Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date
| Citation | 86 FR 22597 |
| Record Number | 2021-08927 |
| Published date | 29 April 2021 |
| Section | Rules and Regulations |
| Court | Wage And Hour Division |
Federal Register, Volume 86 Issue 81 (Thursday, April 29, 2021)
[Federal Register Volume 86, Number 81 (Thursday, April 29, 2021)]
[Rules and Regulations]
[Pages 22597-22610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08927]
[[Page 22597]]
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DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Part 10
Wage and Hour Division
29 CFR Parts 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: Final rule; delay of effective date.
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SUMMARY: This action finalizes the Department of Labor's (Department)
proposal to further extend the effective date of three discrete
portions of the rule titled Tip Regulations Under the Fair Labor
Standards Act (FLSA) (2020 Tip final rule), published December 30,
2020. This further delay of three portions of the rule allows the
Department to complete a separate rulemaking that proposes to withdraw
and re-propose two of these portions of the 2020 Tip final rule,
published March 25, 2021, which includes, inter alia, a 60-day comment
period and at least a 30-day delay between publication and the rule's
effective date. It will also provide the Department additional time to
conduct another rulemaking to potentially revise 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. All of the remaining portions of the 2020 Tip final rule will
go into effect on April 30, 2021.
DATES: As of April 29, 2021, 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 December 30, 2020, at 85 FR 86756, delayed until
April 30, 2021, on February 26, 2021, at 86 FR 11632, are further
delayed until December 31, 2021.
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 document 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.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area
offices.
SUPPLEMENTARY INFORMATION:
I. Background
In the Consolidated Appropriations Act of 2018 (CAA), Congress
added a new statutory provision at section 3(m)(2)(B) of the FLSA,
which prohibits employers from keeping tips received by employees,
regardless of whether the employers take a tip credit under section
3(m). Public Law 115-141, Div. S., Tit. XII, sec. 1201, 132 Stat. 348,
1148-49 (2018). The CAA also amended section 16(e)(2) of the FLSA to
give the Department discretion to impose civil money penalties (CMPs)
up to $1,100 \1\ when employers unlawfully keep employees' tips. On
December 30, 2020, the Department published Tip Regulations Under the
Fair Labor Standards Act (FLSA) (2020 Tip final rule) in the Federal
Register to address these CAA amendments. See 85 FR 86756. Unrelated to
the CAA amendments, the 2020 Tip final rule also revises the definition
of ``willful'' in the Department's CMP regulations, and would largely
codify the Wage and Hour Division's (WHD) guidance \2\ issued in 2018
and 2019 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 by Attorneys General for eight states and the District
of Columbia (Pennsylvania litigants), which is pending in the United
States District Court for the Eastern District of Pennsylvania
(Pennsylvania complaint or Pennsylvania litigation).\3\
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\1\ The Federal Civil Penalties Inflation Adjustment Act of 1990
(Pub. L. 101-410), as amended by the Debt Collection Improvement Act
of 1996 (Pub. L. 104-134, sec. 31001(s)) and the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L.
114-74, sec. 701), requires that inflationary adjustments be made
annually in these civil money penalties according to a specified
formula.
\2\ See WHD Field Assistance Bulletin 2019-2 (Feb. 15, 2019) and
WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018).
\3\ Commonwealth of Pennsylvania et al. v. Scalia et al., No.
2:21-cv-00258 (E.D. Pa., Jan. 19, 2021).
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A. First Delay of the 2020 Tip Final Rule
On February 26, 2021, after engaging in notice-and-comment
rulemaking and considering the comments submitted, the Department
published a final rule (Delay Rule) extending the effective date of the
2020 Tip final rule until 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. The 60-day
delay of the effective date of the 2020 Tip final rule 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 review and consider, among other things, whether the 2020 Tip
final rule properly implemented the CAA amendments to section 3(m) of
the FLSA. In particular, the Delay Rule explained that the Department
would review and consider the incorporation of the CAA's language
regarding CMPs for violations of section 3(m)(2)(B) of the FLSA and
whether the 2020 Tip final rule's revisions to portions of the CMP
regulations on willful violations were appropriate. The Department
would also review and consider whether the Department adequately
considered the possible costs, benefits, and transfers between
employers and employees related to the 2020 Tip final rule's revisions
to the Department's dual jobs regulations, which largely codified WHD's
recent guidance on the application of the tip credit to tipped
employees who perform tipped and non-tipped duties, as well as whether
the 2020 Tip final rule otherwise effectuates the CAA amendments to the
FLSA. See 86 FR 11634. 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.
B. Proposed Partial Delay of the Effective Date for Three Portions of
the 2020 Tip Final Rule
On March 25, 2021, the Department proposed to delay the effective
date of
[[Page 22598]]
three portions of the 2020 Tip final rule for an additional 8 months,
through December 31, 2021 (Partial Delay NPRM): the two portions
addressing the assessment of CMPs; and the portion addressing the
application of the FLSA tip credit to tipped employees who perform
tipped and non-tipped duties. See 86 FR 15811. The first portion of the
2020 Tip final rule that the Department proposed to further delay
addressed the assessment of CMPs for violations of section 3(m)(2)(B)
of the FLSA, see 29 CFR 578.3(a)-(b), 578.4, 579.1, 580.2, 580.3;
580.12; and 580.18(b)(3). Notwithstanding the fact that the CAA amended
section 16(e)(2) of the FLSA to grant the Secretary discretion to
assess CMPs for violations of section 3(m)(2)(B) ``as the Secretary
determines appropriate,'' the 2020 Tip final rule limited 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 second portion of the 2020 Tip final
rule that the Department proposed to further delay amended the
Department's CMP regulations, see 29 CFR 578.3(c) and 579.2, to address
when a violation of the FLSA is ``willful.'' See 85 FR 86773-74. The
third portion of the 2020 Tip final rule that the Department proposed
to further delay amended its ``dual jobs'' regulations, see 29 CFR
531.56(e),\4\ to largely codify WHD guidance regarding when an employer
can continue to take a tip credit for an employee in a tipped
occupation who performs tipped and non-tipped duties. See 85 FR 86767-
72.
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\4\ See also 29 CFR 10.28(b)(2) (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'').
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In its Partial Delay NPRM, the Department sought comment on the
proposed further delay of the effective date of these three portions of
the 2020 Tip final rule. See 86 FR 15811. The Department also sought
substantive comments on these three portions, and in particular, on the
merits of withdrawing or retaining the portion of the rule that amended
the Department's dual jobs regulations. See id. The Department did not
propose to delay the effective date of the remaining provisions of the
2020 Tip final rule not addressed in the Partial Delay NPRM. The
remaining provisions--consisting of those portions that addressed the
keeping of tips and tip pooling,\5\ recordkeeping,\6\ and those
portions that made 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 \7\--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. In a separate NPRM, titled Tip
Regulations Under the Fair Labor Standards Act (FLSA); Partial
Withdrawal, also published on March 25, 2021 (CMP NPRM), the Department
proposed to withdraw and revise the two portions of the 2020 Tip final
rule which addressed the assessment of CMPs under the FLSA: the portion
which addressed the statutory provision establishing CMPs for
violations of section 3(m)(2)(B) of the Act and the portion which
addressed when a certain violation is ``willful.'' See 86 FR 15817.\8\
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\5\ 29 CFR 10.28(c), (e)-(f); 531.50 through 531.52, 531.54.
\6\ 29 CFR 516.28(b).
\7\ 29 CFR 531.50, 531.51, 531.52, 531.55, 531.56(a), 531.56(c)-
(d), 531.59, and 531.60.
\8\ In the CMP NPRM, the Department also sought comment on
whether to revise one other portion of the 2020 Tip final rule that
addresses the meaning of ``managers and supervisors'' under section
3(m)(2)(B) of the FLSA and asked questions about how it might
improve the recordkeeping requirements in the 2020 Tip final rule in
a future rulemaking. See 86 FR 15817, 15818.
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The Department explained in the Partial Delay NPRM that the
proposed partial 8-month delay, until December 31, 2021, would provide
the Department sufficient time to engage in a comprehensive review of
three portions of the 2020 Tip final rule--the two portions of the rule
which addressed the assessment of CMPs under the FLSA and the portion
of the rule that addressed the application of the FLSA tip credit to
tipped employees who perform tipped and non-tipped duties--and to take
further action, as needed, to complete its review. See 86 FR 15815. The
Department also explained that further review of these portions before
they go into effect is particularly important given its concerns, which
were also raised by the commenters on the Department's Delay Rule and
the Pennsylvania litigants, that these portions of the rule raised
significant substantive and procedural issues. See id.
Commenters on the Department's Delay Rule and the Pennsylvania
litigants argued, for example, that the portion of the 2020 Tip final
rule that addressed the assessment of CMPs for violations of section
3(m)(2)(B) is inconsistent with the FLSA and Congressional intent,
since section 16(e)(2) of the FLSA does not require a finding of
willfulness to assess a CMP for a section 3(m)(2)(B) violation. They
also posited that the 2020 Tip final rule's revisions to the meaning of
willfulness, particularly its removal of language regarding the meaning
of reckless disregard, contradicted Supreme Court precedent on
willfulness and Congressional intent. See 86 FR 15813-14.
