Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date, 15811-15817 [2021-06244]

Agencies

• Wage and Hour Division
• DEPARTMENT OF LABOR
• Office of the Secretary

[Federal Register Volume 86, Number 56 (Thursday, March 25, 2021)]
[Proposed Rules]
[Pages 15811-15817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06244]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 10

Wage and Hour Division

29 CFR Parts 516, 531, 578, 579, and 580

RIN 1235-AA21


Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay 
of Effective Date

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Proposed delay of effective date.

-----------------------------------------------------------------------

SUMMARY: On February 26, 2021, the Department of Labor (Department) 
published a final rule (Delay Rule) extending until April 30, 2021, the 
effective date of the rule titled Tip Regulations Under the Fair Labor 
Standards Act (2020 Tip final rule) in order to allow the Department 
the

[[Page 15812]]

opportunity to review issues of law, policy, and fact raised by the 
2020 Tip final rule before it takes effect. This notice of proposed 
rulemaking (NPRM) proposes to further extend the effective date of 
three portions of the 2020 Tip final rule in order to complete a 
separate rulemaking, published elsewhere in this issue of the Federal 
Register, and to provide the Department additional time to consider 
whether to withdraw and repropose that portion of the 2020 Tip final 
rule addressing the application of the FLSA's tip credit provision to 
tipped employees who perform both tipped and non-tipped duties. The 
proposed 8-month delay, until December 31, 2021, would allow the 
Department to finalize the separate rulemaking, which would include, 
inter alia, a 60-day comment period and at least a 30-day delay between 
publication and the rule's effective date.

DATES: The amendments to 29 CFR 10.28(b)(2), 531.56(e), 578.1, 578.3, 
578.4, 579.1, 579.2, 580.2, 580.3, 580.12, and 580.18, published at 85 
FR 86756 (December 30, 2020), and delayed at 86 FR 11632 (February 26, 
2021) until April 30, 2021, are proposed to be further delayed until 
December 31, 2021. Submit written comments on or before April 14, 2021.

ADDRESSES: You may submit comments, identified by Regulatory 
Information Number (RIN) 1235-AA21, by either of the following methods: 
Electronic Comments: Submit comments through the Federal eRulemaking 
Portal at https://www.regulations.gov. Follow the instructions for 
submitting comments. Mail: Address written submissions to Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210. Instructions: Please submit only one copy of your 
comments by only one method. Commenters submitting file attachments on 
https://www.regulations.gov are advised that uploading text-recognized 
documents--i.e., documents in a native file format or documents which 
have undergone optical character recognition (OCR)--enable staff at the 
Department to more easily search and retrieve specific content included 
in your comment for consideration. Anyone who submits a comment 
(including duplicate comments) should understand and expect that the 
comment will become a matter of public record and will be posted 
without change to https://www.regulations.gov, including any personal 
information provided. The Department will post comments gathered and 
submitted by a third-party organization as a group under a single 
document ID number on https://www.regulations.gov. All comments must be 
received by 11:59 p.m. on April 14, 2021 for consideration in this 
proposed delay of effective date. The Department strongly recommends 
that commenters submit their comments electronically via https://www.regulations.gov to ensure timely receipt prior to the close of the 
comment period, as the Department continues to experience delays in the 
receipt of mail. Submit only one copy of your comments by only one 
method. Docket: For access to the docket to read background documents 
or comments, go to the Federal eRulemaking Portal at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this proposal may be obtained in alternative 
formats (Large Print, Braille, Audio Tape or Disc), upon request, by 
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD 
callers may dial toll-free 1-877-889-5627 to obtain information or 
request materials in alternative formats.

SUPPLEMENTARY INFORMATION:

I. Background

    In the Consolidated Appropriations Act of 2018 (CAA), Congress 
amended section 3(m) of the FLSA to prohibit employers from keeping 
tips received by employees, regardless of whether the employers take a 
tip credit under section 3(m). On December 30, 2020, the Department 
published the 2020 Tip final rule in the Federal Register to address 
these amendments. See 85 FR 86756. The 2020 Tip final rule would also 
codify the Wage and Hour Division's (WHD) guidance, unrelated to the 
CAA amendments, regarding the application of the FLSA's tip credit 
provision to tipped employees who perform tipped and non-tipped duties. 
See id. The original effective date of the 2020 Tip final rule was 
March 1, 2021. See id. A legal challenge to the 2020 Tip final rule was 
filed on January 19, 2021 and is pending in the United States District 
Court for the Eastern District of Pennsylvania.\1\
---------------------------------------------------------------------------

    \1\ Commonwealth of Pennsylvania et al. v. Scalia et al., No. 
2:21-cv-00258 (E.D. Pa., Jan. 19, 2021).
---------------------------------------------------------------------------

