Tip Regulations Under the Fair Labor Standards Act (FLSA); Partial Withdrawal, 52973-52987 [2021-19795]
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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations
(5) Treatment of net operating losses
incurred in post-2017 taxable years that
are carried back to pre-2018 taxable
years—(i) In general. Except as provided
in paragraph (j)(5)(ii) of this section, a
net operating loss incurred in a taxable
year beginning after December 31, 2017
(a ‘‘post-2017 taxable year’’), which is
carried back, pursuant to section 172, to
a taxable year beginning before January
1, 2018 (a ‘‘pre-2018 carryback year’’),
will be carried back under the rules of
§ 1.904(g)–3(b). For purposes of
applying the rules of § 1.904(g)–3(b),
income in a pre-2018 separate category
in the taxable year to which the net
operating loss is carried back is treated
as if it included only income that would
be assigned to the post-2017 general
category. Therefore, any separate
limitation loss created by reason of a
passive category component of a net
operating loss from a post-2017 taxable
year that is carried back to offset general
category income in a pre-2018 carryback
year will be recaptured in post-2017
taxable years as general category
income, and not as a combination of
general, foreign branch, and section
951A category income.
(ii) Foreign source losses in the post2017 separate categories for foreign
branch category income and section
951A category income. Net operating
losses attributable to a foreign source
loss in the post-2017 separate categories
for foreign branch category income and
section 951A category income are
treated as first offsetting general
category income in a pre-2018 carryback
year to the extent available to be offset
by the net operating loss carryback. If
the sum of foreign source losses in the
taxpayer’s separate categories for foreign
branch category income and section
951A category income in the year the
net operating loss is incurred exceeds
the amount of general category income
that is available to be offset in the
carryback year, then the amount of
foreign source loss in each of the foreign
branch and section 951A categories that
is treated as offsetting general category
income under this paragraph (j)(5)(ii), is
determined on a proportionate basis.
General category income in the pre-2018
carryback year is first offset by foreign
source loss in the taxpayer’s post-2017
separate category for general category
income in the year the net operating loss
is incurred before any foreign source
loss in that year in the separate
categories for foreign branch category
income and section 951A category
income is carried back to reduce general
category income. To the extent a foreign
source loss in a post-2017 separate
category for foreign branch category
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income or section 951A category income
offsets general category income in a pre2018 taxable year under the rules of this
paragraph (j)(5)(ii), no separate
limitation loss account is created.
*
*
*
*
*
(7) Applicability date. Except as
otherwise provided in this paragraph
(j)(7), this paragraph (j) applies to
taxable years ending on or after
December 31, 2017. Paragraph (j)(5) of
this section applies to carrybacks of net
operating losses incurred in taxable
years beginning on or after January 1,
2018.
■ Par. 6. Section 1.951A–3 is amended
by adding a sentence at the end of
paragraph (e)(2) to read as follows:
§ 1.951A–3 Qualified business asset
investment.
*
*
*
*
*
(e) * * *
(2) * * * For purposes of applying
section 951A(d)(3) and this paragraph
(e), the technical amendment to section
168(g) (to provide a recovery period of
20 years for qualified improvement
property for purposes of the alternative
depreciation system) enacted in section
2307(a) of the Coronavirus Aid, Relief,
and Economic Security Act, Public Law
116–136 (2020) is treated as enacted on
December 22, 2017.
*
*
*
*
*
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
Approved: September 10, 2021.
Mark J. Mazur,
Acting Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2021–20615 Filed 9–21–21; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 531, 578, 579 and 580
RIN 1235–AA21
Tip Regulations Under the Fair Labor
Standards Act (FLSA); Partial
Withdrawal
Department of Labor, Wage and
Hour Division.
ACTION: Final rule.
AGENCY:
In December 2020, the
Department promulgated a final rule
(2020 Tip final rule) to amend its tip
regulations to address the Consolidated
Appropriations Act of 2018 (CAA)
amendments to section 3(m) of the Fair
SUMMARY:
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52973
Labor Standards Act (FLSA), among
other things. In this final rule, the
Department withdraws two portions of
the 2020 Tip final rule that have not yet
gone into effect addressing civil money
penalties (CMPs) and finalizes proposed
changes to those portions of the 2020
Tip final rule. The Department also
modifies regulatory provisions adopted
by the 2020 Tip final rule addressing
managers and supervisors.
DATES: As of November 23, 2021 Wage
& Hour is withdrawing the revisions to
§§ 578.3, 578.4, 579.1, 579.2, 580.2,
580.3, 580.12, and 580.18, published
December 30, 2020, at 85 FR 86756,
delayed until April 30, 2021, on
February 26, 2021, at 86 FR 11632, and
delayed until December 31, 2021, on
April 29, 2021 at 86 FR 22597.
This final rule is effective November
23, 2021.
FOR FURTHER INFORMATION CONTACT:
Amy DeBisschop, Director of the
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 final rule 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 (877) 889–
5627 to obtain information or request
materials in alternative formats.
Questions of interpretation or
enforcement of the agency’s existing
regulations may be directed to the
nearest WHD district office. Locate the
nearest office by calling the WHD’s tollfree help line at (866) 4US–WAGE ((866)
487–9243) between 8 a.m. and 5 p.m. in
your local time zone, or log onto WHD’s
website at https://www.dol.gov//whd/
contact/local-offices for a nationwide
listing of WHD district and area offices.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
Section 3(m) of the FLSA allows an
employer that satisfies certain
requirements to count a limited amount
of the tips received by its ‘‘tipped
employees’’ as a credit toward the
employer’s Federal minimum wage
obligation (known as a ‘‘tip credit’’). See
29 U.S.C. 203(m)(2)(A). In 2018,
Congress passed the Consolidated
Appropriations Act (CAA), Public Law
115–141, Div. S., Tit. XII, sec. 1201, 132
Stat. 348, 1148–49 (2018), which
amended section 3(m). The CAA added
a new statutory provision at section
3(m)(2)(B) which expressly prohibits
employers from keeping employees’ tips
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‘‘for any purposes’’ regardless of
whether the employer claims a tip
credit. This includes prohibiting
‘‘managers or supervisors’’ from keeping
employees’ tips. The CAA also amended
section 16(e)(2) of the FLSA to give the
Department discretion to impose civil
money penalties (CMPs) of up to $1,100
when employers unlawfully keep
employees’ tips. On December 30, 2020,
the Department issued a final rule (2020
Tip final rule) that updated the
Department’s tip regulations to
implement the CAA amendments. The
2020 Tip final rule also made other
changes to the Department’s regulations,
including revising the definition of
‘‘willful’’ in the Department’s CMP
regulations.
On March 25, 2021, the Department
published a notice of proposed
rulemaking (CMP NPRM) in the Federal
Register, 86 FR 15817, proposing to
withdraw and repropose two portions of
the 2020 Tip final rule and seeking
comment on whether to revise another
portion of the 2020 Tip final rule. The
Department proposed to withdraw and
repropose: (1) The portion of the 2020
Tip final rule incorporating the CAA’s
new provisions authorizing the
assessment of CMPs for violations of
section 3(m)(2)(B) of the Act; and (2) the
portion of its CMP regulations
addressing willful violations. The
Department subsequently finalized a
delay of the effective date of these
portions of the rule until December 31,
2021 to allow the Department to review
these and one other portion of the 2020
Tips final rule. In the CMP NPRM, the
Department also sought comment on
whether to revise certain aspects of the
2020 Tip final rule that apply to
‘‘managers or supervisors’’ who perform
tipped work and went into effect on
April 30, 2021. Section 578.1, as revised
by the 2020 Tip final rule, at 85 FR
86756, and the effective date of which
the Department also delayed, will go
into effect on December 31, 2021.