The Department explained in the Partial Delay NPRM that, upon
review of the comments received regarding its Delay Rule and the
Pennsylvania complaint, it was proposing to withdraw and re-propose the
two portions of the 2020 Tip final rule that addressed the assessment
of CMPs. See 86 FR 15813. The Department stated that it preliminarily
believed that it was necessary to delay these two portion of the 2020
Tip final rule while it completed this rulemaking to avoid codifying a
limitation on the Department's ability to assess CMPs for violations of
section 3(m)(2)(B) that may lack a basis in law, to ensure that the new
regulations comport with the Supreme Court precedent regarding the
meaning of willfulness, and to prevent confusion and uncertainty among
the regulated community regarding what constitutes a willful violation.
See id. at 15813-14.
The Partial Delay NPRM further noted that commenters on the
Department's proposed Delay Rule, as well as the Pennsylvania
litigants, argued that the 2020 Tip final rule's test for when an
employer can take a tip credit for a tipped employee who performs
related, non-tipped duties (dual jobs test) relied on terms--
``contemporaneous with'' and ``a reasonable time immediately before or
after tipped duties''--that district courts have found to be unclear;
that the rule's use of the Occupational Information Network (O*NET) to
define ``related duties'' authorized employer ``conduct that has been
prohibited under the FLSA for decades'' and unlawfully permitted
employers to keep employees' tips; and that the economic analysis of
this portion of the rule failed to quantify or consider its impact on
workers and disregarded evidence submitted by a commenter on the NPRM
for the 2020 Tip final rule. See 86 FR 15814. Commenters on the Delay
Rule and the Pennsylvania litigants also called into question whether
the portion of the 2020 Tip final rule addressing the application of
the FLSA tip credit to employees who perform tipped and non-tipped work
could withstand judicial review, including whether this portion of the
rule would withstand a challenge under the Administrative Procedure Act
(APA) claiming that the Department's failure to include a
[[Page 22599]]
quantitative economic analysis for this portion of the rule was
arbitrary and capricious. See id.
The Department stated in the Partial Delay NPRM that, following its
review of the comments submitted on the proposed Delay Rule and the
Pennsylvania complaint, it was concerned that the 2020 Tip final rule
did not accurately identify when a tipped employee who is performing
non-tipped duties is still engaged in a tipped occupation. See 86 FR
15814-15. Accordingly, the Department believed that it might be prudent
to delay the effective date of this portion of the 2020 Tip final rule
so that it could consider whether to engage in further rulemaking on
this issue before it codifies such a test for the first time into its
regulations. See id. The Department also stated that it preliminarily
believed that it would be disruptive to 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, and that
delaying the effective date of this portion of the rule while the
Department conducted its review would address these concerns. See id.
at 15815.
II. Comments and Decision
A. Introduction
The Department's Partial Delay NPRM sought comment on the proposed
further delay of the effective date of three portions of the 2020 Tip
final rule: The two portions that addressed the assessment of CMPs; and
the portion of the rule that revised the Department's regulations to
address the application of the FLSA tip credit to tipped employees who
perform tipped and non-tipped duties. See 86 FR 15811. The Department
also sought substantive 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 amended the Department's dual
jobs regulations. See id.
A total of 22 organizations timely commented on the Partial Delay
NPRM (86 FR 15811, Mar. 25, 2021) during the 20-day comment period that
ended on April 14, 2021. Comments may be viewed on www.regulations.gov,
document ID WHD-2019-0004-0497. The Department received comments from a
broad array of stakeholders, including the Attorneys General for eight
states and the District of Columbia who filed the Pennsylvania
complaint, a law firm, industry groups, non-profit organizations, and
advocacy organizations. Seventeen commenters supported the Department's
proposal to further delay the effective date of three portions of the
2020 Tip final rule. Five commenters opposed the proposed partial
delay.\9\ In advocating for the proposed partial delay or opposing the
proposed partial delay, all 22 commenters discussed the substance of
the 2020 Tip final rule. Commenters who supported the proposed partial
delay based their support, in significant part, on legal and policy
concerns with the three portions of the 2020 Tip final rule, as well as
concerns with the rule's economic analysis of the dual jobs portion of
the rule. Commenters who opposed the proposed delay generally expressed
support for the legal, policy, and factual conclusions made by the
Department in the 2020 Tip final rule, including in the three portions
that the Department proposed to delay.
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\9\ The Department received three comments that are outside the
scope of this rulemaking. An individual submitted a comment
regarding issues unrelated to the Department of Labor or the FLSA.
See WHD-2019-0004-0510. One organization submitted a duplicate of
its comment. See WHD-2019-0004-0511; WHD-2019-0004-0526. The record
also contains a document that was submitted by a WHD official to
test the Regulations.gov comment system. See WHD-2019-0004-0497.
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B. Comments in Support of the Partial Delay
Seventeen commenters supported the Department's proposal to delay
the effective date of three portions of the 2020 Tip final rule for an
additional 8 months, including nine Attorneys General (AGs), the
National Employment Law Project (NELP), National Women's Law Center
(NWLC), Restaurant Opportunities Centers United (ROC United), Women's
Law Project (WLP), Center for Law and Social Policy (CLASP), Kentucky
Equal Justice Center (KEJC), One Fair Wage (OFW), Oxfam America,
Northwest Workers' Justice Project (NWJP), National Urban League (NUL),
Loyola College of Law's Workplace Justice Project (WJP), Shriver Center
on Poverty Law, Work Safe, Justice at Work, and the North Carolina
Justice Center (NCJC). The Center for Workplace Compliance (CWC)
supported the Department's proposal ``to the extent that it allows most
provisions of the rule to go into effect on April 30.''
The advocacy organizations that submitted comments in favor of the
Partial Delay NPRM urged the Department to finalize the delay as
proposed in order to evaluate the questions of law, policy, and fact
raised by the portions of the 2020 Tip final rule proposed to be
delayed. In its comments supporting the Partial Delay NPRM, NELP argued
that the delay was ``critical'' and that allowing these portions of the
rule to go into effect ``could create irreparable harm that would
result from decreased wages for workers already struggling during a
pandemic.'' NELP and the AGs also argued that the Partial Delay is
important to give the Department time to fully consider the allegations
in the Pennsylvania complaint that these portions of the rule lack a
foundation in or are otherwise inconsistent with applicable law. NELP
stated that allowing these three portions of the rule to go into effect
would cause confusion and additional compliance costs if they are
ultimately invalidated after judicial review. The Economic Policy
Institute (EPI) also supported delaying the effective date of all three
portions of the rule and stated that the Department should re-propose
the dual jobs portion of the rule to establish a standard that is ``no
less protective'' than the Department's ``longstanding 80/20 Rule.''
\10\
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\10\ As noted in the 2020 Tip final rule, the Department's 80/20
guidance became known as the ``80/20 rule,'' even though it was not
promulgated as a regulation. See 85 FR 86761.
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1. Comments Regarding the Portions of the 2020 Tip Final Rule That
Address CMPs for Violations of Section 3(m)(2)(B) and Willful
Violations of the FLSA
As noted above, a number of commenters supported further delaying
the two CMP portions of the 2020 Tip final rule to give the Department
time to consider the allegations raised in the Pennsylvania complaint
and to complete further rulemaking. The AGs and many of the employee
advocacy organizations stated that they supported further delay of the
first portion of the 2020 Tip final rule related to CMPs which limits
the assessment of CMPs to willful and repeated violations of section
3(m)(2)(B) because the rule is in conflict with the plain statutory
language of the FLSA providing the Secretary with discretion to assess
those CMPs. See CLASP, KEJC, NCJC, NUL, NWJP, NWLC, OFW, Oxfam America,
ROC United, WJP, and WLP. The AGs also argued that the second portion
of the CMP regulations defining a ``willful'' violation under the FLSA
for which CMPs can be assessed unlawfully limits the definition of
willfulness because it conflicts with Supreme Court caselaw. A number
of commenters, including the AGs, stated they would submit substantive
comments regarding the assessment of CMPs in response to the CMP NPRM
published on March 25, 2021, in which the Department has
[[Page 22600]]
proposed withdrawing and reproposing those two portions of the rule.
2. Comments Regarding the Portion of the 2020 Tip Final Rule That
Address Changes to the Dual Jobs Regulations at Sec. 531.56(e)
A number of advocacy organizations stated that they supported the
Department's proposal to further delay the effective date for the 2020
Tip final rule's dual jobs test for determining when an employee is
engaged in a tipped occupation, because it departs from the former
Department guidance of using a 20 percent limitation on related, non-
tipped duties, and would permit employers to continue paying tipped
employees as little as $2.13 an hour for extensive periods of time
where these employees are not earning tips. See CLASP, KEJC, NWJP,
NWLC, NUL, OFW, Oxfam America, ROC United, and WLP. Pointing to the
Department's acknowledgment in the 2019 tip NPRM that tipped employees
might have a reduction in tipped income if they are allowed to perform
more non-tipped work while still being compensated as little as $2.13
an hour, the groups observed that the 2020 Tip final rule test could
also have a significant, negative impact on non-tipped employees'
wages. They explained that if tipped employees are permitted to do more
non-tipped work at a lower rate of pay than non-tipped employees, it
may result in lowering wages for non-tipped employees. These commenters
argued that the 2020 Tip final rule's dual jobs test could also result
in a reduction in the number of employees hired to perform non-tipped
occupations, such as ``cleaners, maintenance, prep, and back-office
workers.'' NWLC stated, ``[w]ith the regulatory barriers to abuse of
the tip credit--and tipped employees--all but removed, millions of
working people could be required to do more work for less pay.''
Employee advocacy groups also asserted that although the Department
had justified the change to the dual jobs regulations in the 2020 Tip
final rule by explaining that the new test was easier to administer
than its previous 80/20 guidance and would provide needed clarity, the
Department's assertion is not borne out by the facts. As NELP stated,
``[t]o the contrary, the 80/20 rule has been consistently used and
accepted by courts and the Department itself over a 30-year period.''