    On February 26, 2021, after engaging in notice-and-comment 
rulemaking and considering the comments submitted about a proposed 
effective date delay (86 FR 8325 (February 5, 2021)), the Department 
delayed the effective date for the 2020 Tip final rule by 60 days to 
April 30, 2021, in order to provide the Department additional 
opportunity to review and consider questions of law, policy, and fact 
raised by the rule. See 86 FR 11632 (February 26, 2021). The 60-day 
delay of the 2020 Tip final rule's effective date was sought pursuant 
to the Presidential directive as expressed in the memorandum of January 
20, 2021, from the Assistant to the President and Chief of Staff, 
titled ``Regulatory Freeze Pending Review.'' See 86 FR 7424. The 
Department explained in the Delay Rule that it would use the delay to 
consider, among other things, whether the 2020 Tip final rule properly 
implements the CAA amendments to section 3(m) of the FLSA, in 
particular, the incorporation of the CAA's language regarding civil 
money penalties (CMPs) for violations of section 3(m)(2)(B) of the 
FLSA; whether the 2020 Tip final rule revisions to portions of the CMP 
regulations on willful violations were appropriate; whether the 2020 
Tip final rule adequately considered the possible costs, benefits, and 
transfers between employers and employees related to the codification 
of guidance on applying the tip credit to tipped employees who perform 
tipped and non-tipped duties; and whether the 2020 Tip final rule 
otherwise effectuates the CAA amendments to the FLSA. See id. The 
Department explained that allowing the 2020 Tip final rule to go into 
effect while the Department reviewed these issues could lead to 
confusion among workers and employers in the event that the Department 
proposed to revise the 2020 Tip final rule after its review; delaying 
the 2020 Tip final rule would avoid such confusion. Id.

II. Proposed Second Delay of Effective Date for Three Portions of the 
2020 Tip Final Rule

    In this NPRM, the Department is proposing to delay the effective 
date of three portions of the 2020 Tip final rule for an additional 8 
months, through December 31, 2021. Specifically, the Department is 
proposing to delay the two portions of the 2020 Tip final rule which 
address the assessment of CMPs, and to delay the portion of the 2020 
Tip final rule that addresses the application of the FLSA tip credit to 
tipped employees who perform tipped and non-tipped duties. These three 
portions of the 2020 Tip final rule encompass those parts of the rule 
that are being challenged under the Administrative Procedure Act (APA) 
in the January 19, 2021 complaint pending in the United

[[Page 15813]]

States District Court for the Eastern District of Pennsylvania 
(``Pennsylvania complaint'').\2\ The Department seeks comment on its 
proposed further delay of the effective date of these three portions of 
the 2020 Tip final rule. To further aid its review, the Department also 
seeks comments on these three portions of the 2020 Tip final rule, and 
in particular, on the merits of withdrawing or retaining the portion of 
the rule that amends the Department's dual jobs regulations to address 
the application of the FLSA tip credit to tipped employees who perform 
both tipped and non-tipped duties.
---------------------------------------------------------------------------

    \2\ See Commonwealth of Pennsylvania et al. v. Scalia et al., 
No. 2:21-cv-00258, pp. 42-43 (E.D. Pa., Jan. 19, 2021).
---------------------------------------------------------------------------

    In another NPRM published elsewhere in this issue of the Federal 
Register the Department is proposing to withdraw and revise the two 
portions of the 2020 Tip final rule which address the assessment of 
CMPs under the FLSA: The regulations which address the statutory 
provision establishing CMPs for violations of section 3(m)(2)(B) of the 
Act, Sec. Sec.  578.3(a)-(b), 578.4, 579.1, 580.2, 580.3, and 580.12, 
and 580.18(b)(3), and the portion of its CMP regulations which address 
when a certain violation is ``willful,'' Sec. Sec.  578.3(c) and 
579.2.\3\
---------------------------------------------------------------------------

    \3\ The sections of the 2020 Tip final rule related to CMPs that 
the Department is proposing to withdraw and revise are in Sec. Sec.  
578.3, 578.4, 579.1, 579.2, 580.2, 580.3, 580.12 and 580.18 of part 
29; the third portion of the 2020 Tip final rule that the Department 
is continuing to consider are those regulations related to the tip 
credit's application to tipped employees who perform tipped and non-
tipped duties, Sec. Sec.  10.28(b) and 531.56(e) of part 29. The 
Department is not proposing to withdraw and reproprose the 2020 Tip 
final rule's changes to the Department's CMP regulation at Sec.  
578.1, which only generally references tip CMPs. To avoid confusion 
for the regulated community, however, the Department is delaying the 
effective date of the entire portion of its CMP regulations 
addressed in the 2020 Tip final rule. The Department's 2018 Field 
Assistance Bulletin explains the interim procedures that the 
Department is following in assessing tip CMPs. See Field Assistance 
Bulletin 2018-3 (Apr. 6, 2018).
---------------------------------------------------------------------------

    The Department is not proposing to further extend the remaining 
provisions of the 2020 Tip final rule not addressed in this NPRM. The 
remainder of the 2020 Tip final rule--consisting of those portions 
addressing the keeping of tips and tip pooling,\4\ recordkeeping,\5\ 
and those portions making other minor changes to update the regulations 
to reflect the new statutory language and citations added by the CAA 
amendments and clarify other references consistent with the statutory 
text \6\--will become effective upon the expiration of the first 
effective date extension, which extended the effective date of the 2020 
Tip final rule through April 30, 2021.
---------------------------------------------------------------------------

