Fifth Circuit Strikes Down 2021 DOL Tip Credit Rule

What Is the Federal Tip Credit?

The Fair Labor Standards Act, or FLSA, generally requires covered employees to receive at least the federal minimum wage. Federal law nevertheless allows an employer to satisfy part of that obligation with a credit based on tips received by a qualifying tipped employee.

Under the federal framework, an employer may pay a tipped employee a direct cash wage of at least $2.13 per hour and claim a maximum tip credit of $5.12 toward the $7.25 federal minimum wage. If wages and tips do not equal at least the required minimum wage for the workweek, the employer must make up the shortage.

The FLSA defines a tipped employee as someone engaged in an occupation in which the employee customarily and regularly receives more than $30 per month in tips. Those few wordsespecially engaged in an occupationbecame the center of the Fifth Circuit dispute.

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The Tip Credit Comes With Conditions

Even after the Fifth Circuit ruling, the tip credit is not an enchanted coupon that lets employers ignore wage law. Employers must provide required notice, ensure employees retain their tips except through lawful tip-pooling arrangements, make up minimum-wage shortfalls, calculate overtime correctly, and maintain appropriate payroll records.

Employers, managers, and supervisors also generally may not keep employees’ tips. The decision concerned when the tip credit can apply to work performed by a tipped employee. It did not erase the FLSA’s other protections.

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How the 2021 DOL Tip Credit Rule Worked

The Department of Labor issued the 2021 Dual Jobs Rule in October 2021, and the new provisions became effective in December of that year. The regulation divided a tipped employee’s activities into three categories.

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1. Tip-Producing Work

Tip-producing work included activities for which employees typically receive tips, such as a server taking orders and delivering meals, a bartender preparing drinks for customers, or a valet parking a patron’s vehicle. An employer generally could take the tip credit for this time.

2. Directly Supporting Work

Directly supporting work helped an employee perform tip-producing duties but did not independently generate tips. Examples included rolling silverware, setting tables, refilling condiments, preparing drink garnishes, cleaning a bar, and restocking service stations.

The rule allowed an employer to take the tip credit for supporting work only when that work did not exceed 20 percent of the hours for which the employer claimed the credit during the workweek. It also imposed a separate limit of 30 continuous minutes. Supporting work beyond either threshold had to be paid without using the tip credit.

3. Work Unrelated to the Tipped Occupation

An employer could not claim the tip credit for work unrelated to the employee’s tipped occupation. A server performing building repairs, deep-cleaning a commercial kitchen, or completing duties normally assigned to a maintenance worker could not simply be paid the tipped cash wage for that time.

The Department presented the rule as a safeguard against employers assigning large quantities of low-paid, non-tip-producing work to employees whose tips could not realistically compensate them for those duties. Worker advocates viewed the limits as protection against abuse. Restaurant groups saw a tracking system that was expensive, confusing, and disconnected from the way a busy dining room actually operates.

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How the Legal Challenge Reached the Fifth Circuit

The Restaurant Law Center and the Texas Restaurant Association challenged the rule in the Western District of Texas. They argued that the Department had exceeded its authority by turning the FLSA’s occupational definition into a minute-by-minute task test.

In July 2023, the district court sided with the Department of Labor. It found the statutory language sufficiently ambiguous and treated the DOL’s interpretation as permissible under the Chevron doctrine, which then required courts in certain circumstances to defer to a reasonable agency interpretation of an ambiguous statute.

The restaurant associations appealed. While the appeal was pending, the Supreme Court decided Loper Bright Enterprises v. Raimondo in June 2024. That decision overruled Chevron and instructed judges to exercise independent judgment when deciding what a federal statute means.

The timing was significant. The district court had analyzed the tip rule through a deference framework that no longer controlled. The Fifth Circuit therefore began again with the statutory text rather than asking whether the Department had merely offered a permissible interpretation.

Why the Fifth Circuit Rejected the Rule

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The Statute Focuses on Occupations, Not Isolated Tasks

The Fifth Circuit concluded that the FLSA makes the employee’s occupation the central unit of analysis. In the court’s view, Congress did not instruct the Department to determine tipped status by asking whether every individual task directly generated a gratuity.

A server does not stop being a server while setting a table. A bartender does not become a warehouse employee each time a bottle is retrieved from storage. A valet does not leave the valet occupation merely because the employee spends a few minutes repositioning cars rather than accepting one from a customer.

The court distinguished this situation from a true dual job. A hotel employee who works some hours as a server and other hours as a maintenance technician may be engaged in two separate occupations. The employer may take a tip credit for the server occupation but not for the maintenance occupation.