Other employee advocacy groups asserted that the new dual jobs test
uses ambiguous measures such as ``contemporaneous with'' and ``a
reasonable time'', which could lead to litigation over those terms.
They also noted that the vast majority of courts considering the
Department's 2018-19 guidance, which uses these same terms, declined to
accord deference to the guidance, in part because of this ambiguity.
Similarly, the AGs argued in their comment supporting the additional
delay of the effective date for the dual jobs portion of the rule that
the 2020 Tip final rule will increase litigation because it
``implements a vague standard that contains no limitation on the non-
tipped duties a tipped employee may be required to perform and still be
paid the sub-minimum wage rate.'' As evidence of the vagueness of the
standards, the AGs point to the language in the 2020 Tip final rule
which ``states that `contemporaneous' 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.' '' The AGs also argue that the 2020 Tip final rule
nowhere provides an explanation of what it means to be performing
related duties ``for a reasonable time.'' The AGs conclude that the
additional extension for the effective date of this portion of the rule
is necessary to give the Department time to consider and review this
issue and to complete the rulemaking process if it decides to withdraw
or revise the dual jobs provision.
The AGs also argued that the Department's use of O*NET as a guide
to determine which tasks are related or not related to a tipped
occupation is flawed because O*NET, which is compiled from employee
surveys of tasks that they perform in the occupation in which they are
employed, ``seeks to describe the work as it is, not as is should be,
and does not account for FLSA violations in industries known to have
high violation rates, such as the restaurant industry.'' Thus,
according to the AGs, the use of O*NET ``sanction[s] conduct that has
been prohibited under the FLSA for decades.''
The employee advocacy groups also posited that the 2020 Tip final
rule's dual jobs provision conflicts with the new statutory provision
in section 3(m)(2)(B) of the FLSA prohibiting employers from
``keeping'' tips, because it allows employers to take a tip credit for
a greater amount of time than the Department's previous 80/20 guidance.
These groups encouraged the Department to abandon the 2020 Tip final
rule's dual jobs test and use a rule that minimizes, rather than
maximizes, employers' use of tips to satisfy their minimum wage
obligations. These groups urged the Department to propose a new
standard that is stronger even than its previous 80/20 guidance to
prevent abuse of the tip credit and to protect low-wage tipped workers.
These groups also urged the Department to consider the allegations
raised in the Pennsylvania complaint related to the 2020 Tip final
rule's dual jobs provision and noted that the arguments raised in the
complaint, particularly that the rule ``contradicts the text and
purpose of the [FLSA]'' and ``violated rulemaking process requirements,
including failing to analyze the impact the rule would have on tipped
workers,'' should be seriously considered and addressed in any future
rulemaking. See CLASP; see also KEJC, NWJP, NWLC, NUL, OFW, Oxfam
America, ROC United, and WLP.
In its comment supporting the Partial Delay NPRM, EPI stated that
the 2020 Tip final rule's revision to the dual jobs regulations created
a ``less protective'' standard for tipped wages, replacing a firm 20
percent limitation on the amount of related non-tipped duties that
tipped employees could perform while being paid the tipped wage of
$2.13 per hour with ``vague and much less protective'' language. EPI
criticized the dual jobs portion of the 2020 Tip final rule as
permitting ``tipped workers to be paid the subminimum tipped wage while
performing an unlimited amount of non-tipped duties, as long as those
non-tipped duties are performed `contemporaneously with tipped duties
or for a reasonable time immediately before or after performing the
tipped duties.' '' EPI noted that because these new regulatory terms,
such as ``reasonable time,'' are not defined, they create an
``ambiguity that would [be] difficult to enforce'' and would create
``an immense loophole that would be costly to workers.'' EPI also
encouraged the Department to create a rule that is ``stronger'' than
the previous 80/20 guidance ``that further clarifies, and limits, the
amount of non-tipped work for which an employer can claim a tip
credit.'' EPI suggested that the Department could, among other things,
consider tightening the definitions of related and unrelated duties,
propose to adopt standards such as those adopted in states such as New
York that, for example, bar an employer from taking a tip credit on any
day during which they spend more than 20 percent of their time in a
non-tipped occupation, and/or promulgate enhanced notice and
recordkeeping requirements.
With respect to the economic analysis conducted on the dual jobs
portion of the 2020 Tip final rule, EPI suggested that it was flawed
because it did not sufficiently estimate the economic impact on
workers--as EPI did in a comment it submitted in the 2020 Tip
[[Page 22601]]
rulemaking, which concluded that the rule ``would allow employers to
capture more than $700 million annually from workers.'' The AGs and
NELP also argued in their comments in support of the Partial Delay NPRM
that the Department's failure to quantitatively estimate the impact of
the dual jobs portion of the 2020 Tip final rule or to consider the
estimates of the rule's impact submitted by EPI and other groups in the
course of that rulemaking is evidence that the rulemaking was arbitrary
and capricious under the APA.
In its comments supporting the Partial Delay, NELP also stated that
a delayed effective date of the dual jobs portion of the rule would
give the Department the opportunity to consider how the rule
``improperly narrows the protections of the FLSA for tipped workers in
a variety of fast-growing industries including delivery, limousine and
taxi, airport workers, parking, carwash, valet, personal services and
retail, in addition to restaurants and hospitality.'' Similarly, ROC
United stated that the recent pandemic had restructured the nature of
tipped employment in ways that should be taken into consideration in
any future rulemaking. ROC United urged the Department to consider in
its review of the dual jobs portion of the 2020 Tip final rule that
restaurant workers' jobs had changed during the pandemic ``to include
significant additional tipped duties for non-tipped occupations, and
significant additional non-tipped duties for tipped occupations,'' and
that the expanded use of contactless service interactions and purchases
during the pandemic, including app-based delivery, had ``dramatically
reduc[ed] customarily tipped interactions and increas[ed] tipping in
non-tipped circumstances.''
C. Comments in Opposition of the Partial Delay
Five organizations submitted comments that expressed opposition to
the Partial Delay NPRM. The National Federation of Independent
Businesses (NFIB) opposed the Department's proposed delay in the two
portions of the 2020 Tip final rule regarding the assessment of CMPs.
CWC stated that it was ``pleased to support DOL's proposal to the
extent that it allows most provisions of the rule to go into effect,''
though it ``question[ed] the need to further delay the implementation
of important provisions of the final rule.'' CWC directed the
Department to the prior comments it submitted on the NPRM for the 2020
Tip final rule and the Partial Delay NPRM. The National Retail
Federation (NRF),\11\ the National Restaurant Association (NRA), and
Littler Mendelson's Workplace Policy Institute (WPI) opposed the
proposed delay of the dual jobs portion of the rule. The NRA also
indicated that it would address the two portions of the 2020 Tip final
rule regarding the assessment of CMPs in a subsequent comment on the
CMP NPRM. All five organizations expressed general support for the 2020
Tip final rule. The NRA and NFIB also noted that the COVID-19 pandemic
has posed serious challenges for restaurants and other small
businesses, which the Department should take into account in
formulating its regulations.
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\11\ NRF and the National Council of Chain Restaurants (NCCR), a
division of NRF, submitted a comment together.
---------------------------------------------------------------------------
1. Comments Regarding the Portion of the 2020 Tip Final Rule That
Address CMPs for Violations of Section 3(m)(2)(B)
NFIB stated that the Department should allow the portion of the
2020 Tip final rule that addressed the assessment of CMPs for
violations of section 3(m)(2)(B) to go into effect on April 30,
2021.\12\ It argued that the 2020 Tip final rule appropriately limited
the Department's ability to assess CMPs for violations of section
3(m)(2)(B) to those instances where the violation is repeated or
willful, since section 16(e)(2) of the FLSA confers ``wide discretion''
upon the Department. In the alternative, NFIB requested that the
Department maintain the 2020 Tip final rule's limits on the assessment
of CMPs for violations of section 3(m)(2)(B) for employers with fewer
than 100 employees, citing the particular challenges of small
businesses to comply with Federal regulations. CWC did not specifically
oppose the proposed delay to the portion of the 2020 Tip final rule
addressing the assessment of CMPs for section 3(m)(2)(B) violations;
however, in its prior comments on the NPRMs for the 2020 Tip final rule
and the Delay Rule, CWC stated that this portion of the 2020 Tip final
rule addressing the Secretary's ability to assess CMPs for violations
of section 3(m)(2)(B), as well as the identically-worded proposal in
the NPRM for the 2020 Tip final rule, were consistent with the
statute.\13\
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\12\ NFIB's comment addresses both the Partial Delay NPRM and
the separate NPRM that the Department published on March 25, 2021.
In addition to expressing its opposition to the delay of the
portions of the 2020 Tip final rule addressing CMPs, NFIB's comment
also opposes any further recordkeeping requirements and supports
allowing tipped managers and supervisors to keep their own tips
received directly from customers. The Department is not proposing to
delay these portions of the 2020 Tip final rule; accordingly, NFIB's
comments regarding these matters are outside the scope of this
rulemaking. The Department will consider NFIB's comments regarding
these matters in the separate rulemaking, the comment period for
which closes on May 24, 2021. See 86 FR 15817.
\13\ As noted above, WPI, the NRA, and NRF expressed general
support for the 2020 Tip final rule.
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2. Comments Regarding the Portion of the 2020 Tip Final Rule Addressing
CMPs for Willful Violations of the FLSA
NFIB also opposed the proposed delay to the portion of the 2020 Tip
final rule that addressed CMPs for willful violations of the FLSA.