    \4\ 29 CFR 10.28(c), (e)-(f); 531.50 through 531.52, 531.54.
    \5\ 29 CFR 516.28(b).
    \6\ 29 CFR 531.50, 531.51, 531.52, 531.55, 531.56(a), 531.56(c)-
(d), 531.59, and 531.60.
---------------------------------------------------------------------------

III. Basis for Proposed Second Delay

    The Department is proposing this second delay of the effective date 
for three portions of the 2020 Tip final rule so that it has sufficient 
time to engage in a comprehensive review of these parts of the 2020 tip 
final rule, and to take further action as needed to complete its 
review. The Department believes that review of these three portions of 
the 2020 Tip final rule before they go into effect is particularly 
important given that the Pennsylvania litigants and individuals who 
submitted comments on the Department's Delay Rule raised significant 
substantive and procedural concerns regarding these three portions of 
the 2020 Tip final rule. The Department has proposed to withdraw and 
repropose two portions of the 2020 Tip final rule relating to CMPs to 
better align them with the FLSA and Supreme Court caselaw. Allowing 
these provisions to go into effect could lead to practices the 
Department ultimately determines to be inconsistent with the FLSA and 
judicial opinions. In addition to causing confusion, this could result 
in increased compliance costs, and potentially disruptive changes in 
employment practices in the event that the Department withdraws and 
revises these portions of the 2020 Tip final rule.
    The first portion of the 2020 Tip final rule that the Department is 
proposing to further delay addresses the assessment of CMPs for 
violations of section 3(m)(2)(B) of the FLSA, which prohibits 
employers, including managers and supervisors, from ``keeping'' tips. 
The CAA amended section 16(e)(2) of the FLSA to provide for the 
assessment of CMPs for violations of section 3(m)(2)(B) ``as the 
Secretary determines appropriate[.]'' Notwithstanding this statutory 
grant of discretion, the 2020 Tip final rule would limit the 
Secretary's ability to assess CMPs for violations of 3(m)(2)(B) to 
those instances where the violation is ``repeated'' or ``willful.'' 
See, e.g., 85 FR 86772-73. The Pennsylvania litigants argue that this 
portion of the 2020 Tip final rule addressing CMP assessments for 
violations of section 3(m)(2)(B) is inconsistent with the plain 
language of the statute and Congressional intent, noting that, unlike 
in the case of CMPs for minimum wage and overtime violations, 
``Congress did not make the imposition of civil money penalties for 
violations of section 3(m)(2)(B) of the Act contingent upon a finding 
of willfulness.'' \7\ Stakeholders who submitted comments in support of 
the Department's proposal to delay the effective date of the 2020 Tip 
final rule for 60 days expressed this same concern, similarly noting 
that section 16(e)(2) of the FLSA does not require a finding of 
willfulness to assess a CMP for a violation of section 3(m)(2)(B). See, 
e.g., National Employment Law Project (NELP); National Women's Law 
Center (NWLC); NETWORK Lobby for Catholic Social Justice. Upon review 
of the Pennsylvania complaint and the comments received regarding its 
Delay Rule, the Department is concerned that the 2020 Tip Final rule 
unlawfully circumscribes its discretion to issue CMPs for section 
3(m)(2)(B) violations. Accordingly, as explained in the NPRM published 
separately in this edition of the Federal Register, the Department is 
proposing to withdraw and repropose this part of the 2020 Tip final 
rule. To avoid codifying a limitation on the Department's ability to 
assess CMPs that may lack a basis in law, the Department believes that 
it may be necessary to delay that portion of the 2020 Tip final rule 
regarding CMPs for section 3(m)(2)(B) while it completes this 
rulemaking.
---------------------------------------------------------------------------

    \7\ See Commonwealth of Pennsylvania et al. v. Scalia et al., 
No. 2:21-cv-00258, p. 98 (E.D. Pa., Jan. 19, 2021).
---------------------------------------------------------------------------

    The second portion of the 2020 Tip final rule that the Department 
is proposing to further delay addresses those parts of the Department's 
FLSA regulations which address when a violation of that Act is 
``willful.'' The Department's definition of a ``willful'' violation in 
Sec. Sec.  578.3(c) and 579.2 of its regulations is based on the 
Supreme Court's opinion in McLaughlin v. Richland Shoe Co., 486 U.S. 
128, 133 (1988), which held that a violation is willful if the employer 
``knew or showed reckless disregard'' for whether its conduct was 
prohibited by the FLSA. Among the concerns raised by the Pennsylvania 
litigants regarding this portion of the 2020 Tip final rule is the 
rule's removal of language regarding the meaning of ``reckless 
disregard'' from these regulations.\8\ According to the Pennsylvania 
litigants, this and other changes to these regulations ``contradict the 
Supreme Court's long-established

