• Skip to content
  • Skip to primary sidebar
Bell Nunnally & Martin LLP

News/Events

Alerts | August 29, 2024

The Fifth Circuit Strikes Down the DOL’s Final Tip Credit Rule

On August 23, the 5th U.S. Circuit Court of Appeals vacated the Department of Labor’s (DOL) interpretation of the tip credit rule, an action which effectively voided the rule nationwide.

The DOL Final Rule

What is a tip credit? An employer claims a tip credit when it counts an employee’s tips toward the employer’s obligation to pay minimum wage. An employer can pay a worker $2.13 per hour as opposed to the federal minimum wage of $7.25 per hour with the expectation that the worker’s tips will make up the difference.  A tipped employee is one who customarily and regularly receives more than $30 per month in tips.

The DOL’s final rule differentiated a tipped employee’s work into three categories: (1) tip producing work, like waiting on tables; (2) work that directly supports tip producing work, like setting tables, bussing tables, etc.; and (3) non-tip producing work, like preparing food or making coffee. The rule included two key points, the 80/20 guidance and the 30-minute requirement. The 80/20 guidance limited an employer to taking a tip credit only if the number of hours an employee spent on work that was not tip-producing was 20% or less of the worker’s total hours in a given workweek. The 30-minute requirement limited tipped employees to those spending no more than 30 minutes of continuous time during a shift on work that directly supported tipped work.

The Fifth Circuit’s Review of the DOL’s Final Rule

The Restaurant Law Center and the Texas Restaurant Association brought a lawsuit in the U.S. District Court for the Western District of Texas seeking to permanently enjoin the enforcement of the DOL’s final rule. The district court found that DOL’s final rule was a permissible interpretation of the FLSA’s tip credit provision.

On appeal, the Fifth Circuit analyzed the DOL’s interpretation of what it means for a tipped worker to be “engaged in an occupation” and explained that the DOL’s rule was so granular in dividing up an employee’s component tasks that a single occupation could quickly break apart into many. The court found the final rule improperly restricted the definition of tipped employees to exclude those who idly stand by for 21% or more of their workweek or for 31 continuous minutes or more during a shift. The Fifth Circuit concluded the DOL’s final rule was an arbitrary and capricious interpretation of the law because it drew an impermissible line between tip-producing and tip-supporting work.

What This Means for Employers

The DOL may seek review of the Fifth Circuit’s decision by appeal to the U.S. Supreme Court. Further, the upcoming election may impact the DOL’s response to the decision.

For now, employers should continue to ensure tipped employees earn at least minimum wage, including at least $30 a month in tips. Employers should also review state law requirements for taking a tip credit against minimum wage for employees who customarily and regularly earn tips.

Primary Sidebar

Related Attorneys

  • Sydnie A. Shimkus

    Sydnie A. Shimkus

    Partner

    sshimkus@bellnunnally.com
    214-740-1490

Related Practices

  • Labor and Employment
Stay in the know...
Don’t miss anything — Subscribe to our email list!
2323 Ross Avenue, Suite 1900, Dallas, Texas 75201 | 214.740.1400
© 2025 Bell Nunnally & Martin LLP All Rights Reserved
  • Sitemap
  • Disclaimer
  • Privacy Policy
  • Client Pay
legalink logo Site by
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT
  • People
  • Practices
  • Industries
  • News/Events
  • Contact Us
  • About Us
  • Clients
  • Careers
  • Client Pay