After considering the comments, the
Department has decided to adopt the
NPRM’s proposed changes to the
portion of the 2020 Tip final rule
incorporating the CAA’s new provisions
authorizing the assessment of CMPs for
violations of section 3(m)(2)(B) of the
Act, and the portion of its CMP
regulations addressing willful
violations. The Department has also
decided to modify portions of the 2020
Tip final rule addressing managers and
supervisors who perform tipped work.
The final rule modifies the CMP
provisions for violations of 3(m)(2)(B)
included in the 2020 Tip final rule by
withdrawing regulatory language in 29
CFR 578.3, 578.4, 579.1, 580.2, 580.3,
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and 580.12 that limited assessment of
CMPs for section 3(m)(2)(B) violations
to only repeated or willful violations.1
This modification upholds the
Department’s statutorily-granted
discretion with regard to section
3(m)(2)(B) CMPs and aligns the
Department’s regulations with the
statutory text. At the same time, the
final rule adopts the same rules,
procedures, and amount considerations
for CMPs for violation of 3(m)(2)(B) as
the Department applies for other FLSA
CMPs, and therefore preserves
consistent enforcement procedures that
are familiar to the Department and the
public.
The final rule also modifies the
amendments made by the 2020 Tip final
rule to the portion of the Department’s
CMP regulations at 29 CFR 578.3(c)(2)
and (3) and 29 CFR 579.2 addressing
when a violation of section 6 or 7 of the
FLSA is willful. Specifically, the rule
modifies these regulations by clarifying
that multiple circumstances, not just the
circumstance identified in §§ 578.3(c)(2)
and (3), can be sufficient to show that
a violation is willful because it is
knowing or is done with reckless
disregard for whether the conduct
violates the FLSA and by reinserting
language addressing the meaning of
reckless disregard. These revisions
further align the Department’s
regulations with applicable precedent
and how the Department litigates
willfulness and provide improved
guidance on circumstances where
employers’ conduct may be willful.
In addition, the Department has
decided to modify § 531.54(c)(3) and (d),
which currently provide that an
employer may not ‘‘include’’ managers
and supervisors in tip pools or sharing
arrangements. The final rule clarifies
that while managers and supervisors
may not receive tips from mandatory tip
pools or tip sharing arrangements,
managers or supervisors are not
prohibited from contributing tips to
eligible employees in mandatory tip
pools or sharing arrangements. The
Department is also modifying language
in § 531.52, as amended by the 2020 Tip
final rule, which currently explains that
it is not a violation of section 3(m)(2)(B)
when a manager or supervisor keeps
tips that the manager or supervisor
receives directly from customers based
on the service that the manager or
supervisor directly provides. The
modified language clarifies that a
manager or supervisor may keep tips
only when the tip is based on a service
1 The Department also finalizes as proposed the
revision to § 580.18(b)(3), which corrected a
technical error.
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the manager or supervisor directly and
‘‘solely’’ provides. Thus, under the
Department’s tip regulations as revised
by this final rule, when a manager or
supervisor directly receives tips for
services the manager or supervisor
directly and solely provides, an
employer may allow the manager or
supervisor to keep those tips, and may
also require the manager or supervisor
to share some portion of the tips with
other eligible employees. The final
regulations reflect the reality that some
managers or supervisors perform work
for which they receive tips, while
ensuring that managers and supervisors
do not keep any portion of other
employees’ tips in violation of section
3(m)(2)(B).
II. Background
A. Tips and Tip Pooling
Section 6(a) of the FLSA generally
requires covered employers to pay
employees at least the federal minimum
wage, which is currently $7.25 per hour.
29 U.S.C. 206(a). Section 3(m)(2)(A)
allows an employer to satisfy a portion
of its minimum wage obligation to any
‘‘tipped employee’’ by taking a partial
credit toward the minimum wage based
on tips the employee receives. 29 U.S.C.
203(m)(2)(A). An employer may take a
tip credit only if, among other
requirements, the tipped employee
retains all the tips he or she receives. Id.
An employer taking a tip credit is,
however, allowed to require tipped
employees to participate in a
mandatory, ‘‘traditional’’ tip pool 2 in
which tipped employees share tips with
other employees who ‘‘customarily and
regularly receive tips.’’ 29 U.S.C.
203(m)(2)(A). The employee must retain
sufficient tips to make up the difference
between the cash wage paid and the
minimum wage. Id.
In 2011, the Department issued
regulations interpreting what is now
section 3(m)(2)(A) to prohibit all
covered employers—regardless of
whether the employer takes a tip
credit—from using employees’ tips
other than as a credit against its
minimum wage obligation to the
employee, or in furtherance of valid
traditional tip pools. See 76 FR 18832,
29 CFR 531.52 (2011); 29 CFR 531.54
2 The Department uses the term ‘‘tip pool’’ to
describe any scenario in which a tip provided by
a customer is shared, in whole or in part, between
employees. The Department recognizes, however,
that in some workplaces or under state laws, the
term ‘‘tip pooling’’ may refer to a narrower set of
practices, and that employers and workers may use
other terms—for example ‘‘tip out,’’ ‘‘tip sharing,’’
or ‘‘tip jar’’—to describe certain practices regarding
transferring tips between employees. See 84 FR
53961.
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(2011); 29 CFR 531.59 (2011). These
regulations were consistent with the
Department’s longstanding position on
tipped employees, and the Department
stated that, although the statutory
language did not expressly address the
use of an employee’s tips when an
employer does not take a tip credit and
pays a direct cash wage equal to or
greater than the minimum wage, the
regulations filled a gap in the statutory
scheme.3 See 76 FR 18841–42.
On March 23, 2018, Congress enacted
the CAA, which amended section 3(m)
of the FLSA to expressly prohibit
employers from keeping employees’ tips
‘‘for any purposes,’’ ‘‘regardless of
whether or not the employer takes a tip
credit.’’ See Public Law 115–141, Div.
S., Tit. XII, sec. 1201; 29 U.S.C.
203(m)(2)(B). Section 3(m)(2)(B) also
prohibits employers from ‘‘allowing
managers or supervisors to keep any
portion of employees’ tips.’’ Id. In
addition, the CAA suspended the
portions of the Department’s 2011
regulations that restricted tip pooling
when employers do not take a tip credit,
by providing that those regulations
‘‘shall have no further force or effect
until any future action taken by [the
Department of Labor].’’ See Public Law
115–141, Div. S, Tit. XII, sec. 1201(c).
The CAA also amended the penalty
provisions in section 16 of the FLSA to
incorporate the new statutory
prohibition on employers keeping tips.
Among other things, the CAA amended
section 16(e)(2) to authorize the
assessment of a civil money penalty
(CMP) for violations of section
3(m)(2)(B): ‘‘Any person who violates
section 3(m)(2)(B) shall be subject to a
civil penalty not to exceed $1,100 4 for
each such violation, as the Secretary
determines appropriate, in addition to
being liable to the employee or
employees affected for all tips
unlawfully kept, and an additional
equal amount as liquidated damages[.]’’
Shortly after Congress passed the
CAA, the Department issued a Field
3 In December 2017, the Department published an
NPRM proposing to rescind the portions of its 2011
tip regulations that imposed restrictions on
employers that do not take a tip credit against their
minimum wage obligations, in part because of
litigation involving these regulatory provisions. See
82 FR 57395. The Department withdrew this NPRM
in October 2019 after the CAA amendments to the
FLSA directly impacted the subject of the
rulemaking. See 84 FR 53960. For a more detailed
history of this rulemaking, see 86 FR 15817.
4 The Federal Civil Penalties Inflation Adjustment
Act of 1990 (Pub. L. 101–410), as amended by the
Debt Collection Improvement Act of 1996 (Pub. L.
104–134, sec. 31001(s)) and the Federal Civil
Penalties Inflation Adjustment Act Improvements
Act of 2015 (Pub. L. 114–74, sec. 701), requires that
inflationary adjustments be made annually in these
civil money penalties according to a specified
formula.