[[Page 15814]]

definition of willfulness.'' \9\ In its comment on the proposed Delay 
Rule, NELP similarly argued that the 2020 Tip final rule's revisions 
addressing when a violation is ``willful'' ``do[ ] not comport with 
Congress's intent or with longstanding U.S. Supreme Court precedent and 
its progeny,'' including McLaughlin v. Richland Shoe.\10\ Following its 
review of the Pennsylvania complaint and comments on the proposed Delay 
Rule, the Department is proposing in an NPRM published separately in 
this edition of the Federal Register to withdraw and repropose this 
part of the 2020 Tip final rule to make changes to the portion of the 
rule regarding the meaning of ``willfulness'' under the Department's 
CMP regulations; these changes include reinserting language addressing 
the meaning of reckless disregard. The Department believes that 
delaying the effective date of the portion of the 2020 Tip final rule 
while it completes rulemaking on this issue is necessary to ensure that 
the new regulations comport with the Supreme Court's decision in 
Richland Shoe and will prevent confusion and uncertainty among the 
regulated community regarding what constitutes a ``willful'' violation.
---------------------------------------------------------------------------

    \8\ See Commonwealth of Pennsylvania et al. v. Scalia et al., 
No. 2:21-cv-00258, pp. 23-24; see also p. 94 (E.D. Pa., Jan. 19, 
2021) (``The Final Rule also removes an employer's failure to 
inquire further into whether its conduct was in compliance with the 
Act from the Department's description of willfulness.'')
    \9\ Id.
    \10\ NELP specifically argued that the 2020 Tip final rule's 
revisions to the regulations regarding the meaning of 
``willfulness'' ``make[ ] it easier for employers to either ignore 
compliance advice from the Department, or to fail to pursue inquiry 
regarding compliance with minimum wage and overtime protections.''
---------------------------------------------------------------------------

    The third portion of the 2020 Tip final rule that the Department is 
proposing to further delay addresses the amendment of its ``dual jobs'' 
regulation to address when an employer can continue to take an FLSA tip 
credit for an employee who is engaged in a tipped occupation and 
performs both tipped and non-tipped duties, see Sec.  531.56(e).\11\ 
The Pennsylvania litigants and commenters on the Department's proposal 
to delay the 2020 Tip final rule for 60 days raised significant 
substantive and procedural concerns regarding this portion of the 2020 
Tip final rule. Regarding the economic analysis, the Pennsylvania 
litigants argue that the Department ``failed to consider or quantify 
the effect'' that this portion of the rule ``would have on workers and 
their families'' and ``disregarded'' the data and analysis provided by 
a commenter on the NPRM for the 2020 Tip final rule, the Economic 
Policy Institute (EPI).\12\ In its comment regarding the Delay Rule, 
EPI stated that the final rule's response to its analysis and its 
qualitative discussion of benefits and transfers associated with this 
portion of the rule ``is not sufficient and delaying the effective date 
of the rule is highly appropriate to give the Department time to 
reassess the rule.'' This concern strongly suggests that the Department 
should revisit the economic analysis regarding the portion of the 2020 
Tip final rule addressing the application of the FLSA tip credit to 
tipped employees who perform tipped and non-tipped work, and calls into 
question whether this portion of the rule would withstand a challenge 
under the Administrative Procedure Act claiming that the Department's 
failure to include a quantitative economic analysis for this portion of 
the rule was arbitrary and capricious.
---------------------------------------------------------------------------

    \11\ See also Sec.  10.28(b) (incorporating the same guidance on 
when an employer can continue to take an FLSA tip credit for an 
employee who is engaged in a tipped occupation and performs both 
tipped and non-tipped duties in the Department's regulations 
relating to Executive Order 13658, ``Establishing a Minimum Wage for 
Contractors'').
    \12\ See Commonwealth of Pennsylvania et al. v. Scalia et al., 
No. 2:21-cv-00258, pp. 103, 109 (E.D. Pa., Jan. 19, 2021)
---------------------------------------------------------------------------

    Regarding the substance of this portion of the rule, the 
Pennsylvania litigants argue that the 2020 Tip final rule's new test 
for when an employer can take a tip credit for a tipped employee who 
performs non-tipped, related duties--limiting the tip credit to non-
tipped related duties performed ``contemporaneously with'' or for a 
``reasonable time before or after tipped duties--relies on ``ill-
defined'' terms and fails to ``provide any guidance as to when--or 
whether--a worker could be deemed a dual employee during a shift or how 
long before or after a shift constitutes a reasonable time.'' \13\ 
District courts have also found these terms in the Department's current 
guidance, which the 2020 Tip final rule largely codified, to be unclear 
and have refused to follow it.\14\ Additionally, the Pennsylvania 
litigants challenged the 2020 Tip final rule's use of the Occupational 
Information Network (O*NET) to define ``related duties,'' which, 
according to their complaint, authorizes employers to engage in 
``conduct that has been prohibited under the FLSA for decades.'' \15\ 
Commenters who supported the proposed Delay Rule argued that the 2020 
Tip final rule's new test for when an employer can take a tip credit 
for a tipped employee who performs non-tipped, related duties ``does 
not comply with the CAA Amendments,'' since it ``permits employers to 
take tips that belong to employees.'' See NELP; see also NWLC; National 
Employment Lawyers Association (NELA). These commenters also asserted 
that most courts that have considered the Department's current guidance 
on this issue, which the 2020 Tip final rule largely codified, have not 
afforded it any deference.\16\
---------------------------------------------------------------------------