According to NFIB, ``the definitions of `repeatedly' \14\ and
`willfully' set forth in'' in the 2020 Tip final rule's revisions to
the Department's CMP regulations ``are reasonable and practical.'' In
the alternative, NFIB requested that the Department maintain the 2020
Tip final rule's revisions to the definition of willfulness for
employers with fewer than 100 employers.\15\ In its prior comments, CWC
expressed support for the 2020 Tip final rule's revisions to the
definition of ``willful'' in its CMP regulations.\16\
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\14\ The 2020 Tip final rule added a reference to violations of
section 3(m)(2)(B) to the existing definition of ``repeated'' in the
Department's CMP regulations but did not make any revisions to the
definition of ``repeated.'' In the CMP NPRM, the Department has
proposed removing the reference to 3(m)(2)(B) violations from the
definition of repeated but has not proposed any revisions to the
definition. See 85 FR 86756, 86792 (Dec. 30, 2020); 86 FR 15817,
15827-28 (March 25, 2021); 29 CFR 578.3(b) (defining ``repeated'').
\15\ Additionally, NFIB stated that the Department should
``preserve the requirement in 29 CFR 578.4 that, in determining the
amount of a CMP, the Department `shall consider the seriousness of
the violations and the size of the employer's business[.]' '' The
Department has proposed delaying for 8 months the revisions to Sec.
578.4 made by the 2020 Tip final rule, and proposed additional
revisions to this section in its separate NPRM dated March 25, 2021
(CMP NPRM) to preserve the Department's authority to assess CMPs for
violations of section 3(m)(2)(B). However, it has not proposed to
revise the language in Sec. 578.4 providing that the Department
``shall consider the seriousness of the violations and the size of
the employer's business'' in determining ``the amount of penalty to
be assessed.'' See 86 FR 15817, 15828.
\16\ As noted above, the NRA, NRF, and WPI also expressed
general support for the 2020 Tip final rule.
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3. Comments Regarding the Portion of the 2020 Tip Final Rule Addressing
Changes to the Dual Jobs Regulations at Sec. 531.56(e)
In their comments opposing the Department's proposed delay to the
dual jobs portion of the 2020 Tip final rule, the NRA and WPI argued
that the 2020 Tip final rule dual jobs test is ``a step in the right
direction'' and ``faithful to the FLSA's text'' insofar as the revised
[[Page 22602]]
dual jobs regulations eliminated the 20 percent limitation on the
amount of time a tipped employee can perform related non-tipped duties
and still be paid a direct cash wage of no less than $2.13 per hour. In
support of this position, the NRA and WPI argued that, since the FLSA
permits employers to take a tip credit for a ``tipped employee,''
defined as an employee engaged in a tipped ``occupation,'' the FLSA
does not provide any basis for distinguishing between tipped workers'
tipped duties and non-tipped duties. See 29 U.S.C. 203(m), (t).
Commenters who opposed the proposed delay in the 2020 Tip final
rule's revisions to Sec. 531.56(e) also argued that the 2020 Tip final
rule dual job test will be easier for employers to administer than the
Department's previous 80/20 guidance. In its prior comment on the Delay
Rule, CWC stated that the revisions to dual jobs test would make
compliance easier for employers; WPI likewise stated that the revised
dual jobs test's use of O*NET to define related non-tipped duties would
make compliance simpler. Additionally, WPI and the NRA stated that the
revisions to the dual jobs test will lead to less litigation.
The NRA also stated that there is no need to reconsider the dual
jobs portion of the 2020 Tip final rule, as ``the Department already
took years to consider every angle.'' According to the NRA, neither the
Pennsylvania complaint nor the concerns with the rule's economic
analysis raised by commenters such as EPI are grounds for delaying any
part of the 2020 Tip final rule. Regarding the Pennsylvania complaint,
the NRA emphasized that no court has ruled on any aspect of the
complaint and that there has not been any briefing. Regarding the
economic analysis, the NRA argued that EPI's criticism of the 2020 Tip
final rule ``rest[s] on the flawed premise'' that the 2020 Tip final
rule eliminated a ``quantitative cap'' on the amount of related non-
tipped duties a tipped worker can perform, since the Department had
already ``abandoned'' the quantitative cap in 2018 when it issued
Opinion Letter FLSA 2018-27. Therefore, ``EPI's baseline is simply
incorrect.''
Commenters who opposed the proposed delay of the dual jobs portion
of the 2020 Tip final rule also expressed concern that delaying this
portion of the rule would be disruptive to employers. NRF stated that
its members had already undertaken ``efforts to implement the final
rule in their operations nationwide.'' The NRA stated that ``since at
least November 2018,'' when the Department issued its current guidance,
``employers had already been adjusting.'' WPI made a somewhat different
argument: It noted that some courts have continued to apply the
Department's prior 80/20 guidance on related duties, rather than the
Department's current guidance, and stated that allowing the 2020 Tip
final rule's revisions to the dual jobs regulations to go into effect
would bring clarity to employers.
Although WPI opposed the proposed delay in the dual jobs portion of
the 2020 Tip final rule, it included some recommendations for the
Department to consider in the event that it ultimately proposes to
withdraw and revise this portion of the rule. WPI stated that any
alternative should include ``concrete guidance on where the lines are
to be drawn,'' adding that, in its view, ``there has been no clear
definition of what duties are `tipped' as opposed to merely `related'
or `non-tipped.' '' WPI further stated that any ``quantitative limit''
on duties that a tipped employee can perform ``must precisely identify
which duties fall on either side of the line,'' recognize that
occupations can evolve over time, and draw upon O*NET as a resource.
D. Discussion of Comments and Rationale for Finalizing the Partial
Delay of the 2020 Tip Final Rule
In the Partial Delay NPRM, the Department stated that, in
accordance with its review of questions of law, policy, and fact raised
by the 2020 Tip final rule, most of the 2020 Tip final rule will go
into effect upon the expiration of the first effective date extension,
April 30, 2021. However, the Department proposed delaying three
portions of the 2020 Tip final rule for an additional 8 months--the two
portions of the 2020 Tip final rule that addressed the assessment of
CMPs and the portion that revised the Department's dual jobs
regulations--in order to engage in a comprehensive review of the issues
of law, fact, and policy raised by these three portions of the 2020 Tip
final rule and to take further action, as needed, to complete its
review.
After reviewing the comments received, the Department believes that
these three portions of the 2020 Tip final rule should be further
delayed until after the Department has completed its comprehensive
review of these portions of the rule. Pursuant to this review, the
Department has already initiated a separate rulemaking proposing to
withdraw and re-propose the two portions of the rule addressing the
assessment of CMPs. The Department intends to complete the CMP NPRM
before the expiration of this Partial Delay. The Department also
intends to initiate another rulemaking to potentially revise the
portion of the 2020 Tip final rule related to the revision of its dual
jobs regulations. Delaying these three portions of the 2020 Tip final
rule until after the Department completes its review of these portions
of the rule will allow the Department to reconsider legal, policy, and
factual conclusions on which these three portions of the rule were
based, and about which commenters who supported the Partial Delay NPRM
have raised concerns. Delaying these three portions of the 2020 Tip
final rule until after the Department completes its comprehensive
review of these portions of the rule will also prevent harm to the
Department, workers, and employers. In particular, delaying these three
portions of the 2020 Tip final rule until after the Department
completes its review will allow the Department to avoid codifying
changes to its regulations that it may ultimately determine to lack a
basis in law and that may not survive judicial scrutiny. It will also
prevent changes to employment practices that may be contrary to the
FLSA and harmful to workers, and which may need to be reversed in the
event the Department withdraws and revises these portions of the 2020
Tip final rule, causing disruption to employers. And it will prevent
confusion and uncertainty among workers and the regulated community
while the Department continues to review these portions of the 2020 Tip
final rule.
1. CMPs for Violating Section 3(m)(2)(B)
The first portion of the 2020 Tip final rule that the Department
has proposed 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.
As discussed above, the CAA amended section 16(e)(2) of the FLSA to
grant the Secretary discretion to assess CMPs for ``each such
violation'' of section 3(m)(2)(B) ``as the Secretary determines
appropriate.'' See 29 U.S.C. 216(e)(2). Unlike the statutory provisions
in section 16(e)(2) regarding CMPs for minimum wage and overtime
violations, the statute does not limit the assessment of CMPs to
repeated or willful violations of section 3(m)(2)(B). In the 2020 Tip
final rule, the Department incorporated CMPs for violations of section
3(m)(2)(B) into the Department's existing CMP regulations at 29 CFR
parts 578, 579, and 580. The 2020 Tip final rule codifies in its
regulations the Department's post CAA
[[Page 22603]]
enforcement policy, see FAB No. 2018-3, pursuant to which it assesses
CMPs only for repeated or willful violations of section 3(m)(2)(B).
However, in light of the comments submitted in support of the
Department's Delay Rule and the Pennsylvania complaint, the Department
became concerned that the 2020 Tip final rule inappropriately and
unlawfully circumscribed its authority to issue CMPs for section
3(m)(2)(B) violations. Accordingly, in the CMP NPRM published
simultaneously with the Partial Delay NPRM, the Department proposed to
withdraw this portion of the 2020 Tip final rule and proposed revisions
to parts 578, 579, and 580 of its regulations to eliminate the
restriction on the Department's ability to assess CMPs only for
repeated and willful violations of section 3(m)(2)(B). 86 FR 15817. In
the Partial Delay NPRM, the Department proposed delaying this portion
of the rule until after the Department completes its review, explaining
that this delay would avoid codifying a limitation on the Department's
authority to assess CMPs that may lack a basis in law. See 86 FR 15821-
22.
