The Restaurant Law Center, a public policy affiliate of the National Restaurant Association, has filed suit against the Department of Labor and its Wage and Hour Division, seeking to declare unlawful the DOL’s 2012 revision to its Field Operations Handbook, purporting to establish, through sub-regulatory guidance, the “80/20” tip credit rule or “20% Rule.” Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567 (W.D. Tex. July 6, 2018). The 80/20 Rule seeks to limit the availability of the tip credit when tipped employees spend more than 20% of their time performing allegedly non-tip generating duties. One of several problems in applying such a rule is identifying what is, and what is not, an allegedly “tip-generating” duty.
The lawsuit alleges that the DOL improperly created the 80/20 Rule by surreptitiously adding it to the Field Operations Handbook used by its agents, rather than abiding by the rulemaking process, thereby violating the Administrative Procedure Act. Noting that the Rule “spawned a nationwide wave of collective and class actions against the restaurant industry,” the lawsuit seeks to have it declared invalid and unenforceable. Last year, a panel of the Ninth Circuit Court of Appeals held as much in Marsh v. J. Alexander’s, LLC, 869 F.3d 1108 (9th Cir. 2017), noting that the purported guidance had become a “de facto  new regulation masquerading as an interpretation.” However, the Ninth Circuit subsequently granted a rehearing before the full Court of Appeals. The case was argued in March 2018 before the full panel but the Court has yet to issue its opinion. In 2011, the Eighth Circuit deferred to the Rule. Fast v. Applebee’s International, Inc., 638 F.3d 872 (8th Cir. 2011). If the full Ninth Circuit affirms its panel decision, or the Fifth Circuit ultimately holds the 80/20 Rule invalid on an appeal of the just-filed lawsuit, a circuit court split would arise, with the case on a path to the Supreme Court. This is one to watch.