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Assistance Bulletin (FAB) concerning
the Wage and Hour Division’s (WHD)
enforcement of the amendments to
section 3(m). See FAB No. 2018–3 (Apr.
6, 2018). The Department explained that
the CAA had effectively suspended the
regulatory restrictions that prohibited an
employer that does not take a tip credit
from requiring tip pooling, and that
‘‘given these developments, employers
who pay the full FLSA minimum wage
are no longer prohibited from allowing
employees who are not customarily and
regularly tipped—such as cooks and
dishwashers—to participate in tip
pools.’’ Id. As a result, the Department
explained, such employers may
implement mandatory, ‘‘nontraditional’’
tip pools in which employees who do
not customarily and regularly receive
tips, such as cooks and dishwashers,
may participate. The FAB also
explained that the amendments prohibit
employers, including managers or
supervisors, from keeping tips received
by their employees, regardless of
whether the employer takes a tip credit
under 29 U.S.C. 203(m). In addition, the
FAB provided that, as ‘‘an enforcement
policy, WHD will use the duties test at
29 CFR 541.100(a)(2)–(4) to determine
whether an employee is a manager or
supervisor,’’ and thus cannot ‘‘keep’’
another employee’s tips under section
3(m)(2)(B). Id. Finally, the FAB stated
that the Department will follow its
‘‘normal procedures’’ for FLSA CMPs
when enforcing the new tips CMP, and
will assess tips CMPs only when it
determines that a violation of section
3(m)(2)(B) is repeated or willful. Id.
B. ‘‘Willful’’ Requirement for CMPs for
FLSA Minimum Wage and Overtime
Violations
Section 16(e)(2) of the FLSA provides
for the assessment of CMPs for
violations of the minimum wage
(section 6), overtime pay (section 7),
and, with the enactment of the CAA, tip
provisions (section 3(m)(2)(B)) of the
FLSA. Section 16(e)(2) authorizes the
Department to assess CMPs for
minimum wage and overtime pay
violations only when the violations are
‘‘repeated[ ] or willful[ ].’’ See 29 U.S.C.
216(e)(2). The Department’s regulations
at 29 CFR 578.3(c) and 579.2 address
what violations are willful under the
Act. These regulations are intended to
implement the Supreme Court’s
decision in McLaughlin v. Richland
Shoe Co., 486 U.S. 128, 133 (1988), that
a willful violation occurs when the
employer knew or showed reckless
disregard for whether its conduct was
prohibited by the FLSA. For many
years, these regulations identified two
specific circumstances in which a
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violation ‘‘shall be deemed’’ willful. 29
CFR 578.3(c)(2) and (3), 579.2.
Specifically, the Department’s
regulations at sections 578.3(c)(2) and
579.2 provided that ‘‘an employer’s
conduct shall be deemed knowing,’’
among other situations, if the employer
received prior advice from WHD that its
conduct was unlawful. Additionally,
sections 578.3(c)(3) and 579.2 stated
that ‘‘an employer’s conduct shall be
deemed to be in reckless disregard of
the requirements of the Act,’’ among
other situations, if the employer failed
to inquire further into the lawfulness of
its conduct when it should have. The
Department’s regulations further
provided that WHD shall take into
account ‘‘[a]ll of the facts and
circumstances surrounding the
violation’’ when determining whether a
violation is willful. 29 CFR 578.3(c)(1),
579.2.
In Baystate Alt. Staffing, Inc. v.
Herman, 163 F.3d 668, 680–81 (1st Cir.
1998), the U.S. Court of Appeals for the
First Circuit identified an ‘‘incongruity’’
between the regulatory provisions
deeming two specific circumstances to
be willful, and ‘‘the Richland Shoe
standard on which the regulation is
based’’ which takes into account all of
the facts and circumstances. The court
urged the Department ‘‘to reconsider’’
§ 578.3(c)(2) and (3) ‘‘to ensure that they
comport with’’ Richland Shoe. Id. at 681
n.16. In 2016, the U.S. Court of Appeals
for the D.C. Circuit also addressed these
regulations and noted that the
Department had not altered them
despite being urged to do so by the court
in Baystate. See Rhea Lana, Inc. v. Dep’t
of Labor, 824 F.3d 1023, 1030–31 (D.C.
Cir. 2016).
C. 2020 Tip Final Rule
On October 8, 2019, the Department
issued an NPRM proposing to revise the
Department’s tip regulations to
incorporate the CAA amendments,
among other things. See 84 FR 53956.
Because the Department was revising its
CMP regulations to incorporate the new
CMP provision for section 3(m)(2)(B)
violations, the Department also
proposed to address the ‘‘willful’’
provisions of the Department’s existing
FLSA CMP regulations in light of the
decisions of the courts of appeals in
Baystate and Rhea Lana. See id. at
53964. The Department published the
Tip final rule on December 30, 2020.
See 85 FR 86756. The 2020 Tip final
rule was initially scheduled to go into
effect on March 1, 2021; however, the
Department delayed the 2020 Tip final
rule’s effective date to April 30, 2021, in
order to give the Department additional
time to consider issues of law, policy,
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and fact that warranted additional
review. See 86 FR 11632. The
Department subsequently further
delayed the effective date, until
December 31, 2021, of three portions of
the 2020 Tip final rule, including the
two portions addressing CMPs. See 86
FR 22597.5
Most of the provisions of the 2020 Tip
final rule went into effect on April 30,
2021. The 2020 Tip final rule amended
the Department’s tip pooling regulations
at 29 CFR 531.52, 531.54, and 531.59 to
implement newly added section
3(m)(2)(B), which prohibits employers—
regardless of whether they take a tip
credit—from keeping employees’ tips
for any purposes, and prohibits
managers and supervisors from keeping
employees’ tips. The 2020 Tip final rule
explained that section 3(m)(2)(B)
proscribes all manner of keeping tips,
and is so broad as to prohibit an
employer from exerting control over
employees’ tips other than to (1)
distribute tips to the employee who
received them, (2) require employees to
share tips with other eligible employees,
or, (3) where the employer facilitates tip
pooling by collecting and redistributing
employees’ tips, to distribute tips to
employees in a tip pool. The 2020 Tip
final rule further provided that any
employer that collects tips to facilitate
a mandatory tip pool must fully
redistribute the tips, no less often than
when it pays wages, to avoid
‘‘keep[ing]’’ the tips in violation of
section 3(m)(2)(B).
The 2020 Tip final rule also addressed
who is a manager or supervisor, and
therefore may not keep employees’ tips
under section 3(m)(2)(B). The rule
defined a ‘‘manager or supervisor,’’ as
an individual who meets the duties test
at § 541.100(a)(2)–(4) or § 541.101. As a
result, a manager or supervisor for
purposes of section 3(m)(2)(B) is any
employee (1) whose primary duty is
managing the enterprise or a
customarily recognized department or
subdivision of the enterprise; (2) who
customarily and regularly directs the
work of at least two or more other fulltime employees or their equivalent; and
(3) who has the authority to hire or fire
other employees, or whose suggestions
and recommendations as to the hiring or
firing are given particular weight. The
definition also includes as managers or
supervisors any individuals who own at
least a bona fide 20 percent equity
5 The third portion of the 2020 Tip final rule,
delayed until December 31, 2021, addresses when
an employee is performing both tipped and nontipped work (dual jobs) under the FLSA. The
Department has issued a separate notice of
proposed rulemaking on this issue. See 86 FR
32818.
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interest in the enterprise in which they
are employed and who are actively
engaged in its management.
The final rule revised § 531.54 to state
that FLSA section 3(m)(2)(B) ‘‘prohibits
employers from requiring employees to
share tips with managers and
supervisors,’’ and to state that
employers ‘‘may not include supervisors
and managers’’ in a tip pool. The rule
at § 531.52(b) specified, however, that
such a manager or supervisor may keep
tips that he or she receives directly from
customers based on the service that he
or she directly provides.