    \13\ Id. at 128, 131; see also id. at p. 129 (``The Department 
never provides a precise definition of `contemporaneous,' simply 
stating that it means `during the same time as'' before making the 
caveat that it ``does not necessarily mean that the employee must 
perform tipped and non-tipped duties at the exact same moment in 
time.' '')
    \14\ The preamble to the 2020 Tip final rule lists many of these 
decisions. See 85 FR 86770-71. In Belt v. P.F. Chang's China Bistro, 
Inc., 401 F. Supp. 3d 512, 533 (E.D. Pa. 2019), for example, the 
district court held that the dual jobs guidance was unreasonable 
because ``the temporal limitations it imposes on untipped related 
work conflict with'' certain language (``occasionally,'' ``part of 
[the] time'') that remains in ``the text of the Dual Jobs 
regulation.'' See also Berger v. Perry's Steakhouse of Ill., LLC, 
430 F. Supp. 3d 397, 411-12 (N.D. Ill. 2019) (same). Another 
district court stated that 2018 DOL guidance ``inserts new 
uncertainty and ambiguity into the analysis'' and noted that the 
Department ``fails to explain how long a `reasonable time' would be, 
or what is meant by performing non-tipped work `contemporaneously' 
with tipped work.'' Flores v. HMS Host Corp., No. 18-3312, 2019 WL 
5454647 (D. Md. Oct. 23, 2019).
    \15\ See Commonwealth of Pennsylvania et al. v. Scalia et al., 
No. 2:21-cv-00258, p. 115 (E.D. Pa., Jan. 19, 2021) (``Because it 
seeks to describe the work world as it is, not as it should be, 
O*NET cannot and does not account for FLSA violations in industries 
known to have high violation rates like the restaurant industry; 
therefore, using it to determine related duties will sanction 
conduct that has been prohibited under the FLSA for decades.''); id. 
at p. 117 (``O*NET tasks for waiters and waitresses include 
`cleaning duties, such as sweeping and mopping floors, vacuuming 
carpet, tidying up server station, taking out trash, or checking and 
cleaning bathrooms'--when from 1988 until 2018, the Department's 
Field Operations Handbook specified as an example, `maintenance work 
(e.g., cleaning bathrooms and washing windows) [is] not related to 
the tipped occupation of a server; such jobs are non-tipped 
occupations.' ''). Some district courts have levied this same 
criticism against the use of O*NET to perform this test. See, e.g., 
O'Neal v. Denn-Ohio, LLC, No. 19-280, 2020 WL 210801 at *7 (N.D. 
Ohio Jan. 14, 2020) (declining to defer to the 2018 guidance in part 
because O*NET relies in part on data obtained by asking employees 
which tasks their employers assign them to perform, which ``would 
allow employers to ``re-write the regulation without going through 
the normal rule-making process,'' and is therefore unreasonable).
    \16\ In support of this assertion, commenters cited a variety of 
cases, including Belt v. P.F. Chang's China Bistro, Inc., 401 F. 
Supp. 3d 512, 533 (E.D. Pa. 2019), Spencer v. Macado's, Inc., 399 F. 
Supp. 3d 545, 553 (W.D. Va. 2019), and Cope v. Let's Eat Out, Inc., 
354 F. Supp. 3d 976, 986 (W.D. Mo. 2019). See NELP; see also 
NETWORK, Restaurant Opportunities Center United, NELA (cross-
referencing NELP's citations to these cases).
---------------------------------------------------------------------------

    These arguments by the Pennsylvania litigants and commenters on the 
proposed Delay Rule further call into question whether this portion of 
the rulemaking can withstand judicial review, as well as whether the 
2020 Tip final rule accurately identifies when a tipped employee who is 
performing non-tipped duties is still engaged in a tipped occupation 
under the auspices of

