the economy of
                $100 million or more, or adversely affect in a material way a sector of
                the economy, productivity, competition, jobs, the environment, public
                health or safety, or state, local or tribal governments or communities
                (also referred to as economically significant); (2) create serious
                inconsistency or otherwise interfere with an action taken or planned by
                another agency; (3) materially alter the budgetary impact of
                entitlements, grants, user fees or loan programs or the rights and
                obligations of recipients thereof; or (4) raise novel legal or policy
                issues arising out of legal mandates, the President's priorities, or
                the principles set forth in the Executive order. OIRA has determined
                that this proposed delay is not economically significant under section
                3(f) of Executive Order 12866.
                ---------------------------------------------------------------------------
                 \17\ See 58 FR 51735, 51741 (Oct. 4, 1993).
                ---------------------------------------------------------------------------
                 Executive Order 13563 directs agencies to, among other things,
                propose or adopt a regulation only upon a reasoned determination that
                its benefits justify its costs; that it is tailored to impose the least
                burden on society, consistent with obtaining the regulatory objectives;
                and that, in choosing among alternative regulatory approaches, the
                agency has selected those approaches that maximize net benefits.
                Executive Order 13563 recognizes that some costs and benefits are
                difficult to quantify and provides that, when appropriate and permitted
                by law, agencies may consider and discuss qualitatively values that are
                difficult or impossible to quantify, including equity, human dignity,
                fairness, and distributive impacts. The analysis below outlines the
                impacts that the Department anticipates may result from this proposed
                delay and was prepared pursuant to the above-mentioned executive
                orders.
                 In this NPRM, the Department proposes to further extend the
                effective date of three portions of the 2020 Tip final rule in order to
                complete a separate rulemaking, published elsewhere in this issue of
                the Federal Register. This delay will provide the Department additional
                time to consider whether to withdraw and repropose the portion of the
                2020 Tip final rule addressing the application of the FLSA's tip credit
                provision to tipped employees who perform both tipped and non-tipped
                duties. The remainder of the 2020 Tip final rule, including portions
                addressing the keeping of tips and tip pooling,\18\ recordkeeping,\19\
                and other minor changes \20\ will become effective upon the expiration
                of the first effective date extension, which extended the effective
                date of the 2020 Tip final rule to April 30, 2021. See 86 FR 11632.
                ---------------------------------------------------------------------------
                 \18\ 29 CFR 10.28(c), (e)-(f); 531.50 through 531.52, 531.54.
                 \19\ 29 CFR 516.28(b).
                 \20\ 29 CFR 531.50, 531.51, 531.52, 531.55, 531.56(a),
                531.56(c)-(d), 531.59, and 531.60.
                ---------------------------------------------------------------------------
                 In March 2018, Congress amended section 3(m) and sections 16(b),
                (c), and (e) of the FLSA to prohibit employers from keeping their
                employees' tips, to permit recovery of tips that an employer unlawfully
                keeps, and to suspend the operations of the portions of the 2011 final
                rule that restricted tip pooling when employers do not take a tip
                credit. In the economic analysis of the 2020 Tip final rule, the
                Department quantified transfer payments that could occur when employers
                institute non-traditional tip pools. Because these transfers have
                already been quantified, and the provision regarding tip pooling will
                go into effect on April 30, 2021, this proposed delay will not have any
                impact on these quantified transfers.
                 The Department acknowledges that the industries that may be
                affected by the proposed delay are those that were acknowledged to have
                tipped workers in the 2020 Tip final rule. These industries are
                classified under the North American Industry Classification System
                (NAICS) as 713210 (Casinos), 721110 (Hotels and Motels), 722410
                (Drinking Places (Alcoholic Beverages)), 722511 (Full-service
                Restaurants), 722513 (Limited Service Restaurants), and 722515 (Snack
                and Nonalcoholic Beverage Bars). The 2017 data from the Statistics of
                US Businesses (SUSB) reports that these industries have 503,915 private
                firms and 661,198 private establishments.\21\
                ---------------------------------------------------------------------------
                 \21\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual
                Data Tables by Establishment Industry.
                ---------------------------------------------------------------------------
                 Part of the reason for proposing an additional delay of the
                effective date is for the Department to consider withdrawing or
                retaining the portion of the rule that amends the Department's dual
                jobs regulations to address the application of the FLSA tip credit to
                tipped employees who perform both tipped and non-tipped duties. In the
                2020 Tip final rule, the Department amended its dual jobs regulation to
                largely codify WHD's recent guidance regarding when an employer can
                take a tip credit for hours that a tipped employee performs non-tipped
                duties related to his or her occupation, which replaced the 20 percent
                limitation on related non-tipped duties with an updated related duties
                test. The Department provided a qualitative analysis of this change,
                and stated that the removal of a 20 percent cap on tasks that are not
                directly tied to receipt of a tip may result in tipped workers such as
                wait staff and bartenders performing more non-tipped related
                duties.\22\ The Department acknowledged that one outcome could be that
                employment of workers currently performing these duties may fall while
                tipped workers might lose tipped income by spending more of their time
                performing duties where they are not earning tips, while still
                receiving cash wages of less than the minimum wage. The Department also
                stated that eliminating the cost to scrutinize employees' time to
                demonstrate compliance with the 20 percent approach would result in
                costs savings to employers.