Consistent with the CAA
amendments, the 2020 Tip final rule
also removed the provisions of the
Department’s 2011 regulations that
imposed restrictions on employers that
do not take a tip credit. In addition, the
2020 Tip final rule amended § 531.54 to
explicitly state that an employer that
pays tipped employees the full
minimum wage and does not take a tip
credit may require tipped employees to
share tips with dishwashers, cooks, or
other employees who are not employed
in an occupation in which employees
customarily and regularly receive tips,
as long as that arrangement does not
include any employer, supervisor, or
manager. The 2020 Tip final rule also
incorporated a new recordkeeping
requirement for employers that
administer such ‘‘nontraditional’’ tip
pools.
These portions of the 2020 Tip final
rule—addressing the CAA’s changes to
tips and tip pooling in section 3(m) and
related recordkeeping requirements,
including the provisions on managers
and supervisors—went into effect on
April 30, 2021. 86 FR 22597.
The 2020 Tip final rule also made
changes to the Department’s CMP
regulations at 29 CFR parts 578, 579,
and 580. The Department delayed the
effective date of these changes, and the
revised provisions have not gone into
effect. See 86 FR 22597. The 2020 Tip
final rule updated the Department’s
FLSA CMP regulations to add references
to the new CMP for violations of
3(m)(2)(B). The 2020 Tip final rule also
specified that the Department may
assess CMPs only for ‘‘repeated or
willful’’ violations of section 3(m)(2)(B),
although the statute does not include
this limitation. The 2020 Tip final rule
also amended the Department’s CMP
regulations at §§ 578.3(c)(2) and 579.2
regarding when a violation is knowing,
and thus willful, to address the
appellate court decisions that have, for
example, ‘‘urge[d]’’ the Department to
reconsider those regulations to ensure
their consistency with the Supreme
Court’s interpretation of the meaning of
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‘‘willful’’ in the FLSA. See 85 FR 86757.
In addition, the 2020 Tip final rule
deleted § 578.3(c)(3) and the
corresponding language in § 579.2
regarding when a violation is in reckless
disregard of the FLSA. See id. at 86774.
D. Legal Challenge to the 2020 Tip Final
Rule
On January 19, 2021, before the 2020
Tip final rule went into effect, Attorneys
General from eight states and the
District of Columbia (‘‘AG Coalition’’)
filed a complaint in the United States
District Court for the Eastern District of
Pennsylvania, in which they argued that
the Department violated the
Administrative Procedure Act in
promulgating the 2020 Tip final rule.6
The complaint argues that the 2020 Tip
final rule made several changes to the
Department’s regulations that are
contrary to the FLSA and the CAA,
including the 2020 Tip final rule’s
imposition of a willfulness requirement
for CMPs for section 3(m)(2)(B)
violations, and the rule’s revisions to its
CMP regulations on willful violations. It
further argues that the 2020 Tip final
rule’s revisions to the Department’s
CMP regulations on willful violations
contradict the longstanding Supreme
Court precedent on willfulness. The
complaint also asserts that the 2020 Tip
final rule’s provisions on managers and
supervisors improperly prevent certain
lower-paid managers and supervisors
from receiving tips.
E. The Department’s Proposal
On March 25, 2021, the Department
issued an NPRM proposing to withdraw
and repropose the two portions of the
2020 Tip final rule addressing CMPs
and seeking comment on whether to
revise another portion of the 2020 Tip
final rule. See 86 FR 15817. Because of
its concerns that the 2020 Tip final rule
inappropriately circumscribed the
Department’s discretion to assess CMPs
for violations of 3(m)(2)(B), the
Department proposed to withdraw that
portion of the rule and adopt regulatory
language so that the Department is not
limited in its assessment of CMPs to
only repeated and willful violations of
section 3(m)(2)(B). At the same time, the
Department reproposed language that
would, similar to the language in the
2020 Tip final rule, adopt the same
rules, procedures, and amount
considerations for CMPs for violation of
3(m)(2)(B), as the Department applies
for other FLSA CMPs. The Department
also proposed to withdraw the portion
of its CMP regulations addressing
6 See Compl., Commonwealth of Pennsylvania et
al. v. Scalia et al., No. 2:21–cv–00258 (E.D. Pa.).
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willful violations, and reproposed those
portions with modifications to further
align the regulations with Supreme
Court and appellate court decisions and
provide improved guidance on
circumstances where employers’
conduct may be willful. Finally, the
Department requested comment on
whether to revise the 2020 Tip final
rule’s language regarding managers or
supervisors, which went into effect on
April 30, 2021, to better address the fact
that some managers and supervisors
perform tipped work.7
The 60-day comment period for the
NPRM ended on May 24, 2021. The
Department received 33 unique
comments from various constituencies
including small business owners,
worker advocacy groups, employer and
industry associations, non-profit
organizations, law firms, attorneys
general, and other interested members
of the public. All timely received
comments may be viewed on the
regulations.gov website, docket ID
WHD–2019–0004. The Department has
considered the timely submitted
comments addressing the proposed
changes and discusses significant
comments below.
The Department also received a small
number of comments on issues that are
beyond the scope of this rulemaking.
These include, for example, comments
suggesting that the amount of the federal
minimum wage should be increased,
and comments requesting that the
Department revise the regulatory
definition of ‘‘managers or supervisors’’
that cannot keep employees’ tips to
include a salary component. The
Department does not address those
issues in this final rule.
III. Final Regulatory Revisions
A. Civil Money Penalties for Violations
of Section 3(m)(2)(B)
The CAA amended FLSA section
16(e), which establishes CMPs for
certain violations of the Act, to add new
penalty language for employers who
violate section 3(m)(2)(B) by ‘‘keep[ing]’’
employees’ tips. 29 U.S.C. 216(e)(2).
This provision states that: ‘‘Any person
who violates section 3(m)(2)(B) shall be
subject to a civil penalty not to exceed
$1,100 8 for each such violation, as the
7 The Department also asked questions about how
it might improve the recordkeeping requirements in
the 2020 Tip final rule in a future rulemaking.
8 The CMP amount in the 2020 Tip final rule was
adjusted to $1,162 for inflation, as required by the
Federal Civil Penalties Inflation Adjustment Act of
1990 (Pub. L. 101–410), as amended by the Debt
Collection Improvement Act of 1996 (Pub. L. 104–
134, sec. 31001(s)) and the Federal Civil Penalties
Inflation Adjustment Act Improvements Act of 2015
(Pub. L. 114–74, sec. 701).
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Secretary determines appropriate, in
addition to being liable to the employee
or employees affected for all tips
unlawfully kept . . . .’’ Unlike the
statutory provisions in section 16(e)(2)
setting forth CMPs for minimum wage
and overtime violations, the statute does
not limit the assessment of CMPs to
repeated or willful violations of section
3(m)(2)(B). Instead, the penalty language
subjects persons who violate 3(m)(2)(B)
to civil penalties ‘‘as the Secretary
determines appropriate.’’
Although the 2020 Tip final rule
acknowledged the Department’s
discretion to assess CMPs for any
violation of section 3(m)(2)(B), the 2020
Tip final rule limited this discretion by
restricting CMPs to only repeated or
willful violations of section 3(m)(2)(B).
In the CMP NPRM, the Department
proposed to withdraw the 2020 Tip final
rule CMP provisions for violations of
3(m)(2)(B) and adopt regulatory
language in 29 CFR 578.3, 578.4, 579.1,
580.2, 580.3, and 580.12 that retains the
full discretion granted to the Secretary
to assess CMPs for any violation of
section 3(m)(2)(B). The Department also
proposed to adopt the same rules,
procedures, and amount considerations
for CMP assessments applicable to
violation of section 3(m)(2)(B) as the
Department applies to other FLSA CMP
assessments.9 These procedures are
found in §§ 578.3, 578.4, 579.1, 580.2,
580.3, and 580.12.