[[Page 15815]]

the statute, such that an employer can continue to take a tip credit 
for the time the tipped employee spends on such non-tipped work. The 
Department's test for determining when a tipped employee can continue 
to be paid with a tip credit when he or she is not performing tip-
generating work has always been contained in subregulatory guidance. 
Given the serious concerns noted with this portion of the rulemaking, 
the Department believes that delaying the effective date of this 
portion of the 2020 Tip final rule so that it can fully consider the 
merits of these claims and to consider whether to engage in further 
rulemaking on this issue may be prudent before it codifies such a test 
for the first time into its regulations. For example, employers have 
already adjusted their practices to accommodate the Department's 2019 
guidance addressing when they can continue to take a tip credit for 
tipped employees who perform non-tipped work that is related to their 
tipped occupation. It would be disruptive to these employers to adjust 
their practices to accommodate the new test articulated in the 2020 Tip 
final rule, and then have to readjust if that test does not survive 
judicial scrutiny or if the Department decides to propose a new test. 
Delaying the effective date while the Department undertakes its review, 
instead of allowing these portions of the rule to be implemented, 
addresses this concern and before employers change their practices to 
accommodate a new test that ultimately may not survive judicial 
scrutiny.
    The Department's ongoing review of these three portions of the 2020 
Tip final rule has identified similar concerns to those noted above, 
including potential legal issues and the sufficiency of the economic 
analysis for the third portion of the rule. Accordingly, the Department 
believes that this proposed delay may best inform the Department's 
comprehensive review of these parts of the 2020 Tip final rule and 
consideration of alternate paths, and provide it a meaningful 
opportunity to do so, which is of paramount importance given the 
pending challenge to these parts of the rule in the Pennsylvania 
litigation.
    The Department believes that the proposed delay of these three 
portions of the 2020 Tip final rule through December 31, 2021, is 
reasonable given the numerous issues of fact, law, and policy raised by 
these portions of the 2020 Tip final rule. In light of the claims 
raised in the Pennsylvania litigation and the comments received on the 
Delay NPRM, which highlight very serious concerns with the substance of 
the dual jobs portion of the 2020 Tip final rule and the process 
through which it was promulgated, as well as the two portions of the 
2020 Tip final rule addressing CMPs, the Department believes additional 
action may be needed and it proposes to delay implementation of these 
portions of the rule until it determines an appropriate method to 
determine when a tipped employee is engaged in a tipped occupation and 
to conduct a rulemaking to ensure that the two CMP portions of the rule 
are consistent with the FLSA and Supreme Court precedent interpreting 
what constitutes a ``willful'' violation under that Act. As explained 
above, allowing these provisions to go into effect could lead to 
practices the Department ultimately determines to be inconsistent with 
the FLSA and judicial opinions. In addition to causing confusion, this 
could result in increased compliance costs, and potentially disruptive 
changes in employment practices in the event that the Department 
withdraws and revises these three portions of the 2020 Tip final rule. 
Further, the three portions of the 2020 Tip final rule that the 
Department is proposing to delay also encompass those parts of the rule 
that are being challenged in the Pennsylvania lawsuit.
    The Department has considered allowing these three portions of the 
rule to take effect pending its review and the assessment of potential 
new rulemaking; however, the Department believes that the concerns 
discussed above call into question fundamental aspects of the 
rulemaking to such a degree that the best approach is to propose to 
delay these three portions of the rulemaking rather than allow them to 
take effect without seeking additional public input. Relatedly, the 
Department preliminarily believes that delaying the effective date for 
these three portions of the rule will prevent confusion and uncertainty 
among the regulated community while the Department conducts its review.
    Therefore, the Department believes that the prudent and reasonable 
approach is to propose to delay the effective date, and thus the 
implementation of these three portions of the 2020 Tip final rule while 
it undertakes its review. While the Department acknowledges that the 
proposed delay is significant, based on its initial review and given 
the concerns described above, it is clear that a significant amount of 
time is necessary to consider all aspects of these portions of the 
rulemaking. This proposed delay will allow the Department sufficient 
time to conduct rulemaking on two portions of the 2020 Tip final rule, 
and evaluate commenters' concerns and consider whether to propose 
withdrawing and reproposing the third portion of the rule. The 
Department seeks public comment on the proposed delay, including 
whether it should delay the effective date for these portions of the 
2020 Tip final rule and whether the proposed period of delay is an 
appropriate length of time or whether other lengths of time may be more 
appropriate. The Department specifically seeks comment on whether, 
rather than delaying implementation as proposed herein, the Department 
should allow these portions of the rule to take effect while it 
conducts its review and considers any new proposal(s) to amend the 
regulations in question. The Department also invites the public to 
share any relevant knowledge and specific facts about any benefits, 
costs, or other impacts of this proposal on the regulated community, 
workers, and other relevant stakeholders. Lastly, the Department 
solicits comment on any other potential consequences of not delaying 
the effective date of these portions of the 2020 Tip final rule.
    In sum, this NPRM seeks comment on the Department's proposal to 
further delay the effective date for three portions of the 2020 Tip 
final rule, to December 31, 2021, in order to complete the rulemaking 
published elsewhere in this issue of the Federal Register, and to 
further review and consider one additional portion of the 2020 Tip 
final rule. This NPRM also seeks comment on the substance of these 
three portions of the 2020 Tip final rule, and in particular, its 
amendment of the Department's dual jobs regulation to address the 
application of the FLSA's tip credit to tipped employees who perform 
both tipped and non-tipped duties. The remainder of the 2020 Tip final 
rule will become effective upon the expiration of the first effective 
date extension, which extended the effective date of the 2020 Tip final 
rule through April 30, 2021.