That traditional distinction survived the ruling. What the court rejected was the Department’s attempt to split the normal components of one occupation into numerous temporary occupations based largely on whether each task immediately produced a tip.

The 30-Minute Rule Created a Practical Paradox

The court was particularly skeptical of the continuous 30-minute limit. Under the 2021 rule, setting and bussing tables could qualify as directly supporting server work for the first 30 minutes. At minute 31, the identical activity could no longer be performed under the tip credit.

Nothing about the employee’s duty, workplace, job title, or purpose had changed. Only the clock had moved. The court reasoned that the meaning of an occupation does not ordinarily turn on whether a task lasts 29 minutes or 31.

The regulation also treated certain idle or waiting time as supporting work subject to the limits. That created a strange result during slow periods: a server standing ready to assist the next customer could potentially exceed a time threshold even though being available for customers was an ordinary part of the job.

The Rule Failed the Administrative Procedure Act Twice

The Fifth Circuit held that the regulation violated the Administrative Procedure Act on two independent grounds.

First, the court found that the rule was not in accordance with law because it conflicted with the FLSA’s text. The statute tied tipped status to an occupation, while the regulation tied it to a granular combination of tasks, percentages, and time increments.

Second, the court found the rule arbitrary and capricious. In its view, the Department had drawn lines based on a task’s connection to tipping and the length of time spent on that task, even though Congress had selected the employee’s occupation as the relevant consideration.

The court did not rule on whether the controversy met the Supreme Court’s major-questions test. It did not need to. The regulation failed under ordinary statutory interpretation and APA review.

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What Exactly Did the Court Vacate?

The Fifth Circuit first issued its ruling on August 23, 2024. After granting a petition for panel rehearing, it withdrew that version and issued a substituted opinion on October 29, 2024.

The substituted opinion vacated the 2021 rule insofar as it modified the Department’s original dual-jobs regulation at 29 C.F.R. Section 531.56. That wording clarified that the decision did not invalidate every provision contained in the broader collection of federal tip regulations.

The Department of Labor subsequently published a technical amendment restoring the regulatory language that existed before the 2021 Dual Jobs Rule took effect. The federal regulation once again uses the traditional distinction between two genuinely separate occupations and related duties performed within a tipped occupation.

What the Decision Means for Restaurant Employers

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The Federal 80/20/30 Regulation Is Gone

Employers are no longer required by the vacated 2021 federal regulation to apply its combined 20-percent and 30-consecutive-minute limits. Related side work may generally remain part of the tipped occupation even when it does not directly produce a tip.

That does not mean every duty assigned to a tipped employee qualifies for the tip credit. Employers must still determine whether the work is genuinely part of the tipped occupation or belongs to a distinct, non-tipped occupation.

Job Titles Will Not Rescue Bad Assignments

Calling someone a “server” does not automatically make every assigned duty server work. An employee who spends part of the day waiting tables and another scheduled block repairing equipment may still be performing two jobs.

The safest analysis looks at the real character of the duties. Setting tables, filling a server station, and preparing the dining area are easier to connect to the server occupation than repainting the storeroom, servicing an air-conditioning unit, or cleaning the entire property after construction.

State and Local Laws Still Matter

The Fifth Circuit interpreted federal law. States may require a higher direct wage, impose their own side-work limits, define tipped work differently, or prohibit tip credits entirely. A multistate restaurant group therefore cannot replace its compliance chart with a cheerful sticky note reading, “Fifth Circuit fixed everything.”

Employers should compare federal requirements with every applicable state and local rule and follow the standard that provides employees the required protection.

Recordkeeping Remains Valuable

Although the federal 80/20/30 calculation is no longer part of the restored regulation, accurate records remain essential. Payroll data, job descriptions, schedules, tip notices, tip-pool records, and documentation of separate job assignments can help demonstrate compliance.

Managers should also understand the difference between ordinary side work and an unrelated occupation. A well-written policy is not much use when the closing manager assigns servers four hours of warehouse work and calls it “team spirit.”

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What the Decision Means for Tipped Employees

For employees, the ruling removed a federal rule designed to limit the amount of supporting work performed at the tipped cash wage. Workers may therefore see broader assignments of related side work without an automatic conversion to the full minimum wage after 20 percent of the week or 30 continuous minutes.

Employees nevertheless retain important protections. They must receive at least the applicable minimum wage when direct wages and tips are combined. Employers must make up a shortfall. Unlawful tip retention remains prohibited, overtime rules still apply, and a genuinely separate non-tipped occupation cannot be disguised as tipped work.

