Victory for Restaurants: Courts Overturn Dual Jobs Regulation

The recent U.S. Court of Appeals ruling overturning the Dual Jobs Regulation is a game-changer for restaurant operators. Learn more.

A Victory for Restaurants: U.S. Court of Appeals Overturns 2021 Dual Jobs Regulation

The U.S. Court of Appeals overturned the amendments to the Department of Labor’s (DOL) Dual Jobs Regulation on August 23, 2024. This change delivers a significant victory for restaurant operators nationwide.

This ruling is crucial for businesses that rely on tipped employees. It alleviates some of the regulatory burdens created by the Wage and Hour Division and highlights ongoing complexities in labor laws that directly impact operations.

Background: The 2021 Dual Jobs Regulation Amendments

The Labor Standards Act (FLSA) allows employers to pay employees in a tipped occupation a lower wage— as low as $2.13 per hour—if their tips make up the difference to the full minimum wage of $7.25 per hour.

However, the 80/20 rule, introduced by the DOL in December 2021, complicated this for restaurant owners.

What Was the 80/20/30 Rule?

80% Rule: If an employee spent at least 80 percent of their hours worked performing tip-generating tasks, employers could use the tip credit. For instance, taking orders, serving food, and clearing tables are all tip-generating tasks. On the other hand, supporting tasks can include cleaning the kitchen or restocking supplies.
20% Rule: If an employee spent more than 20% of their time on non-tipped duties, the employer could not apply the tip credit. This rule maintained that employers fairly compensated non-tip-generating work.
30-Minute Rule: If an employee exceeded 30 minutes of non-tip-producing work, the employer had to pay them the full minimum wage.

The 80/20/30 rule (also known as the 80/20 rule) required detailed time tracking, significantly increasing labor costs for many restaurant operators.

What is Tip Credit?

Employers can claim a tip credit toward their minimum wage and overtime obligations for tipped employees under the FLSA. If an employer claims tip credit, they must ensure the employee receives enough tips from customers to equal at least the minimum wage and overtime compensation required under FLSA.

For example, if a server receives $2.13 per hour in direct wages from their employer and makes an additional $5.12 per hour in tips, their total earnings would equal the full minimum wage. The difference between the cash wage paid by the employer and the required minimum wage is called the tip credit, and in this case, the employer is claiming a tip credit of $5.12.

The Restaurant Industry’s Response

The Restaurant Law Center and other industry organizations promptly challenged these amendments, arguing that they created unnecessary complexity. The rules required detailed tracking of every minute of an employee’s day to determine whether tasks were customarily and regularly considered tip-producing.

Given the nature of restaurant work, which often involves transitioning between tip-producing and supporting tasks, the industry felt this was overly burdensome and unreasonable. Employers were particularly concerned about compliance with minimum wage obligations under federal law.

The Court’s Ruling: A Game-Changer for Restaurant Labor Laws

The Circuit Court of Appeals sided with the restaurant industry, vacating the December 2021 amendments. The court ruled that the Wage and Hour Division had overstepped its authority under the FLSA, particularly when it imposed stringent tracking requirements for tasks that support tip-producing work. According to the court, the regulation did not align with the spirit of the Fair Labor Standards Act (FLSA) and placed an undue burden on employers.

The preliminary injunction issued against the 80/20 rule lifted the requirement to track time spent on non-tipped duties exceeding 30 minutes. This decision was a significant relief for restaurant owners who had struggled to comply with these tracking and wage calculation requirements, providing a much-needed sense of reassurance and reducing their stress levels.

The Broader Implications for the Restaurant Industry

This ruling simplifies payroll management and labor cost tracking for restaurant operators. The invalidation of the 80/20 rule means restaurants no longer need to track non-tipped work meticulously. Employers can return to the original practice of applying the tip credit as long as the employee’s tips bring them to the full minimum wage of $7.25 per hour.

Removing these burdens allows restaurants to focus on their core mission—providing excellent service to their customers—without the regulatory strain.

The Role of Technology in Maintaining Compliance and Efficiency

With the recent changes in labor regulations, the importance of technology in managing restaurant operations has become more apparent. Advanced payroll management software can play a significant role in helping you navigate the complexities of labor laws, empowering you and giving you a sense of control. This approach is especially crucial after the court’s decision to strike down the 2021 amendments.

Benefits of Payroll and HR Software

Automation of Compliance: Modern software solutions can automatically update and apply the correct labor laws. Keep your restaurant compliant with current regulations.
Streamlined Operations: Oversee payroll management and other HR functions with an all-in-one platform. The right software can reduce your administrative burden.
Data-Driven Decision Making: You can make more informed decisions about labor costs and employee scheduling with real-time analytics.

Investing in the best technology enhances your restaurant’s overall efficiency and profitability. By leveraging advanced tools, you can stay ahead of regulatory changes and ensure your operations run smoothly.

Looking Ahead: What This Means for the Industry

While this ruling is a significant win, it doesn’t mark the end of regulatory challenges for restaurants. The restaurant industry must stay attentive as federal law and other labor regulations continue to change. Restaurant owners should continue to review their labor practices and stay informed about changes that could impact how they apply the tip credit and other wage-related policies.

The ruling also reinforces the broader legal precedent that regulatory agencies, such as the Department of Labor’s Wage and Hour Division, must operate within the boundaries of their authority. This case could influence future challenges to other regulatory actions that are perceived as overreaching.

How APS Can Support Your Business

At APS, we understand the challenges restaurants face when navigating labor regulations like the Fair Labor Standards Act (FLSA). Our payroll management software is designed to:

Simplify labor regulation processes
Reduce administrative burdens
Maintain compliance with all relevant labor laws.

Whether tracking employee hours or staying up-to-date with regulatory minimum wage obligations, APS has the tools to help your restaurant succeed. Visit our Restaurant Industry Solutions page to learn more about how we can support your payroll and HR needs.

What’s Next for Restaurant Labor Laws?

The U.S. Court of Appeals’ decision to overturn the 2021 Dual Jobs Regulation is a monumental victory for restaurants. It reduces the regulatory complexity of the tip credit system and allows businesses to focus on providing exceptional service, a triumph that all restaurant owners can be proud of.

However, as labor laws change, restaurant owners must stay proactive and informed to remain compliant. APS is here to support your payroll and HR needs every step of the way.

APS is here to help you navigate these changes with our all-in-one payroll and HR software. Contact us today to see how we can support your restaurant’s HR and payroll management.