IV. Executive Order 12866, Regulatory Planning and Review; and 
Executive Order 13563, Improved Regulation and Regulatory Review

A. Introduction

    Under Executive Order 12866, OMB's Office of Information and 
Regulatory Affairs (OIRA) determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
Executive Order and OMB review.\17\ Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as a regulatory 
action that is likely to

[[Page 15816]]

result in a rule that may: (1) Have an annual effect on the economy of 
$100 million or more, or adversely affect in a material way a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as economically significant); (2) create serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impact of 
entitlements, grants, user fees or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order. OIRA has determined 
that this proposed delay is not economically significant under section 
3(f) of Executive Order 12866.
---------------------------------------------------------------------------

    \17\ See 58 FR 51735, 51741 (Oct. 4, 1993).
---------------------------------------------------------------------------

    Executive Order 13563 directs agencies to, among other things, 
propose or adopt a regulation only upon a reasoned determination that 
its benefits justify its costs; that it is tailored to impose the least 
burden on society, consistent with obtaining the regulatory objectives; 
and that, in choosing among alternative regulatory approaches, the 
agency has selected those approaches that maximize net benefits. 
Executive Order 13563 recognizes that some costs and benefits are 
difficult to quantify and provides that, when appropriate and permitted 
by law, agencies may consider and discuss qualitatively values that are 
difficult or impossible to quantify, including equity, human dignity, 
fairness, and distributive impacts. The analysis below outlines the 
impacts that the Department anticipates may result from this proposed 
delay and was prepared pursuant to the above-mentioned executive 
orders.
    In this NPRM, the Department proposes to further extend the 
effective date of three portions of the 2020 Tip final rule in order to 
complete a separate rulemaking, published elsewhere in this issue of 
the Federal Register. This delay will provide the Department additional 
time to consider whether to withdraw and repropose the portion of the 
2020 Tip final rule addressing the application of the FLSA's tip credit 
provision to tipped employees who perform both tipped and non-tipped 
duties. The remainder of the 2020 Tip final rule, including portions 
addressing the keeping of tips and tip pooling,\18\ recordkeeping,\19\ 
and other minor changes \20\ will become effective upon the expiration 
of the first effective date extension, which extended the effective 
date of the 2020 Tip final rule to April 30, 2021. See 86 FR 11632.
---------------------------------------------------------------------------

    \18\ 29 CFR 10.28(c), (e)-(f); 531.50 through 531.52, 531.54.
    \19\ 29 CFR 516.28(b).
    \20\ 29 CFR 531.50, 531.51, 531.52, 531.55, 531.56(a), 
531.56(c)-(d), 531.59, and 531.60.
---------------------------------------------------------------------------

    In March 2018, Congress amended section 3(m) and sections 16(b), 
(c), and (e) of the FLSA to prohibit employers from keeping their 
employees' tips, to permit recovery of tips that an employer unlawfully 
keeps, and to suspend the operations of the portions of the 2011 final 
rule that restricted tip pooling when employers do not take a tip 
credit. In the economic analysis of the 2020 Tip final rule, the 
Department quantified transfer payments that could occur when employers 
institute non-traditional tip pools. Because these transfers have 
already been quantified, and the provision regarding tip pooling will 
go into effect on April 30, 2021, this proposed delay will not have any 
impact on these quantified transfers.
    The Department acknowledges that the industries that may be 
affected by the proposed delay are those that were acknowledged to have 
tipped workers in the 2020 Tip final rule. These industries are 
classified under the North American Industry Classification System 
(NAICS) as 713210 (Casinos), 721110 (Hotels and Motels), 722410 
(Drinking Places (Alcoholic Beverages)), 722511 (Full-service 
Restaurants), 722513 (Limited Service Restaurants), and 722515 (Snack 
and Nonalcoholic Beverage Bars). The 2017 data from the Statistics of 
US Businesses (SUSB) reports that these industries have 503,915 private 
firms and 661,198 private establishments.\21\
---------------------------------------------------------------------------

    \21\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual 
Data Tables by Establishment Industry.
---------------------------------------------------------------------------

    Part of the reason for proposing an additional delay of the 
effective date is for the Department to consider withdrawing or 
retaining the portion of the rule that amends the Department's dual 
jobs regulations to address the application of the FLSA tip credit to 
tipped employees who perform both tipped and non-tipped duties. In the 
2020 Tip final rule, the Department amended its dual jobs regulation to 
largely codify WHD's recent guidance regarding when an employer can 
take a tip credit for hours that a tipped employee performs non-tipped 
duties related to his or her occupation, which replaced the 20 percent 
limitation on related non-tipped duties with an updated related duties 
test. The Department provided a qualitative analysis of this change, 
and stated that the removal of a 20 percent cap on tasks that are not 
directly tied to receipt of a tip may result in tipped workers such as 
wait staff and bartenders performing more non-tipped related 
duties.\22\ The Department acknowledged that one outcome could be that 
employment of workers currently performing these duties may fall while 
tipped workers might lose tipped income by spending more of their time 
performing duties where they are not earning tips, while still 
receiving cash wages of less than the minimum wage. The Department also 
stated that eliminating the cost to scrutinize employees' time to 
demonstrate compliance with the 20 percent approach would result in 
costs savings to employers.
---------------------------------------------------------------------------

