We recently highlighted DOL opinion letter 2018-27, which rescinded the 80/20 rule and was a welcome change for employers in the restaurant industry. However, less than two months after the DOL's policy change, the U.S. District Court for the Western District of Missouri rejected the DOL's new guidance, claiming it is "unpersuasive and unworthy" of deference.
As a refresher, the 80/20 rule requires businesses to pay tipped workers at least minimum wage (with no tip credit) for non-tip generating tasks when these tasks take up more than 20% of the tipped workers' time.
In Cope, et al. v. Let's Eat Out, Inc., et al, the court rejected the defendants' motions to decertify the class of workers who claimed defendants violated the 80/20 rule. Defendants relied on the DOL's recent rescission of the 80/20 rule. The court denied the defendants' motion to decertify, opining:
"The abrupt issuance of an opinion letter purporting to change the DOL's interpretation after years of consistently construing the [underlying regulation] as limited by the 80/20 rule does not persuade this court to apply a new interpretation to this litigation .... [T]he DOL does not offer reasoning or evidence of any thorough consideration for reversing course."
The court further stated that the DOL's rescission does not stand up to the deference standards set by the U.S. Supreme Court. Specifically, the court explained that rescission of the 80/20 rule was an "unfair surprise" to workers, as well as an unjustified departure from the DOL's prior guidance. The court further reasoned that the 80/20 rule is "a reasonable interpretation" of the underlying regulation – notwithstanding the DOL's issuance of the November 2018 opinion letter or the update to the DOL's investigation handbook.
This decision is a disappointing development for the restaurant industry, which has faced the daunting and costly prospect of collective and class action litigation by servers and bartenders paid under the tip credit claiming they spent more than 20% of their time on "side work" that did not directly produce tips. How disappointing remains to be seen, as it is too early to tell whether other courts will find the reasoning in Cope persuasive. In any event, it is likely that Cope will be used by future plaintiffs bringing 80/20 rule violation claims on behalf of themselves and putative classes in the near future. We will continue to follow developments and provide updates in this space.
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