After reviewing the comments on the Partial Delay NPRM, the
Department believes that there are strong grounds for engaging in
further review of the portion of the 2020 Tip final rule that addressed
the assessment of CMPs for violations of section 3(m)(2)(B) before it
goes into effect. In the Partial Delay NPRM and the CMP NPRM, the
Department identified serious legal and policy concerns with this
portion of the rule, namely, that it may inappropriately and unlawfully
circumscribe the Department's discretion to assess CMPs when employers
unlawfully keep employees' tips. These concerns are reflected in
comments submitted from the AGs and the numerous employee advocacy
organizations that supported further delay of this portion of the 2020
Tip final rule. These commenters argued that this portion of the 2020
Tip final rule, by limiting the assessment of CMPs to willful and
repeated violations of section 3(m)(2)(B), is in conflict with the
plain statutory language of the FLSA providing that the Secretary may
assess CMPs under this section ``as the Secretary determines
appropriate,'' and thus explicitly provides the Secretary with
discretion to assess those CMPs. See, e.g., NWLC; ROC United; OFW;
CLASP. As the AGs explained in their comment, the Pennsylvania
complaint alleges that ``[t]he Department's decision to require a
willful violation of Section 203(m)(2)(B) to impose civil money
penalties is contrary to the plain text of the statute,'' and ``flouts
congressional intent.'' The NRA argues in its comment that the
Pennsylvania complaint does not justify a further delay in the rule
because the court has not yet ruled on the litigants' claims. However,
the Department believes that the AGs' argument regarding the statutory
text and legislative intent is sufficiently persuasive to finalize the
additional delay of this portion of the rule, particularly where any
harm from the delay is, on balance, offset by the need for additional
consideration to avoid the possibility of codifying into the
Department's regulations provisions that may not survive judicial
scrutiny.
To the extent that NFIB, as well as the CWC, NRF, and the NRA,
dispute that this portion of the 2020 Tip final rule raises serious
legal and policy concerns that merit further consideration by the
Department, the Department disagrees. Citing the ``wide discretion''
that FLSA section 16(e)(2) affords the Department in determining
whether to assess CMPs for 3(m)(2)(B) violations, NFIB argued that it
is appropriate for the Department to impose the same limits on the
assessment of CMPs for 3(m)(2)(B) violations as its imposes for CMPs
for section 6 and 7 violations. However, section 16(e)(2) explicitly
limits the Department's ability to assess CMPs for section 6 and 7
violations to those that are ``repeated and willful''; the Department's
existing CMP regulations in 29 CFR parts 578, 579, and 580 reflect this
statutory limitation. Section 16(e)(2) contains no such limitation on
the assessment of CMPs for violations of section 3(m)(2)(B); to the
contrary, it explicitly provides the Secretary discretion to assess
CMPs for violations of section 3(m)(2)(B) ``as the Secretary determines
appropriate.''
The Department had concluded in the 2020 Tip final rule that a
desire for consistent enforcement procedures justified limiting the
Department's assessment of CMPs for violations of 3(m)(2)(B) to the
same extent as other FLSA CMPs. See 85 FR 86773. However, in light of
the comments it has received in support of the Partial Delay NPRM, the
Department has serious concerns that codifying such a limit on the
assessment of CMPs for violations of section 3(m)(2)(B) in its
regulations may fail to preserve what NFIB has appropriately
characterized as the Department's ``wide discretion'' under the
statute. The Department is therefore finalizing the delay of this
portion of the rule as proposed. Delaying the effective date of this
portion of the 2020 Tip final rule will provide the Department
sufficient time to complete its comprehensive review of this portion of
the rule, in particular, to allow the Department to consider the legal
and policy conclusions on which this portion of the rule is based, and
regarding which the AGs and advocacy organizations have raised serious
concerns. This delay will also permit the Department to conduct notice
and comment rulemaking regarding its separate CMP NPRM, in which the
Department has proposed withdrawing and reproposing the portion of the
rule addressing the assessment of CMPs for violations of section
3(m)(2)(B), before this portion of the rule goes into effect.
The Department thus finalizes its proposed delay of the portion of
the 2020 Tip final rule addressing the assessment of CMPs for
violations of section 3(m)(2)(B). The Department notes that, upon
review of the comments it receives on the CMP NPRM, which proposed to
withdraw and re-propose this portion of the rule, it may determine that
it is not appropriate to withdraw or amend this portion of the 2020 Tip
final rule. The Department will make that determination in the context
of the CMP NPRM.
2. CMPs for Willful Violations
The second portion of the 2020 Tip final rule that the Department
proposed to further delay made revisions to those parts of the
Department's FLSA regulations at Sec. Sec. 578.3(c) and 579.2 which
address when a violation of the FLSA is ``willful.'' As discussed
above, section 16(e)(2) of the FLSA authorizes the Department to assess
a CMP against ``any person who repeatedly or willfully violates''
sections 6 and 7 of the FLSA, the Act's minimum wage and overtime
requirements. 29 U.S.C. 216(e)(2). The regulations interpreting these
statutory terms are intended to implement 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. The regulations provide that WHD shall take into account ``[a]ll
of the facts and circumstances surrounding the violation'' when
determining whether a violation is willful. See 29 CFR 578.3(c)(1),
579.2. From 1992 until the Department issued the 2020 Tip final rule,
the Department's CMP regulations at Sec. Sec. 578.3(c)(2) and 579.2
provided that ``an employer's conduct shall be deemed knowing, among
other situations, if the employer received advice from a responsible
official of [WHD] to the effect that the conduct in question is not
lawful.'' Sections
[[Page 22604]]
578.3(c)(3) and 579.2 also provided that ``an employer's conduct shall
be deemed to be in reckless disregard of the requirements of the Act,
among other situations, if the employer should have inquired further
into whether its conduct was in compliance with the Act, and failed to
make adequate further inquiry.'' However, courts of appeals considering
those regulations concluded that there is an ``incongruity'' between,
on the one hand, the regulatory provisions deeming two specific
circumstances to be willful, and on the other hand, ``the Richland Shoe
standard on which the regulation is based.'' Baystate Alternative
Staffing, Inc. v. Herman, 163 F.3d 668, 680-81 (1st Cir. 1998); see
also Rhea Lana, Inc. v. Dep't of Labor, 824 F.3d 1023, 1030-32 (D.C.
Cir. 2016).
The 2020 Tip final rule revised the ``willful'' portions of the
Department's CMP regulations to attempt to address these courts of
appeals decisions. The 2020 Tip final rule revised Sec. 578.3(c)(2)
and the corresponding language in Sec. 579.2 to state that, in
considering all of the facts and circumstances, an employer's receipt
of advice from WHD that its conduct was unlawful ``can be sufficient''
to show that the violation is willful but is ``not automatically
dispositive.'' However, the 2020 Tip final rule also deleted Sec.
578.3(c)(3) and the corresponding language in Sec. 579.2 addressing
the meaning of reckless disregard.\17\ The 2020 Tip final rule
explained that an employer who should have inquired further but did not
do so adequately is a specific scenario that courts have already
determined is equivalent to reckless disregard, rather than a fact that
could impact a determination of willfulness. 85 FR 86774. The 2020 Tip
final rule stated that because such a scenario was not a ``fact'' or
``circumstance'' that the Department should consider when determining
reckless disregard, it was not appropriate to include it in the
regulations. Id. Accordingly, the 2020 Tip final rule stated that
revising Sec. 578.3(c)(3) in the same manner as Sec. 578.3(c)(2)
``did not seem helpful'' and deleted that provision. Id.
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\17\ As noted above, Sec. 578.3(c)(3) and the corresponding
language in Sec. 579.2 had provided, ``[A]n employer's conduct
shall be deemed to be in reckless disregard, among other situations,
if the employer should have inquired further into whether its
conduct was in compliance with the Act, and failed to make adequate
further inquiry.''
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In the Partial Delay NPRM, the Department proposed to further delay
the effective date of this portion of the 2020 Tip final rule while it
completes its review of this portion of the rule to ensure that the new
regulations comport with the Supreme Court's decision in Richland Shoe
and to prevent confusion and uncertainty among the regulated community
regarding what constitutes a ``willful'' violation. As the Department
noted in the Partial Delay NPRM, the Pennsylvania litigants argued that
this portion of the 2020 Tip final rule is contrary to law because it
``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,'' ``contradict[ing] the Supreme Court's
long-established definition of willfulness.'' See Delay NPRM (citing
Commonwealth of Pennsylvania et al. v. Scalia et al., No. 2:21-cv-
00258, pp. 23-24, 94 (E.D. Pa., Jan. 19, 2021). The Department proposed
that delaying the portion of the 2020 Tip final rule addressing the
assessment of CMPs for willful violations until after the Department
completes its review of this portion of the rule would avoid codifying
into the Department's regulations provisions that, absent
reconsideration by the Department, may not survive judicial scrutiny.
In its CMP NPRM, the Department stated that it continued to believe
that revisions to its 1992 regulations addressing the meaning of
willfulness were needed in order to address the courts of appeals
decisions discussed above. However, the Department asked for comment on
whether modifications to this portion of the 2020 Tip final rule were
needed to clarify that multiple circumstances, not just the
circumstance identified, can be sufficient to show that a violation was
knowing and thus willful. See 86 FR 15822. The Department also asked
for comment on whether the 2020 Tip final rule inappropriately deleted
the language at Sec. 578.3(c)(3) and the corresponding language at
Sec. 579.2 addressing reckless disregard. Accordingly, the CMP NPRM
proposed withdrawing and reproposing the portion of the 2020 Tip final
rule addressing the meaning of willfulness; the CMP NPRM also proposed
language addressing the meaning of reckless disregard.