    \22\ Examples of such duties are cleaning and setting tables, 
toasting bread, making coffee, and occasionally washing dishes or 
glasses.
---------------------------------------------------------------------------

    As discussed above, the Pennsylvania litigants and individuals who 
submitted comments on the Department's Delay Rule raised significant 
concerns regarding the economic analysis of the portion of the 2020 Tip 
final rule that amends the dual jobs regulation. See, e.g., EPI; 
Results for America; Restaurant Opportunities Centers United. The 
proposed effective date delay will allow the Department to better 
consider this portion of the 2020 Tip final rule, and determine if 
there is a clearer way to address the application of the FLSA tip 
credit to tipped employees who perform both tipped and non-tipped 
duties. In the event that there would have been transfers or cost 
savings associated with the change, these effects will be delayed. The 
delay will also provide the Department more time to quantify any impact 
associated with a change to the dual jobs regulation.
    The Department does not believe that the proposed delay in the CMP 
portions of the 2020 Tip final rule will have an impact on costs or 
transfers, as these provisions only apply when an employer violates the 
FLSA.
    The Department welcomes any comments and data on possible costs or 
benefits associated with this proposed delay.

V. Regulatory Flexibility Act (RFA) Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act of 
1996, Public Law 104-121 (1996), requires Federal agencies engaged in 
rulemaking to consider the impact of their proposals on small entities, 
consider alternatives to minimize that impact, and solicit public 
comment on their analyses. The

[[Page 15817]]

RFA requires the assessment of the impact of a regulation on a wide 
range of small entities, including small businesses, not-for-profit 
organizations, and small governmental jurisdictions. Accordingly, the 
Department examined this proposed rule to determine whether it would 
have a significant economic impact on a substantial number of small 
entities. The most recent data on private sector entities at the time 
this NPRM was drafted are from the 2017 Statistics of U.S. Businesses 
(SUSB).\23\ The Department limited this analysis to a few industries 
that were acknowledged to have tipped workers in the 2020 Tip final 
rule. These industries are classified under the North American Industry 
Classification System (NAICS) as 713210 (Casinos), 721110 (Hotels and 
Motels), 722410 (Drinking Places (Alcoholic Beverages)), 722511 (Full-
service Restaurants), 722513 (Limited Service Restaurants), and 722515 
(Snack and Nonalcoholic Beverage Bars). The SUSB reports that these 
industries have 503,915 private firms and 661,198 private 
establishments. Of these, 501,322 firms and 554,088 establishments have 
fewer than 500 employees.
---------------------------------------------------------------------------

    \23\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual 
Data Tables by Establishment Industry.
---------------------------------------------------------------------------

    The Department has not quantified any costs, transfers, or benefits 
associated with this delay, and therefore certifies that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. The Department welcomes any comments and data 
on this Regulatory Flexibility Act Analysis, including the costs and 
benefits of this proposed rule on small entities.

VI. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (UMRA) \24\ requires 
agencies to prepare a written statement for rules with a Federal 
mandate that may result in increased expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $165 
million ($100 million in 1995 dollars adjusted for inflation) or more 
in at least one year.\25\ This statement must: (1) Identify the 
authorizing legislation; (2) present the estimated costs and benefits 
of the rule and, to the extent that such estimates are feasible and 
relevant, its estimated effects on the national economy; (3) summarize 
and evaluate state, local, and tribal government input; and (4) 
identify reasonable alternatives and select, or explain the non-
selection, of the least costly, most cost-effective, or least 
burdensome alternative. This proposed rule is not expected to result in 
increased expenditures by the private sector or by state, local, and 
tribal governments of $165 million or more in any one year.
---------------------------------------------------------------------------

    \24\ See 2 U.S.C. 1501.
    \25\ Calculated using growth in the Gross Domestic Product 
deflator from 1995 to 2019. Bureau of Economic Analysis. Table 
1.1.9. Implicit Price Deflators for Gross Domestic Product.
---------------------------------------------------------------------------

VII. Executive Order 13132, Federalism

    The Department has (1) reviewed this proposed rescission in 
accordance with Executive Order 13132 regarding federalism and (2) 
determined that it does not have federalism implications. The proposed 
rule would not have substantial direct effects on the States, on the 
relationship between the National Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.

VIII. Executive Order 13175, Indian Tribal Governments

    This proposed rule would not have substantial direct effects on one 
or more Indian tribes, on the relationship between the Federal 
Government and Indian tribes, or on the distribution of power and 
responsibilities between the Federal Government and Indian tribes.

    Signed this 22nd day of March, 2021.
Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-06244 Filed 3-23-21; 4:15 pm]
BILLING CODE 4510-27-P