Many commenters, such as the
National Partnership for Women &
Families and the Employee Rights
Center, supported the proposal, stating
that it ‘‘aligns with the plain language
of the FLSA and Congress’s legislative
intent.’’ Several commenters that
supported the proposal noted that it
preserved the full discretion the statute
grants to the Department to assess CMPs
for violations of section 3(m)(2)(B). The
AG Coalition noted that by including
regulatory language in the proposal that
differentiates between violations of
section 3(m)(2)(B) and repeated or
willful minimum wage and overtime
violations, the ‘‘Department retains its
discretion to levy CMPs against
employers that violate the FLSA, as
intended by Congress and limited only
by the statute.’’ Texas RioGrande Legal
Aid stated that the discretion permitted
by the proposal would mean that ‘‘DOL
investigators will have more tools at
9 In the 2020 Tip final rule, the Department
similarly adopted the same rules, procedures, and
considerations applicable to CMP assessments for
violations of section 3(m)(2)(B) as the Department
applies to other FLSA CMP assessments. As
explained above, the Department proposed to
withdraw those provisions, which have not gone
into effect.
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52977
their disposal to help workers’’ and
argued that the Department should not
‘‘hamper its own investigations’’ by
restricting such discretion.
Other commenters opposed the
proposal. The National Restaurant
Association (NRA) stated that the
Department should instead retain the
2020 Tip final rule requirement that the
Department would only assess CMPs for
repeated and willful violations of
section 3(m)(2)(B), noting that the
Department had previously explained
that this limitation was ‘‘consistent with
how the Department enforces other
FLSA wage violations.’’ The NRA also
argued that making such a
differentiation between violations of
sections 6 and 7 and violations of
section 3(m)(2)(B) will ‘‘destroy the
public trust.’’ The Department disagrees.
The statute itself distinguishes between
violations of sections 6 and 7 and
violations of section 3(m)(2)(B) with
regard to the assessment of CMPs. Thus,
removing the 2020 Tip final rule’s
repeated or willful requirement for
section 3(m)(2)(B) CMPs is consistent
with the FLSA itself. Moreover, the
Department’s enforcement of different
sections of the FLSA currently varies
depending on whether the statutory text
limits CMPs to repeated or willful
violations or not. The child labor
provisions of the FLSA—like the
statutory text for violations of section
3(m)(2)(B)—do not limit CMPs to
repeated or willful violations. Compare
29 U.S.C. 216(e)(1)(A)(i) (‘‘Any person
who violates the provisions of sections
212 or 213(c) of this title, relating to
child labor . . . shall be subject to a
civil penalty . . . for each employee
who was the subject of such a
violation’’) with 29 U.S.C.
216(e)(1)(A)(ii) (CMPs for violations that
caused the death or serious injury of a
child employee ‘‘may be doubled where
the violation is a repeated or willful
violation’’). The Department’s final rule
will bring the assessment of section
3(m)(2)(B) CMPs into harmony with the
statutory text, as is currently the case
with the child labor CMP provisions.
Furthermore, this final rule adopts the
same rules, procedures, and amount
considerations for determining section
3(m)(2)(B) CMPs that the Department
uses to determine CMPs for other FLSA
wage violations. Therefore, the final rule
will preserve consistent enforcement
procedures familiar to the Department
and the public.
The National Federation of
Independent Businesses (NFIB) also
opposed the proposal. Recognizing that
the statute ‘‘vests wide discretion in the
Secretary of Labor,’’ NFIB asked the
Department to keep the ‘‘repeated or
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willful’’ requirement from the 2020 Tip
final rule for small businesses that
violate section 3(m)(2)(B). The
Department declines to adopt this
recommendation, because it would not
be consistent with its enforcement in
other areas to impose the requirement
that CMPs be assessed against small
businesses only when the violations
committed are repeated and willful.
However, NFIB also requested that the
Department preserve the requirement
that it consider the seriousness of the
violation and the size of the employer’s
business when assessing CMPs for
section 3(m)(2)(B). The Department’s
final rule does preserve that
requirement, because, as explained
above, it adopts the same longstanding
rules and procedures that the
Department applies for other FLSA
CMPs for the assessment of section
3(m)(2)(B) CMPs. This includes the
obligation, required by 29 U.S.C.
216(e)(3), to consider the size of the
employer’s business when determining
the amount of any civil money penalty.
After review of the comments, the
Department agrees that it was
inappropriate to limit the statutorilygranted discretion by regulation and
that instead the regulations should
reflect the statutory text. Therefore, the
Department finalizes the revisions to 29
CFR 578.3, 578.4, 579.1, 580.2, 580.3,
and 580.12 that eliminate the references
limiting CMP assessments for violations
of section 3(m)(2)(B) to repeated and
willful violations as proposed. The
Department also finalizes as proposed
the other revisions to §§ 578.3, 578.4,
579.1, 580.2, 580.3, and 580.12 which
amend those provisions to adopt the
same rules, procedures, and amount
considerations for tip CMP assessments
as the Department applies for other
FLSA CMP assessments, which will
promote the goals of consistency and
familiarity that the Department
emphasized in the 2020 Tip final rule.
The Department also finalizes as
proposed the revision to § 580.18(b)(3),
which eliminates the reference in that
regulation to willful violations of
section 3(m)(2)(B), which was a
technical error in the 2020 Tip final
rule, since the CAA Amendments did
not provide for criminal penalties for
violations of section 3(m)(2)(B).
B. Civil Money Penalties for Willful
Violations of the Fair Labor Standards
Act
1. Summary of Proposed Changes to
Portions of CMP Regulations Addressing
When a Violation of Section 6 or
Section 7 of the FLSA Is Willful
In addition to revising its regulations
to preserve the Department’s full
discretion to assess CMPs for violations
of section 3(m)(2)(B), the Department
proposed to further modify §§ 578.3(c)
and 579.2 of its CMP regulations, which
address when a violation of the FLSA is
‘‘willful,’’ and thus subject to a CMP
under section 16(e). 86 FR 15822.
Specifically, the Department proposed
to withdraw and repropose with a
modification the language at
§§ 578.3(c)(2) and 579.2 addressing
when an employer’s violation is
knowing, and further proposed to
reinsert language at §§ 578.3(c)(3) and
579.2 to provide guidance regarding the
meaning of reckless disregard.
As previously explained,10 the
Department’s definition of a ‘‘willful’’
violation in §§ 578.3(c) and 579.2 is
based on 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. The
Department incorporated this holding
into § 578.3(c)(1) of its CMP regulations
when they were first promulgated in
1992, and § 578.3(c)(1) further states
that ‘‘[a]ll of the facts and circumstances
surrounding the violation shall be taken
into account in determining whether a
violation was willful.’’ 29 CFR
578.3(c)(1); 57 FR 49130 (1992). The
2020 Tip final rule made no changes to
this language in § 578.3(c)(1), and the
Department did not propose any in the
CMP NPRM. See 86 FR 15822.
The Department’s 1992 CMP
regulations identified two specific
circumstances in which a violation
‘‘shall be deemed’’ knowing and in
reckless disregard, respectively, and
thus willful: Prior advice from WHD to
the employer that its conduct was
unlawful, and the employer’s failure to
adequately inquire further into the
lawfulness of its conduct when it
should have. 57 FR 49130; 29 CFR
578.3(c)(2)–(3). As the Department
noted in the NPRM for the 2020 Tip
final rule, two appellate courts
identified an inconsistency between the
1992 regulations’ language, on the one
hand, that conduct ‘‘shall be deemed
knowing’’ if the employer was
previously advised by WHD that the
10 See
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conduct was unlawful, and its language,
on the other hand, derived from
Richland Shoe, that WHD shall take into
account ‘‘[a]ll of the facts and
circumstances surrounding the
violation’’ when determining
willfulness. See 84 FR 53964–65
(discussing Rhea Lana, Inc. v. Dep’t of
Labor, 824 F.3d 1023, 1030–32 (D.C. Cir.