Workers may also have stronger rights under state law, local ordinances, collective bargaining agreements, or company policies. The federal decision establishes a baseline; it does not flatten every other wage rule in the country.

Practical Examples After the Fifth Circuit Decision

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A Server Rolls Silverware for 40 Minutes

Under the 2021 rule, the continuous 30-minute threshold could require the employer to stop taking a tip credit after the first 30 minutes. Under the restored federal dual-jobs regulation, rolling silverware may remain related work within the server occupation. State law could produce a different answer.

A Bartender Restocks Beer and Mixers

Restocking supplies commonly used to serve bar customers is closely connected to bartending. The fact that the bartender is not receiving a tip while carrying the supplies does not by itself create a separate occupation.

A Server Repairs a Walk-In Refrigerator

Repairing commercial refrigeration equipment is not an ordinary server duty simply because the broken refrigerator happens to be inside a restaurant. The employee may be working in a distinct maintenance occupation for that period, making the tip credit unavailable.

A Valet Waits During a Slow Afternoon

Waiting and remaining ready to accept arriving vehicles may be an inherent part of valet work. The 2021 rule’s time limits no longer automatically convert that waiting period into non-creditable work under the federal regulation.

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Lessons From the Field: The Real-World Compliance Experience

The most revealing experience surrounding the 2021 rule was not a dramatic courtroom exchange. It was the daily struggle to translate a highly technical regulation into ordinary workplace behavior.

Consider an illustrative neighborhood restaurant with 20 servers, two bartenders, one dining-room manager, and a payroll system designed mainly to record arrival, departure, and meal breaks. To follow the 2021 rule precisely, management needed more than a weekly timecard. It needed to know when a server changed from taking orders to rolling silverware, when supporting work began, whether that work continued for more than 30 minutes, and how much supporting work accumulated during the week.

The manager might begin a closing shift with a stopwatch-worthy plan. At 9:35 p.m., one server wiped menus. At 9:43, the server helped a customer. At 9:48, the employee refilled condiments. At 10:04, another guest asked for dessert. The work did not occur in tidy blocks because restaurants are not laboratory experiments. Customers have an unfortunate habit of arriving without consulting the compliance spreadsheet.

Employees also experienced uncertainty. One server might complete side work quickly and remain below the limits. Another might perform the same duties during a slow shift and cross a threshold because fewer customers interrupted the work. The wage treatment could differ even though both employees completed normal server responsibilities.

After the Fifth Circuit decision, many operators gained relief from the federal minute-by-minute system. However, the sensible response was not to delete every side-work record and celebrate by assigning the waitstaff to resurface the parking lot.

The better lesson was to redesign duties around recognizable occupations. Restaurants can identify the core and supporting duties of servers, bartenders, bussers, counter staff, and valets. They can separately schedule maintenance, heavy cleaning, food production, and other work that belongs to a different occupation. When employees perform two jobs, the timekeeping system can use separate job codes and pay rates.

Training is equally important. Front-line managers make many of the decisions that later become wage claims. A corporate handbook may distinguish server work from maintenance work perfectly, but liability can still develop when a shift supervisor repeatedly tells tipped employees to perform unrelated tasks before clocking out.

The experience also shows why employers should avoid relying on a single federal headline. An operator in Texas may face a different mix of legal risks from an operator in California, New York, Colorado, or another jurisdiction with more protective wage requirements or unresolved precedent. Multistate employers need location-specific rules rather than one nationwide shortcut.

Ultimately, the strongest compliance program is practical rather than theatrical. It uses clear job descriptions, accurate time records, lawful tip notices, regular payroll audits, and a process for employees to report shortages or questionable assignments. That approach is less exciting than a courtroom victory, but it is much cheaper than discovering during litigation that the closing checklist quietly became a second occupation.

The Broader Administrative-Law Significance

The case extends beyond restaurant side work. It demonstrates how the end of Chevron deference can affect regulations built on agency interpretations of statutory language.

Before Loper Bright, an agency could sometimes prevail by showing that its interpretation of an ambiguous statute was reasonable. Courts must now independently identify the best reading of the statute while still giving respectful consideration to persuasive, consistent, and expert agency views.

The Fifth Circuit did not hold that agencies are powerless or that their expertise is irrelevant. It held that an agency cannot replace Congress’s chosen standard with a different test simply because the agency considers that test more protective or easier to enforce.

Future challenges to federal workplace regulations are likely to rely on similar arguments: What does the statute actually say? Did Congress delegate the disputed policy choice? Did the agency draw a line that the statutory scheme permits? The answers will vary, but courtsnot agenciesnow have the final interpretive word without Chevron’s mandatory thumb on the scale.