After reviewing the comments on the Partial Delay NPRM, the
Department has decided to finalize the delay of the portion of the 2020
Tip final rule addressing the meaning of willfulness as proposed. As
with the portion of the 2020 Tip final rule addressing CMPs for
violations of section 3(m)(2)(B), the Department has identified
multiple serious concerns with this portion of the rule. These include
the Department's concern that removing Sec. 578.3(c)(3) and the
corresponding language in Sec. 579.2 could inadvertently suggest that
an employer's failure to inquire further into the lawfulness of its
conduct when it should have does not constitute reckless disregard, and
therefore, willfulness; its concern that the 2020 Tip final rule's
revisions to Sec. 578.3(c)(2) and the corresponding language in Sec.
579.2 erroneously suggested that only an employer's receipt of advice
from WHD, and no other circumstances, can demonstrate that a violation
of the FLSA was knowing; and its concern that further revisions are
needed to align these regulations with relevant Supreme Court
precedent. Comments from the AGs and employee advocacy organizations
confirmed and reinforced these concerns. Regarding the deletion of
language regarding reckless disregard, for instance, the AGs noted that
``[c]urrently, a violation is considered willful when the Department
provides advice to an employer that it chooses not to follow or when an
employer fails to inquire adequately into its legal obligations in some
circumstances. However, if the 2020 Final Tip Rule takes effect, these
actions would no longer be considered willful and subject to civil
money penalties.'' Numerous advocacy organizations also asserted that
these changes weaken worker protections under the FLSA. See, e.g.,
NELP; Oxfam America; Justice at Work.
NFIB opposed the proposed delay in the portion of the 2020 Tip
final rule addressing the assessment of CMPs for willful violations,
which it characterized as ``reasonable'' and ``practical.'' CWC also
expressed support for this portion of the rule in its prior comments.
In its comment on the Delay Rule, for instance, CWC commended the
Department for bringing its regulations regarding the meaning of
willfulness ``more closely'' in line with appellate court precedent,
specifically Baystate Alternative Staffing v. Herman, 163 F.3d 668 (1st
Cir. 1998). As noted above, the NRA contended that the Pennsylvania
litigants' legal challenge does not support delaying the 2020 Tip final
rule, as no court has ruled on any aspect of the complaint, and NRF
expressed general opposition to delaying the rule. As explained above,
however, the Department has serious concerns that this portion of the
2020 Tip final rule does not align with the Supreme Court's decision in
Richland Shoe. Additionally, comments from the AGs and advocacy groups
illustrate, at a minimum, that the 2020 Tip final rule's revisions to
these CMP provisions have caused confusion about the Department's
changes to those provisions. Accordingly, the
[[Page 22605]]
Department concludes that the portion of the 2020 Tip final rule
addressing the assessment of CMPs for willful violations raises serious
legal and policy concerns that merit further review by the Department.
By delaying the effective date of this portion of the 2020 Tip
final rule to allow sufficient time to undertake a comprehensive review
of this portion of the rule, the Department will be able to evaluate
the concerns discussed above before it goes into effect. The notice-
and-comment process associated with the Department's CMP NPRM, in which
it has proposed withdrawing and reproposing this portion of the rule,
will be integral to this review. The Department also believes that
delaying this portion of the rule while it undertakes its review will
prevent confusion and uncertainty among employers and workers regarding
the definition of willfulness. As the comments from the AGs and
advocacy organizations demonstrate, such confusion is likely to be
caused, in particular, by the 2020 Tip final rule's removal of language
regarding the meaning of reckless disregard from Sec. 578.3(c) and
Sec. 579.2.
The Department thus finalizes the proposed delay in the portion of
the 2020 Tip final rule addressing the meaning of willfulness. The
Department notes that, upon review of the comments it receives on the
CMP NPRM, which proposes to withdraw and re-propose this portion of the
rule, it may determine that it is not appropriate to withdraw or amend
this portion of the 2020 Tip final rule. The Department will make that
determination in the context of the CMP NPRM.
3. Dual Jobs Regulations
The third portion of the 2020 Tip final rule that the Department
proposed to further delay involves the amendment of its ``dual jobs''
regulations to address when an employer can continue to take a 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).\18\
For many years, the Department's subregulatory guidance addressing this
issue permitted employers to continue to take a tip credit for the time
a tipped employee performed non-tipped duties related to his or her
tipped occupation unless the time spent in such duties exceeded 20
percent of the employee's workweek (80/20 guidance). In 2018 and 2019,
the Department changed its subregulatory guidance to provide that
employers could continue to take a tip credit for any non-tipped work
that a tipped employee performed which was related to his or her tipped
occupation, provided that work was performed ``contemporaneously with''
or ``for a reasonable time immediately before or after'' his or her
tipped work. The Department's guidance provided that employers could
use O*NET, which is a database of worker attributes and job
characteristics compiled by the Employment and Training Administration,
to determine whether a duty was related or not related to the tipped
occupation. See WHD Field Assistance Bulletin (FAB) 2019-2 (Feb. 15,
2019) and WHD Opinion Letter FLSA2018-27 (Nov. 8, 2018) (2018-19
guidance). In 2019, the Department proposed to amend its existing dual
jobs regulations at Sec. 531.56(e) \19\ to incorporate this guidance.
See 84 FR 53956. The 2020 Tip final rule largely codified the 2018-19
guidance; the primary difference between the 2018-19 guidance and the
2020 Tip final rule is that the final rule only used O*NET as a guide
for determining related duties, rather than as a definitive source. See
85 FR 86S756, 86790.
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\18\ See also 29 CFR 10.28(b)(2) (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'').
\19\ See also 29 CFR 10.28(b)(2).
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As the Department explained in the Partial Delay NPRM, a number of
district courts have found that the test in the 2018-2019 guidance for
when an employer can take a tip credit for a tipped employee who
performs related non-tipped duties--limiting the tip credit to non-
tipped related duties performed ``contemporaneously with'' or for a
``reasonable time immediately before or after'' performing tipped
duties--is unclear or have otherwise refused to follow the test set
forth in that guidance.\20\ Additionally, the Pennsylvania complaint
challenges the dual jobs test in the 2020 Tip final rule, which largely
codifies this guidance, under the APA. The Pennsylvania litigants who
brought the complaint argue that the 2020 Tip final rule's dual jobs
test--which also limits the tip credit to non-tipped related duties
performed ``contemporaneously with'' or for a ``reasonable time
immediately before or after'' performing 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.'' 86 FR
15811.\21\ Additionally, the Pennsylvania litigants challenged the 2020
Tip final rule's use of O*NET as a resource to determine ``related
duties,'' which, according to their complaint, authorizes employers to
engage in ``conduct that has been prohibited under the FLSA for
decades.'' \22\ Given the concerns noted with this portion of the rule,
the Department asked for comment on whether it should further delay the
dual jobs portion of the 2020 Tip final rule to consider concerns
raised in the Pennsylvania litigation as well as other aspects of that
portion of the rulemaking, such as the validity of the economic
analysis, and asked for
[[Page 22606]]
comments generally addressing the merits of the 2020 Tip final rule
dual jobs test. The Department asked whether further delaying the
effective date of this portion of the 2020 Tip final rule so that it
could fully consider the merits of these claims and consider whether to
engage in further rulemaking on this issue might be prudent before it
codified such a test into its regulations for the first time. The
Department noted that it would be disruptive to employers to adjust
their practices to accommodate the dual jobs 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
dual jobs test. The Department proposed that delaying the effective
date while the Department undertakes its review, instead of allowing
this portion of the 2020 Tip final rule to be implemented, addresses
this concern before employers change their practices to accommodate a
dual jobs test that ultimately may not survive judicial scrutiny or
that the Department may change.
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\20\ The preamble to the 2020 Tip final rule lists many of these
decisions. See 85 FR 86770-71. For example, a district court stated
that the 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). District courts have also found that the Department's
guidance contradicts the limitations (``occasionally,'' ``part of
[the] time,'' and ``takes a turn'') that remain in the Dual Jobs
regulation. For example, in Belt v. P.F. Chang's China Bistro, Inc.,
401 F. Supp. 3d 512, 533 (E.D. Pa. 2019), the district court held
that the dual jobs guidance was unreasonable because ``the temporal
limitations it imposes on untipped related work conflict with those
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); Roberson v. Tex. Roadhouse Mgmt. Corp., No. 19-
628, 2020 WL 7265860 (W.D. Ky. Dec. 10, 2020) (same).
\21\ See Commonwealth of Pennsylvania et al. v. Scalia et al.,
No. 2:21-cv-00258, p. 128, 131 (E.D. Pa., Jan. 19, 2021); 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.''')
\22\ 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 similar 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).
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After carefully considering the comments received, the Department
has concluded that the dual jobs portion of the 2020 Tip final rule
raises legal and policy concerns that warrant further delay of the
effective date of this portion of the rule while the Department
considers these issues and conducts another rulemaking to potentially
revise that portion of the rule. The Department received a number of
significant comments in support of further extension of the effective
date of the dual jobs portion of the rule. These comments raised
concerns similar to those raised in the Pennsylvania litigation: that
the new dual jobs test sets too lax a standard and will depress tipped
employees' wages and possibly eliminate non-tipped jobs, that the new
test does not reflect the statutory definition of a tipped employee,
that the terms used in the new test are so amorphous that they will
lead to extensive litigation, that O*NET is not an appropriate tool to
determine related duties, and that the Department's economic analysis
for this portion of the rule did not sufficiently identify the economic
impact of this new test on employees and employers.