2016), and Baystate Alt. Staffing, Inc. v.
Herman, 163 F.3d 668, 680–81 (1st Cir.
1998)). The Department also explained
in the NPRM for the 2020 Tip final rule
that it does evaluate all of the facts and
circumstances surrounding a violation
when litigating willfulness,
notwithstanding the regulatory language
that appeared to be to the contrary. See
84 FR 53965. Accordingly, the NPRM
for the 2020 Tip final rule proposed to
revise §§ 578.3(c)(2)–(3) and 579.2 to
state that an employer’s receipt of
advice from WHD that its conduct is
unlawful and its failure to inquire
further regarding the legality of its
conduct are each ‘‘a relevant fact and
circumstance’’ in determining
willfulness. See 84 FR 53978.
After considering comments received,
the 2020 Tip final rule revised
§ 578.3(c)(2) and the corresponding
language in § 579.2 to state that, in
considering all of the facts and
circumstances, an employer’s receipt of
advice from WHD that its conduct was
unlawful ‘‘can be sufficient’’ to show
that the violation is knowing but is ‘‘not
automatically dispositive.’’ See 85 FR
86774. In addition, the 2020 Tip final
rule deleted § 578.3(c)(3) and the
corresponding language in § 579.2
addressing the meaning of reckless
disregard. The 2020 Tip final rule
explained that, unlike § 578.3(c)(2),
§ 578.3(c)(3) does not just identify a fact
and address how that fact impacts a
willfulness finding; instead, it addresses
a scenario—in which an employer
should have inquired further into the
lawfulness of its conduct but did not do
so adequately—that is ‘‘tantamount to
reckless disregard.’’ See 85 FR 86774
(citing Davila v. Menendez, 717 F.3d
1179, 1185 (11th Cir. 2013)). According
to the 2020 Tip final rule, revising
§ 578.3(c)(3) in the same manner as
§ 578.3(c)(2) thus ‘‘did not seem
helpful.’’ Id.
In the CMP NPRM, the Department
stated that it believed a modification to
§ 578.3(c)(2) and the corresponding
language in section § 579.2 regarding
knowing violations was necessary to
clarify that other circumstances, not just
the circumstance identified in these
regulations, can be sufficient to show
that a violation is knowing.
Accordingly, the Department proposed
to withdraw and repropose § 578.3(c)(2)
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and the corresponding language in
§ 579.2 to state that ‘‘the employer’s
receipt of advice from a responsible
[WHD] official . . . to the effect that the
conduct in question is not lawful,
among other situations, can be sufficient
to show that the employer’s conduct is
knowing, but is not automatically
dispositive.’’ 86 FR 15823. The
Department also explained in the CMP
NPRM that, although the preamble to
the 2020 Tip final rule stated that an
employer’s failure to make adequate
further inquiry into the lawfulness of its
conduct when it should have done so is
‘‘tantamount to reckless disregard,’’ the
rule’s deletion of § 578.3(c)(3) and the
corresponding language in § 579.2 could
be read as suggesting the opposite. See
id. Accordingly, the Department
proposed to reinsert language in
§§ 578.3(c)(3) and 579.2 addressing
reckless disregard—specifically, that
‘‘reckless disregard of the requirements
of the Act means, among other
situations, that the employer should
have inquired further into whether its
conduct was in compliance with the Act
and failed to make adequate further
inquiry.’’ 86 FR 15823.
2. Comments Regarding Proposed
Willfulness Changes
Multiple commenters supported the
willfulness changes proposed in the
CMP NPRM. The AG Coalition stated
that the proposed revisions to
§§ 578.3(c)(2) and (3) and 579.2 would
address their concerns with the 2020
Tip final rule’s amendments to these
provisions, which ‘‘[left] the regulated
community without guidance in
determining when reckless conduct is
willful’’ (among other concerns). The
AG Coalition supported the
Department’s proposal to ‘‘clarif[y] that
there may be other situations’’ where a
violation can be found knowing, in
addition to when an employer has
received advice from WHD that its
conduct is unlawful. The AG Coalition
also supported the Department’s
proposal to reinstate regulatory text
regarding the meaning of reckless
disregard in §§ 578.3(c)(3) and 579.2,
including the Department’s proposal
that reckless disregard may be
established in situations other than
where ‘‘the employer should have
inquired further but did not do so
adequately.’’ 11 The Center for
Workplace Compliance (CWC) stated
that it was ‘‘pleased to support’’ the
11 The AG Coalition also stated that ‘‘section
578.3(c)(2) could be strengthened by re-inserting the
‘shall be deemed’ language while maintaining
consistency with Richland Shoe, though the
proposed revision is much improved from the 2020
Tip Rule.’’
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Department’s proposal to retain
language in §§ 578.3(c)(2) and 579.2
stating that an employer’s receipt of
advice from WHD that its conduct was
unlawful is ‘‘not automatically
dispositive’’ of willfulness. According to
CWC, this language ‘‘recognizes that
employers should not be automatically
subject to [CMPs] where legitimate
questions exist concerning . . .
coverage.’’
Commenters representing employees
generally supported the proposed
willfulness changes in part.
Commenters such as Restaurant
Opportunities Centers United (ROC
United), the North Carolina Justice
Center (NCJC), and the National
Employment Lawyers Association
(NELA) supported the Department’s
affirmation in the CMP NPRM that the
two scenarios identified in its
regulations—an employer’s receipt of
advice from WHD that its conduct was
unlawful and an employer’s failure to
adequately inquire into the lawfulness
of its conduct when it should have done
so—‘‘can be sufficient’’ to establish
willfulness. See also Texas RioGrande
Legal Aid (TRLA) (‘‘TRLA appreciate[s]
the DOL’s improvement between the
prior notice of proposed rulemaking and
this reproposal.’’). These commenters
noted that they understood the
Department’s concern that the 1992
versions of §§ 578.3(c)(2) and (3) and
579.2 ‘‘may be in tension’’ with
Richland Shoe and with § 578.3(c)(1)’s
requirement that all facts and
circumstances be considered.12
However, to give the scenarios
identified in the regulations ‘‘the proper
weight,’’ commenters representing
employees recommended that the
Department ‘‘establish a rebuttable
presumption that a violation is knowing
when an employer received notice from
WHD that its conduct was unlawful,
and that a violation is in reckless
disregard of the law if the employer
failed to make adequate inquiry into
whether its conduct was compliant.’’
See, e.g., ROC United; NCJC; NELA;
NELP; TRLA.
The NRA and NFIB urged the
Department to retain the 2020 Tip final
rule’s revisions to §§ 578.3(c)(2) and (3)
and 579.2. The NRA stated that it
supported the 2020 Tip final rule’s
willfulness changes ‘‘for the reasons that
the Department already outlined’’ in the
12 In contrast, NELP stated that ‘‘the longstanding
regulatory language’’ in §§ 578.3(c)(2) and (3) and
579.2 stating that violations ‘‘shall be deemed’’
willful in certain scenarios is ‘‘not in tension with
language elsewhere in FLSA regulations and in
precedent requiring that ‘all of the facts and
circumstances’ be considered in determining
whether a violation was willful.’’
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52979
2020 Tip final rule before the
Department’s ‘‘sudden’’ change of
opinion in the CMP NPRM. The NFIB
supported the 2020 Tip final rule’s
willfulness changes over those proposed
in the CMP NPRM as well,
characterizing the 2020 revisions as
‘‘reasonable and practical.’’ In the
alternative, NFIB requested that the
Department retain the 2020 Tip final
rule’s willfulness changes for ‘‘small
and independent businesses.’’