                ---------------------------------------------------------------------------
                 \22\ Examples of such duties are cleaning and setting tables,
                toasting bread, making coffee, and occasionally washing dishes or
                glasses.
                ---------------------------------------------------------------------------
                 As discussed above, the Pennsylvania litigants and individuals who
                submitted comments on the Department's Delay Rule raised significant
                concerns regarding the economic analysis of the portion of the 2020 Tip
                final rule that amends the dual jobs regulation. See, e.g., EPI;
                Results for America; Restaurant Opportunities Centers United. The
                proposed effective date delay will allow the Department to better
                consider this portion of the 2020 Tip final rule, and determine if
                there is a clearer way to address the application of the FLSA tip
                credit to tipped employees who perform both tipped and non-tipped
                duties. In the event that there would have been transfers or cost
                savings associated with the change, these effects will be delayed. The
                delay will also provide the Department more time to quantify any impact
                associated with a change to the dual jobs regulation.
                 The Department does not believe that the proposed delay in the CMP
                portions of the 2020 Tip final rule will have an impact on costs or
                transfers, as these provisions only apply when an employer violates the
                FLSA.
                 The Department welcomes any comments and data on possible costs or
                benefits associated with this proposed delay.
                V. Regulatory Flexibility Act (RFA) Analysis
                 The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq.,
                as amended by the Small Business Regulatory Enforcement Fairness Act of
                1996, Public Law 104-121 (1996), requires Federal agencies engaged in
                rulemaking to consider the impact of their proposals on small entities,
                consider alternatives to minimize that impact, and solicit public
                comment on their analyses. The
                [[Page 15817]]
                RFA requires the assessment of the impact of a regulation on a wide
                range of small entities, including small businesses, not-for-profit
                organizations, and small governmental jurisdictions. Accordingly, the
                Department examined this proposed rule to determine whether it would
                have a significant economic impact on a substantial number of small
                entities. The most recent data on private sector entities at the time
                this NPRM was drafted are from the 2017 Statistics of U.S. Businesses
                (SUSB).\23\ The Department limited this analysis to a few industries
                that were acknowledged to have tipped workers in the 2020 Tip final
                rule. These industries are classified under the North American Industry
                Classification System (NAICS) as 713210 (Casinos), 721110 (Hotels and
                Motels), 722410 (Drinking Places (Alcoholic Beverages)), 722511 (Full-
                service Restaurants), 722513 (Limited Service Restaurants), and 722515
                (Snack and Nonalcoholic Beverage Bars). The SUSB reports that these
                industries have 503,915 private firms and 661,198 private
                establishments. Of these, 501,322 firms and 554,088 establishments have
                fewer than 500 employees.
                ---------------------------------------------------------------------------
                 \23\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual
                Data Tables by Establishment Industry.
                ---------------------------------------------------------------------------
                 The Department has not quantified any costs, transfers, or benefits
                associated with this delay, and therefore certifies that this proposed
                rule will not have a significant economic impact on a substantial
                number of small entities. The Department welcomes any comments and data
                on this Regulatory Flexibility Act Analysis, including the costs and
                benefits of this proposed rule on small entities.
                VI. Unfunded Mandates Reform Act of 1995
                 The Unfunded Mandates Reform Act of 1995 (UMRA) \24\ requires
                agencies to prepare a written statement for rules with a Federal
                mandate that may result in increased expenditures by state, local, and
                tribal governments, in the aggregate, or by the private sector, of $165
                million ($100 million in 1995 dollars adjusted for inflation) or more
                in at least one year.\25\ This statement must: (1) Identify the
                authorizing legislation; (2) present the estimated costs and benefits
                of the rule and, to the extent that such estimates are feasible and
                relevant, its estimated effects on the national economy; (3) summarize
                and evaluate state, local, and tribal government input; and (4)
                identify reasonable alternatives and select, or explain the non-
                selection, of the least costly, most cost-effective, or least
                burdensome alternative. This proposed rule is not expected to result in
                increased expenditures by the private sector or by state, local, and
                tribal governments of $165 million or more in any one year.
                ---------------------------------------------------------------------------
                 \24\ See 2 U.S.C. 1501.
                 \25\ Calculated using growth in the Gross Domestic Product
                deflator from 1995 to 2019. Bureau of Economic Analysis. Table
                1.1.9. Implicit Price Deflators for Gross Domestic Product.
                ---------------------------------------------------------------------------
                VII. Executive Order 13132, Federalism
                 The Department has (1) reviewed this proposed rescission in
                accordance with Executive Order 13132 regarding federalism and (2)
                determined that it does not have federalism implications. The proposed
                rule would not have substantial direct effects on the States, on the
                relationship between the National Government and the States, or on the
                distribution of power and responsibilities among the various levels of
                government.
                VIII. Executive Order 13175, Indian Tribal Governments
                 This proposed rule would not have substantial direct effects on one
                or more Indian tribes, on the relationship between the Federal
                Government and Indian tribes, or on the distribution of power and
                responsibilities between the Federal Government and Indian tribes.
                 Signed this 22nd day of March, 2021.
                Jessica Looman,
                Principal Deputy Administrator, Wage and Hour Division.
                [FR Doc. 2021-06244 Filed 3-23-21; 4:15 pm]
                BILLING CODE 4510-27-P
                

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