The Department shares the concerns of the commenters who supported
the Partial Delay NPRM that, by removing the limit on the amount of
time a tipped employee can perform related non-tipped duties, the new
test articulated in the 2020 Tip final rule may not accurately identify
when a tipped employee who is performing non-tipped duties is still
engaged in a tipped occupation under the FLSA. The Department is also
concerned that the 2020 Tip final rule's dual jobs regulations may be
contrary to the prohibition on keeping tips in section 3(m)(2)(B) of
the statute because it increases employers' ability to use tips to
satisfy their minimum wage obligations.
The NRA and WPI comments support permitting the dual jobs portion
of the 2020 Tip final rule to go into effect, arguing that it would be
inappropriate to revert back to the Department's previous 80/20
guidance because the FLSA only refers to employees being employed in a
``tipped occupation'' and therefore does not create any distinction
between the tipped and non-tipped duties of a tipped employee.\23\ The
Department is not proposing in this Partial Delay rulemaking to revert
back to its 80/20 guidance. It notes, however, that the NRA and WPI
reading of the statute is inconsistent with the position taken by the
Department in the 2020 Tip final rule, which determines whether an
employee is engaged in a tipped occupation based on the employees'
duties.\24\ Particularly because this portion of the rule is being
challenged under the APA and may not survive judicial scrutiny, the
Department believes it should further delay the effective date of this
portion of the rule. This will ensure that it has the opportunity to
thoroughly consider commenters' concerns that the dual jobs portion of
the 2020 Tip final rule is contrary to the FLSA, and propose and
complete a new rulemaking on this issue, before the rule goes into
effect.
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\23\ NRF also expressed general support for the 2020 Tip final
rule's related non-tipped duties test, characterizing it as a
``balanced approach.''
\24\ Specifically, revised Sec. 531.56(e) distinguishes between
tipped employees' tipped duties, for which employers can take a tip
credit; non-tipped duties related to a tipped employee's occupation,
which employers can take a tip credit for when they are performed
contemporaneously or for a reasonable amount of time immediately
before or after performing tipped duties; and non-tipped duties that
are not part of a tipped employee's occupation, for which employers
cannot take a tip credit.
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A number of commenters encouraged the Department to allow the dual
jobs portion of the 2020 Tip final rule to go into effect because the
new test, which eliminates the 20 percent limitation on related duties
and uses O*NET as a resource for determining which duties are related
to the tipped occupation, makes compliance easier for employers. WPI
and the NRA, for example, stated that the revisions to Sec. 531.56(e)
created a standard that is not as susceptible to litigation as the
previous 80/20 guidance. On the other hand, a number of commenters who
supported the further delay argued that the 2020 Tip final rule
contained a number of amorphous terms, such as ``contemporaneous'' and
``reasonable time'', that may not be sufficiently defined, a defect
that could lead to extensive litigation over the scope of those terms.
The Department agrees that it should at a minimum consider the argument
that these terms are not adequately defined. The Department also agrees
with the commenters that it should further delay the rule so that it
can review the numerous court decisions which declined to defer to the
Department's 2018-2019 guidance, which was the basis for the dual jobs
test included in the 2020 Tip final rule, to determine whether those
decisions identify any weaknesses in the 2020 Tip final rule dual jobs
test. The Department also shares the concerns of the commenters that
O*NET may not be an appropriate tool to identify duties related to
tipped occupations. As the commenters pointed out, since O*NET compiles
lists of duties that correspond to various occupations and is generated
through employee surveys, it reflects the duties that tipped employees
are performing, rather than the duties they should be performing.\25\
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\25\ As noted above, the NRA's comment opposing the further
delay stated as a general matter that the Pennsylvania complaint
does not support a delay of the 2020 Tip final rule. However, the
Department believes that the concerns raised by commenters with both
the substance of the dual jobs portion of the rule and the process
by which it was promulgated--which mirror those raised in the
Pennsylvania complaint--are sufficiently persuasive to warrant
further delaying this portion of the rule.
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The Department also shares commenters' concerns with the process by
which the Department promulgated the dual jobs portion of the 2020 Tip
final rule, specifically, that the economic analysis may not have
adequately estimated the impact of this portion of the rule. In
particular, the Department is concerned that its analysis of the
economic impact of the dual jobs portion of the 2020 Tip final rule
failed to adequately address EPI's comment on the rule, and that
alleged flaws in its economic analysis call into question whether this
portion of the rule was the product of reasoned decision making. The
NRA argued in its comment opposing an additional delay of the effective
date that EPI's economic analysis of the dual jobs portion of the 2020
Tip final rule was flawed because it used the wrong baseline. \26\
However,
[[Page 22607]]
the Department believes that the criticisms raised by EPI are
sufficiently serious to warrant further review, even if the Department
ultimately concludes that it used the correct baseline. Given the
Department's concern that its economic analysis of the dual jobs
portion of the 2020 Tip final rule may not be sufficient, the
Department also shares EPI's concern, reiterated by numerous advocacy
organizations, that allowing this portion of the rule to go into effect
without further consideration of the economic analysis could
potentially lead to a loss of income for workers in tipped industries,
many of whom are continuing to struggle with the economic impact of the
COVID-19 pandemic. \27\ Further delay of this portion of the rule would
also allow the Department to consider any changes from the COVID-19
pandemic to tipped work that should inform its ongoing consideration of
the dual jobs portion of the rule.
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\26\ The NRA comment also asserts that the Department ``agreed
not to assert such a limitation in pending and future investigations
in response to litigation filed against the Department of Labor in
federal court in Texas.'' In support, the NRA comment cites a Notice
of Dismissal, filed in Restaurant Law Center v. Acosta, No. 1:18-cv-
00567-RP (W.D. Tex. Nov. 30, 2018), a case that challenged a prior,
now superseded, interpretation reflected then in Section 30d00(f).
The Department disagrees that the November 30, 2018, Notice of
Dismissal limits its ability to reconsider this portion of the
December 30, 2020 Tip final rule. Under the terms of that dismissal,
the parties stipulated that Opinion Letter FLSA 2018-27 ``resolve[d]
the case or controversy underlying the Complaint,'' and that WHD
would ``instruct its staff, as a matter of enforcement policy, not
to enforce the superseded interpretation'' in the Department's prior
guidance ``with respect to work performed prior to the issuance of
the Opinion Letter.'' Notice of Dismissal, Restaurant Law Center v.
Acosta, No. 1:18-cv-00567-RP (W.D. Tex. Nov. 30, 2018). The
Department did not agree in that prior litigation to constrain
either its ability to reconsider its guidance or engage in future
rulemaking on this issue. Id.
\27\ Numerous commenters, both those who supported and those who
opposed the Partial Delay NPRM, noted that the COVID-19 pandemic has
had a particularly serious impact on the restaurant industry and
tipped workers. See. e.g., OFW (noting that ``in the midst of the
COVID-19 economic crisis'' tipped workers ``have already seen their
tips plummet''); NRA (``It is important to highlight the fact that
the restaurant industry has been uniquely hurt by the pandemic. No
industry has lost more jobs or more revenue.'').
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In sum, the Department believes that the proposed delay of the dual
jobs portions of the 2020 Tip final rule through December 31, 2021, is
reasonable given the numerous issues of law, policy, and fact raised by
the comments, which reflect 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. While an 8-month delay is
significant, the Department believes that allowing this portion of the
rule to go into effect may lead to harm to the Department, workers, and
employers if the rule is ultimately invalidated. The Department
appreciates the NRA's comment that there is no need to reconsider the
dual jobs portion of the 2020 Tip final rule because the Department has
already conducted a rulemaking to consider this issue and that it would
be disruptive to employers to further delay implementation of the new
rule. The NRA argues that employers have already implemented the dual
jobs portion of the 2020 Tip final rule because they changed their
practices to follow the Department's 2018-2019 dual jobs guidance.
However, as WPI acknowledged, a number of courts have declined to
follow the Department's 2018-19 guidance and have decided instead to
adopt the Department's prior 80/20 guidance. Therefore, some employers
have not applied the 2020 Tip final rule dual jobs test. Also, as
explained above, the 2020 Tip final rule was based on the 2018-19
guidance but is not identical to it. As also noted above, the
Department believes that the concerns raised by the commenters that the
dual jobs test lacks legal sufficiency should be explored before the
dual jobs test is codified for the first time into the Department's
regulations and that it would be more disruptive to employers if the
rule went into effect only to be invalidated in the Pennsylvania
litigation. The Department also believes that it is significant that a
number of commenters, including EPI, NELP, and WPI have urged the
Department to consider whether the dual jobs test could be
strengthened, both in terms of employee protection and in workability.
The Department will consider the specific recommendations made by
commenters such as WPI and EPI as part of its ongoing review of the
dual jobs portion of the 2020 Tip final rule.
In sum, after considering the comments submitted, the Department
believes that further delay is essential to inform the Department's
comprehensive review of the dual jobs portion of the 2020 Tip final
rule, including conducting a rulemaking to potentially revise that
portion of the rule.