3. Discussion of Comments and
Rationale for Finalizing Proposed
Changes to Portions of CMP Regulations
Addressing When a Violation Is Willful
After considering all the comments,
the Department is finalizing the
revisions to §§ 578.3(c)(2) and (c)(3) and
579.2 as proposed.
The Department continues to believe
that revisions to its 1992 regulations
regarding when a violation of the FLSA
is willful are necessary for the reasons
identified in the 2020 Tip final rule: To
resolve the tensions identified by
appellate courts within § 578.3(c) and
between § 578.3(c) and Richland Shoe
and to align these provisions more
closely with how the Department
actually litigates. Accordingly, as
proposed in the CMP NPRM, the
Department is retaining the language in
§ 578.3(c)(2) and the corresponding
language in § 579.2 that an employer’s
receipt of advice from WHD that its
conduct is unlawful is ‘‘not
automatically dispositive’’ of a knowing
violation. By clarifying that an
employer’s receipt of advice from WHD
that its conduct is unlawful is not
automatically dispositive, the
Department also addresses the concern
raised by CWC that such evidence
should not ‘‘automatically subject’’ an
employer to CMPs where the employer
has a legitimate disagreement with
WHD concerning the FLSA’s coverage.
At the same time, this rule’s revisions
to §§ 578.3(c)(2) and 579.2 affirm that an
employer’s receipt of advice from WHD
that its conduct is unlawful ‘‘can be
sufficient’’ to show that a violation is
knowing and thus willful. In accordance
with § 578.3(c)(1), all facts and
circumstances surrounding the violation
must be taken into account when
determining willfulness. However, an
employer’s receipt of advice from WHD
that its conduct is unlawful is a
significant, and may be a determining,
factor regarding that employer’s
willfulness.
By finalizing the proposed changes to
§ 578.2(c)(2) and the corresponding
language in § 579.2, this rule also makes
explicit, consistent with considering all
of the facts and circumstances, that
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evidence other than an employer’s
receipt of advice from WHD that its
conduct was unlawful can be sufficient
to show that a violation was knowing.
As noted above, the AG Coalition urged
the Department to finalize this proposed
change. This rule thus makes clear that
other circumstances, not just the
circumstance identified in § 578.3(c)(2),
can be sufficient to show that a violation
is knowing.
This rule also restores regulatory text
regarding the meaning of willfulness by
reinserting language regarding reckless
disregard in §§ 578.3(c)(3) and 579.2.
The Department agrees with the AG
Coalition and advocacy groups
representing employees who argued that
simply deleting § 578.3(c)(3) and the
corresponding language in § 579.2 may
have led to confusion and uncertainty.
The revised language in §§ 578.3(c)(3)
and 579.2 regarding reckless disregard
aligns the Department’s regulations with
appellate court precedent, pursuant to
which an employer’s failure to
adequately inquire into whether it
violated the FLSA when it should have
done so is considered tantamount to
reckless disregard. See Davila v.
Menendez, 717 F.3d 1179, 1184 (11th
Cir. 2013). The revisions to § 578.3(c)(3)
and the corresponding language in
§ 579.2 also make clear that reckless
disregard can be proven by evidence
other than that the employer should
have inquired further but did not do so
adequately. When determining reckless
disregard, the Department must still
consider all of the relevant facts and
circumstances. See § 578.3(c)(1).
Accordingly, under revised
§§ 578.3(c)(3) and 579.2, an employer is
in reckless disregard of the FLSA when,
among other situations, the Department
determines based on all of the facts and
circumstances that the employer should
have inquired into whether its conduct
was lawful but failed to do so
adequately.
The Department appreciates the
concern of commenters representing
employees that the circumstances
identified in §§ 578.3(c)(2) and (3) be
accorded appropriate weight in the
willfulness analysis. However, the
Department declines to incorporate into
its regulations a rebuttable presumption
that a violation of the FLSA is willful in
these scenarios. Any rebuttable
presumption would need to be carefully
calibrated to ensure that it is consistent
with § 578.3(c)(1)’s requirement, derived
from Richland Shoe, that all facts and
circumstances be considered in
determining willfulness.13 Incorporating
13 Additionally, courts have made clear that the
burden of proving that an employer acted willfully
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a rebuttable presumption into these
provisions would also create
administrative difficulties, as it would
require a change in how WHD assesses
CMPs and how the Department litigates
CMP proceedings.
Moreover, the Department does not
agree that incorporating a rebuttable
presumption of willfulness into its CMP
regulations would accord greater weight
to the scenarios identified in
§§ 578.3(c)(2) and (3) than is accorded
by its revisions to these provisions. As
discussed above, under the proposed
revisions—which this rule finalizes—an
employer’s receipt of advice from WHD
that its conduct was unlawful ‘‘can be
sufficient’’ to establish a knowing
violation; thus, the revisions accord
significant, and possibly determinative,
weight to this fact in the willfulness
analysis. Additionally, as noted above,
an employer is in reckless disregard of
the FLSA when, based on all of the facts
and circumstances, it should have
inquired into the lawfulness of its
conduct but failed to do so adequately.
Since any rebuttable presumption
would need to be carefully calibrated to
avoid conflicting with the requirement
that all facts and circumstances be
considered and would necessitate a
change in how the Department
administers CMPs and litigates
willfulness, and given that
incorporating a rebuttable presumption
into the regulations would not
necessarily accord greater weight to the
scenarios in §§ 578.3(c)(2) and (3) and
579.2, the Department declines to
incorporate a rebuttable presumption of
willfulness into its CMP regulations.
Finally, the Department declines to
retain the 2020 Tip final rule’s
willfulness revisions, as urged by the
NRA and NFIB. Upon review of the
comments and for the reasons discussed
above, the Department believes that the
proposed revisions to §§ 578.3(c)(2) and
(3) and 579.2 make needed
modifications to its CMP regulations.14
The Department also declines NFIB’s
suggestion to preserve the 2020 Tip final
rule’s willfulness revisions for smaller
employers. Consistent with the text of
section 16(e)(2) of the FLSA, which
ultimately falls in the employee. See, e.g., Davila,
717 F.3d at 1184–85.
14 The Department notes that it disagrees with the
NRA’s assertion that the proposed willfulness
changes represent a ‘‘sudden’’ change in position
from the 2020 Tip final rule. Although the proposed
revisions make important and needed modifications
to §§ 578.3(c)(2) and (3) and 579.2, these revisions
clearly build upon rather than depart from the
fundamental reasoning behind and objectives of the
2020 Tip final rule’s willfulness revisions: To better
align the Department’s CMP regulations with
appellate court precedent and with how the
Department actually litigates willfulness.
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provides that ‘‘any person who
repeatedly or willfully violates’’ section
6 or 7 of the FLSA ‘‘shall be subject to
a civil penalty,’’ 29 U.S.C. 216(e)(2), the
Department has always maintained a
uniform standard of willfulness
applicable to all persons who violate the
FLSA. See 57 FR 49128. Adopting
different standards of willfulness for
different sizes of employers would
present administrative difficulties for
WHD.
Accordingly, the final rule adopts the
revisions to §§ 578.3(c)(2) and (c)(3) and
579.2 as proposed.
