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States Sue Over Trump Rule Targeting Tipped Workers

On the last day of the Trump presidency, eight states and the District of Columbia filed suit Tuesday over a Department of Labor rule they say will lower wages for tipped workers.

PHILADELPHIA (CN) — On the last day of the Trump presidency, eight states and the District of Columbia filed suit Tuesday over a Department of Labor rule they say will lower wages for tipped workers.

The Department of Labor’s new rule was finalized in December and is set to go into effect in February. 

It includes several amendments to the Fair Labor Standards Act that the states filing Tuesday’s federal lawsuit take no issue with, like barring employers, managers and supervisors from keeping employees’ tips and authorizing employers to establish mandatory tip pools between tipped and non-tipped employees if the employer pays the full minimum wage to all employees.

But the states, led by Pennsylvania Attorney General Josh Shapiro, are challenging an amendment removing the Fair Labor Standards Act’s longstanding 80/20 rule, which stipulated an employer could only assign non-tipped duties for 20% or less of a tipped employee’s work time while paying them tipped minimum wage.

Tipped minimum wage is currently set at $2.13 per hour federally – less than a third of the non-tipped minimum wage, set at $7.25 per hour.

The change “contradicts the text and purpose of the FLSA,” the 47-page complaint filed in Philadelphia federal court states, arguing that while an employer may take a tip credit of up to $5.12 per hour if a worker earns that amount in tips, “it is a core tenet of the FLSA that workers be compensated fairly for their work and must be paid at least the full minimum wage when not engaged in tipped work.”

The attorneys general criticized the rule’s vague phrasing, which states that an employer may take a tip credit “for any amount of time that an employee performs related, non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.”

This creates a situation wherein employers can take a tip credit on “amorphous, undefined terms,” according to the complaint.  

In addition to its failure to justify its departure from the 80/20 rule, the states contend the Labor Department has also adopted “an overbroad test to determine whether employees are managers or supervisors,” both of whom are ineligible to participate in tip pools. The new rule uses a duties test from the FLSA’s executive employee exemption regulation to determine which individuals are managers or supervisors, but does not incorporate an executive exemption’s salary test.

“Without a salary test such as that used by the department to identify bona fide managerial employees exempt from the FLSA’s overtime requirements, the final rule’s duties test is too broad and is likely to result in non-managerial employees being excluded from tip pools, which will reduce wages for these workers,” the lawsuit states.

The attorneys general also point out that the new rule could negatively affect workers in a leisure and hospitality industry that is already struggling due to coronavirus restrictions.

“The final rule will significantly reduce tipped workers’ wages, thereby exacerbating the impact the Covid-19 pandemic has had on millions of tipped workers nationwide,” the complaint states.  

Shapiro echoed that concern upon the case’s filing in a statement Tuesday.

“This new rule issued by the U.S. Dept. of Labor is indefensible and would result in tipped workers doing more work for less pay all in the midst of a global pandemic,” said the Democratic Pennsylvania attorney general, who was sworn into his second term just a few hours before the suit was filed. “Businesses and employers are struggling and need real relief during this pandemic but it cannot come out of the pockets of their employees.”

Cheryl Stanton, the Labor Department’s wage and hour administrator, said upon the rule’s publication in December that it “provides clarity and flexibility for employers and could increase pay for back-of-the house workers, like cooks and dishwashers, who have been excluded from participating in tip pools in the past.”

The department did not immediately respond to a request for comment Tuesday.

Pennsylvania is joined in the case by Illinois, Delaware, Maryland, Massachusetts, Michigan, New Jersey, New York and the District of Columbia.

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