4. Length of the Proposed Delay
In the Partial Delay NPRM, the Department proposed delaying the
effective date of three portions of the 2020 Tip final rule--the two
portions relating to the assessment of CMPs and the portion that
revised the Department's dual jobs regulations--for an additional 8
months, through December 31, 2021. See 86 FR 15812. The Department
proposed that this additional delay would provide it with sufficient
time to consider all aspects of these three portions of the rule,
conduct rulemaking on two portions of the 2020 Tip final rule through
the CMP NPRM, evaluate commenters' concerns, and consider whether to
propose withdrawing and reproposing the third portion of the rule
addressing dual jobs. The Department also noted that the CMP NPRM
includes a 60-day comment period and that a final CMP rule would have
at least a 30-day delay between publication in the Federal Register and
its effective date.\28\ The Department solicited comments on whether
the proposed period of delay is an appropriate length of time.
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\28\ The APA generally requires agencies to publish substantive
rules ``not less than 30 days before [their] effective date.'' 5
U.S.C. 553(d).
---------------------------------------------------------------------------
The Department received one comment specifically addressing the
length of the proposed delay. The AGs stated that the length of the
delay was appropriate because it gives the Department sufficient time
``to complete the rulemaking process and will avoid multiple
rulemakings and delays,'' to ``consider and review'' all the issues
raised by the portion of the 2020 Tip final rule addressing the
Department's dual jobs regulations, and ``to complete the rulemaking
process should it decide to withdraw or revise'' the portion of the
2020 Tip final rule addressing dual jobs. As noted above, seventeen
advocacy organizations supported the Partial Delay NPRM and five
organizations opposed it.
After carefully reviewing the comments received, and based on its
extensive rulemaking experience, the Department concludes that the
proposed 8-month delay provides it with sufficient time to complete its
comprehensive review of these three portions of the 2020 Tip final
rule, which will allow the Department to complete the CMP rulemaking as
well as a separate rulemaking to potentially revise the dual jobs
portions of the 2020 Tip final rule. Accordingly, the Department
finalizes the proposed 8-month delay in these three portions of the
2020 Tip final rule.
5. Effective Date of This Partial Delay
This rule delaying the effective date of the two portions of the
2020 Tip final rule addressing the assessment of CMPs and the portion
of the 2020 Tip final rule addressing the Department's dual jobs
regulations is effective immediately.\29\ Section 553(d) of the APA, 5
U.S.C. 553(d), provides that publication of a substantive rule must be
made no less than 30 days before its
[[Page 22608]]
effective date except, among other exceptions, ``as otherwise provided
by the agency for good cause found.'' The Department finds that it has
good cause to make this rule effective immediately upon publication
because allowing for a 30-day delay between publication and the
effective date of this rule would result in the three portions of the
2020 Tip final rule that this rule delays taking effect before the
delay begins. Such an outcome would undermine the purpose for which
this rule is being promulgated and result in additional confusion for
regulated entities. Moreover, this rulemaking institutes an 8-month
delay of portions of the 2020 Tip final rule, rather than itself
imposing any new compliance obligations on employers; therefore, the
Department finds that a lapse between publication and the effective
date of this rule delaying the Tip final rule's effective date is
unnecessary. Because allowing for a 30-day period between publication
and the effective date of this rulemaking is both unnecessary and would
fundamentally undermine the purpose for which this rule is being
promulgated, this final rule delaying the effective date of three
portions of the 2020 Tip final rule is effective immediately upon
publication in the Federal Register.
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\29\ The amendments made 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,
revised at 85 FR 86756 (December 30, 2020), and delayed at 86 FR
11632 (February 26, 2021) until April 30, 2021, are further delayed
until December 31, 2021.
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III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant Regulations, 5 CFR part 1320, require the Department
to consider the agency's need for its information collections, their
practical utility, as well as the impact of paperwork and other
information collection burdens imposed on the public, and how to
minimize those burdens. This final rule does not contain a collection
of information subject to OMB approval under the Paperwork Reduction
Act.
IV. Executive Order 12866, Regulatory Planning and Review; and
Executive Order 13563, Improved Regulation and Regulatory Review
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.\30\ Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as a regulatory
action that is likely to 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 delay is not economically
significant under section 3(f) of Executive Order 12866.
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\30\ See 58 FR 51735, 51741 (Oct. 4, 1993).
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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 delay and
was prepared pursuant to the above-mentioned executive orders.
In this rule, the Department will further extend the effective date
of three portions of the 2020 Tip final rule in order to engage in a
comprehensive review of the issues of law, fact, and policy raised by
these three portions of the 2020 Tip final rule and to take further
action, as needed, to complete its review. This delay will provide the
Department additional time to complete the CMP rulemaking and as well
as an additional rulemaking on the portion of the 2020 Tip final rule
that addressed 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 that addressed
the keeping of tips and tip pooling, \31\ recordkeeping, \32\ and other
minor changes \33\ 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.
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\31\ 29 CFR 10.28(c), (e)-(f); 531.50-.52, 531.54.
\32\ 29 CFR 516.28(b).
\33\ 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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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 delay will not have any impact
on these quantified transfers.
The Department expects that the industries that may be affected by
the 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.\34\ The Department acknowledges that
there are other industries with tipped workers that would have been
affected by the 2020 Tip final rule.
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\34\ 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 an additional delay of the effective date is
for the Department to conduct rulemaking on this portion of the rule
that amended 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 regulations 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 limitation
[[Page 22609]]
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
related non-tipped duties.\35\ The Department acknowledged that one
outcome could be that employment of workers currently performing these
duties may fall, and that 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 full
minimum wage. The Department also stated that eliminating the cost to
scrutinize employees' time to demonstrate compliance with the 20
percent limitation would result in costs savings to employers. In the
event that the 2020 Tip final rule's revisions to the dual jobs
regulations would have led to cost savings for employers, transfers
between employees and employers, or transfers among employees, these
effects will be delayed by this rule. These effects may also change
after the Department conducts rulemaking on the dual jobs portion of
the 2020 Tip final rule.
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\35\ Examples of such duties are cleaning and setting tables,
toasting bread, making coffee, and occasionally washing dishes or
glasses.
---------------------------------------------------------------------------
The effective date delay will allow the Department to better
consider this provision 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. The delay will also provide
the Department time to quantify any impact associated with such a
change, if warranted, in the dual jobs rulemaking.
Echoing their comment on the NPRM for the 2020 Tip final rule, EPI
asserted in their comment on this delay that the removal of the 20
percent limitation would result in transfers from workers to employers
of more than $700 million annually.\36\ They also note that this figure
was calculated pre-COVID-19, and that the impact on workers would be
worse during the pandemic. ROC United also acknowledged that the
situation for tipped workers has changed during the pandemic, partly
due to ``the rise in contactless service interactions and purchases,
along with growth in app based delivery.'' They recommend that the
Department's analysis take into consideration changes to workforce and
employment practices as a result of the COVID-19 pandemic. The
Department agrees that more time is needed to evaluate the Department's
dual jobs regulations, including how the changes brought about by
COVID-19 would impact the proposal.
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\36\ Heidi Shierholz and Margaret Poydock, ``EPI Comments on the
Department of Labor's Proposed Rule Regarding Tip Regulations,''
comments submitted on behalf of Economic Policy Institute to U.S.
Department of Labor, December 10, 2019.
---------------------------------------------------------------------------
Sixteen commenters agreed with EPI's analysis of the impact of the
changes to the dual jobs regulations, and many asserted that the rule
would harm women and people of color, both of whom are
disproportionately represented in the tipped workforce. The NRA
disagreed with this analysis, arguing that EPI's criticism of the 2020
Tip final rule ``rests on a flawed premise--i.e., that current law
reflects such a quantitative cap.'' They asserted that the baseline for
any analysis of the 2020 Tip final rule should have been the guidance
issued by WHD in 2018 and 2019, which rejects a quantitative limit on
related non-tipped duties. The Department acknowledges that the
baseline for both EPI's analysis and the 2020 Tip final rule measured
the change from before the 2018-19 guidance was issued. The Department
used this baseline in the 2020 Tip final rule in order to be
transparent about the economic impact that would occur as a result of
the 2018-19 guidance and the 2020 Tip final rule's changes to the dual
jobs regulations, which largely codified that guidance. However, the
Department believes that the criticisms raised by EPI are sufficiently
serious to warrant further review, even if the Department ultimately
concludes that it used the correct baseline.
Commenters raised serious concerns with the economic analysis of
the dual jobs portion of the rule, asserting that the Department did
not sufficiently consider the costs, benefits, and potential transfers
of this portion of the rule. For example, the AGs and NELP said that
the Department's reluctance to quantitatively estimate the impact of
the dual jobs portion of the rule and consider the estimates of the
rule's impact submitted by EPI and other groups in the course of that
rulemaking is evidence that the rulemaking was arbitrary and capricious
under the APA. The Department will consider these concerns with the
2020 Tip final rule's economic analysis, including whether the baseline
for the economic analysis of the dual jobs portion of the 2020 Tip
final rule was appropriate, in its comprehensive review of the dual
jobs portion of the 2020 Tip final rule.
The Department does not believe that the 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.
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 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 rule to
determine whether it will 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).\37\ The Department limited this
analysis to the 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.
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\37\ 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.
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The Department has not quantified any costs, transfers, or benefits
associated with this delay, and therefore certifies that this rule will
not have a significant economic impact on a substantial number of small
entities.
VI. Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (UMRA) \38\ 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
[[Page 22610]]
at least one year.\39\ 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 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.
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\38\ See 2 U.S.C. 1501.
\39\ 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.
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VII. Executive Order 13132, Federalism
The Department has (1) reviewed this delay in accordance with
Executive Order 13132 regarding federalism and (2) determined that it
does not have federalism implications. The rule will 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 rule will 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 23rd day of April, 2021.
Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-08927 Filed 4-28-21; 8:45 am]
BILLING CODE 4510-27-P
