On Jan. 2, 2019, a federal court in Missouri held that the U.S. Department of Labor’s (DOL) recent opinion letter rescinding the 80/20 rule was not entitled to deference because the DOL did not explain why it decided to eliminate the longstanding and widely adopted rule.

Employers are permitted to pay employees in tipped occupations less than minimum wage by crediting their tips against a portion of the required minimum wage. DOL regulations provide that employers cannot take a tip credit for any time an employee performing a “dual job” spends doing non-tipped work. Non-tipped duties can include work such as rolling silverware, cleaning tables or refilling condiments.

In 2009, the DOL issued an opinion letter establishing the “80/20 rule.” This rule provides that an employee does not work a dual job if no more than 20% of the employee’s time is spent performing non-tipped work and the non-tipped work is related to the tipped work. As a result, for nearly ten years, employers who took a tip credit were cautioned to keep scrupulous records of the type of non-tipped work employees in tipped occupations performed and how much time they spent doing such tasks. On Nov. 8, 2018, the DOL purported to rescind the 80/20 rule and replace it with a new interpretation of the dual jobs regulation.

In Cope v. Let's Eat Out, Inc., No. 6:16-cv-03050-SRB, 2019 BL 404 (W.D. Mo. Jan. 02, 2019), a Missouri federal court became the first to comment upon the DOL’s 2018 opinion letter. In finding the 2018 opinion letter unworthy of deference, the court noted that the DOL’s recent guidance directly conflicts with its 2009 opinion letter and its position taken in other lawsuits. Yet, the DOL offered no reasoning or evidence explaining why it reversed its decade-long support for the 80/20 rule. The court found that the DOL’s about-face would cause “unfair surprise” to both employees and employers because: (i) employers have structured their policies in reliance on the 80/20 rule, and (ii) in this particular lawsuit, the plaintiff-employees relied on the DOL’s 2009 opinion letter when they filed their pending suit.

After discounting the 2018 opinion letter, the Cope court looked to and reaffirmed prior Eighth Circuit precedents, holding that the 80/20 rule is a reasonable interpretation of the dual jobs regulation.

While Cope v. Let’s Eat Out is not yet the “law of the land,” it creates a roadmap that other federal courts may choose to follow when deciding similar issues. Additionally, several states have adopted their own 20% rule, including New York, Virginia, West Virginia and others. Given the shifting sands of the 80/20 rule, employers should consult with counsel before relying on the DOL’s 2018 opinion letter. Taft’s Employment and Labor Relations practice group is ready to help employers navigate these legal issues and follow best practices. Please call us with questions regarding tip credits and how they impact your business practices