C. Managers and Supervisors Under
3(m)(2)(B)
Section 3(m)(2)(B) prohibits
employers, regardless of whether they
take a tip credit, from keeping tips
received by employees, ‘‘including
allowing managers or supervisors to
keep any portion of employees’ tips.’’ 29
U.S.C. 203(m)(2)(B). Section
531.52(b)(2), as amended by the 2020
Tip final rule, reiterates the prohibition
in section 3(m)(2)(B) that ‘‘[a]n
employer may not allow managers and
supervisors to keep any portion of an
employee’s tips, regardless of whether
the employer takes a tip credit.’’ 29 CFR
531.52(b)(2). However, § 531.52(b)(2)
clarifies that an employer does not
violate 3(m)(2)(B) when a manager or
supervisor keeps tips that ‘‘he or she
receives directly from customers based
on the service that he or she directly
provides.’’ The Department explained in
the 2020 Tip final rule that section
3(m)(2)(B) does not bar managers and
supervisors from keeping their own tips
but only prohibits managers and
supervisors from keeping ‘‘tips received
by employees other than themselves.’’
See 85 FR 86764. Thus, for example, a
salon manager may ‘‘keep tips left by
customers whose hair she personally
styles,’’ without violating the statute. Id.
In the CMP NPRM, the Department
observed that some managers and
supervisors may directly engage in a
significant amount of tipped work for
which they earn tips, and requested
comments on whether it could make
additional adjustments to the
regulations to better address these
employees without running afoul of
section 3(m)(2)(B)’s prohibition of these
individuals ‘‘keeping’’ other employees’
tips. The Department asked whether
language in the current regulation is
sufficient to allow managers and
supervisors to retain the tips they earn
from customer service work. The
Department also requested comment on
whether it should modify the regulation
to clarify that managers and supervisors
can contribute tips to mandatory tip
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pools. In addition, the Department
asked general questions about managers
and supervisors and tipped work,
including: (1) How commonly managers
and supervisors perform tipped work;
(2) whether, prior to the CAA, managers
and supervisors who perform tipped
work typically participated in tip pools
or tip sharing arrangements; and (3)
whether it is common for tips provided
for work performed by a manager or
supervisor to be commingled with other
employees’ tips.
1. Managers and Supervisors May Keep
Tips They Directly Receive for Service
They Directly and Solely Provide
Commenters—representing both
employers and employees—generally
noted that it is not unusual for managers
and supervisors in service industries to
perform tipped work. See Werman
Salas; NRA. NRA stated that, in the
restaurant industry, managers and
supervisors ‘‘take orders,’’ and ‘‘serve
food . . . on [a] daily basis throughout
the country.’’ NRA also explained that,
in ‘‘some circumstances,’’ a ‘‘manager
might be the only individual serving
tables because it is a slow day or
because it is an event outside the
restaurant location and only supervisors
are managing it.’’ One brewery employer
noted that its bar manager has three jobs
codes—manager, bartender, and
brewery assistant—and that ‘‘there are
many times’’ when the manager ‘‘must
change roles and work under a
bartender job code for 4 hours of a 6
hour shift.’’ The commenter further
noted that even in large restaurants, ‘‘[i]f
a bartender doesn’t show up for work,’’
the manager may be ‘‘forced to stop
managing and become the bartender for
a night.’’ Commenters also indicated
that managers and supervisors are
performing more tipped work as a result
of the COVID–19 pandemic. The
Employment Rights Center commented
that, as a result of the pandemic, a
manager might, for example, be more
likely to ‘‘serve an unexpected in-person
table, while a server is staffing a takeout
counter or preparing to-go orders.’’ ROC
United stated that managers and
supervisors at full-service restaurants
‘‘have performed tipped work on a daily
and hourly basis over the last year.’’
Nearly all commenters supported
regulatory language allowing managers
and supervisors who receive their own
tips for services they directly provide to
keep those tips. See, e.g., Economic
Policy Institute (EPI); Employee Rights
Center; Public Justice Center; Kentucky
Equal Justice Center; National
Employment Lawyers Association;
National Employment Law Project;
NFIB; National Partnership for Women
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and Families; National Women’s Law
Center; ROC United; and Worker Justice
Center of New York. NFIB stated that
this policy, ‘‘reasonably recognizes
situations in which a manager or
supervisor provides leadership services
with respect to other employees, but
also furnishes services to customers on
the same basis as those employees, as
happens frequently, for example, in the
restaurant business.’’ One individual
commenter, however, argued that
managers and supervisors should not be
able to keep the tips that they receive for
their direct service, as this would
incentivize managers or supervisors to
‘‘use less staff, so they ‘have to’ lend a
hand.’’
Commenters also described instances
in which tips provided for work
performed by a manager or supervisor
may be commingled with tips provided
to other tipped employees. Werman
Salas commented that commingling
frequently occurs in two scenarios:
When a manager or supervisor
‘‘performs tipped work alongside other
tipped employees and there is a
common tip jar,’’ or when the manager
or supervisor assists with tipped work,
but ‘‘is not solely responsible for the
service that results in the gratuity being
given by the customer.’’ For example a
manager or supervisor might run food to
a table, but the ‘‘server is otherwise
responsible for the balance of the guest
experience.’’ Id.
The Department requested comments
on whether it was possible to modify
the regulations so that a manager or
supervisor could retain tips in
commingling scenarios without
allowing the manager or supervisor to
keep other employees’ tips in violation
of 3(m)(2)(B). Commenters who
responded to this question generally
stated that such an approach was not
feasible because it will often be
impossible to determine the amount of
the tip ‘‘earned’’ by the manager or
supervisor. See Werman Salas; NWLC.
For example, NWLC stated that when a
customer leaves a single tip for a service
experience in which both a manager or
supervisor and a non-managerial tipped
employee participate, it is not possible
to attribute a portion of the tip to the
manager or supervisor. Rather than
revise the language in § 531.52(b)(2) to
allow a manager or supervisor to keep
commingled tips, these commenters
proposed revising the regulation to
‘‘state the opposite’’ and provide that a
manager or supervisor may keep a tip he
or she directly receives for service he or
she directly provides only if the tip is
not commingled with and is segregable
from other employees’ tips. Werman
Salas Law Firm; see also NWLC. NRA,
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on the other hand, agreed generally that
‘‘tips to managers and supervisors
should not be ‘commingled’ with tips
provided to tipped employees,’’ but
suggested that managers and supervisors
could pool tips among themselves.
According to the NRA, ‘‘no tipped
employee shares tips with a supervisor
or manager’’ in these scenarios.
Having carefully considered the
comments, the Department has decided
to slightly modify the statement in
§ 531.52(b)(2) that a manager or
supervisor may keep tips that ‘‘he or she
receives directly from customers based
on the service that he or she directly
provides.’’ In this final rule, the
Department amends the regulatory
language to clarify that a manager or
supervisor may keep tips only for
services the manager or supervisor
directly and ‘‘solely’’ provides.
Particularly given comments
highlighting the prevalence of tipped
work among managers and supervisors
in the service industry, it is important
that the Department’s regulations
continue to reflect the fact that section
3(m)(2)(B) does not prohibit managers
and supervisors who are tipped
employees from keeping tips that are
theirs alone. Moreover, as one
individual commenter noted, if
managers and supervisor cannot keep
such tips, it is unclear who would be
entitled to them.
However, by clarifying that a manager
or supervisor may keep tips only for
services the manager or supervisor
directly and ‘‘solely’’ provides, the
modified regulatory text will prevent
managers and supervisors from keeping
tips when it is not possible to attribute
the tip solely to the manager or
supervisor. The modified regulatory text
thus helps to ensure that managers and
supervisors do not keep ‘‘any portion’’
of other employees’ tips, see 29 U.S.C.
203(m)(2)(B). With respect to
commenters’ suggestion that the
Department specify that such tips must
be segregable from or not commingled
with other employees’ tips, the
Department believes that the clarified
language of § 531.52(b)(2) makes clear
that a manager or supervisor may keep
only those tips that the manager or
supervisor receives directly for a service
that the manager or supervisor directly
and solely provides. Thus, a manager
who serves her own tables may keep her
own tips, for example. However, when
a manager simply runs food to a table
for which a server is otherwise
responsible, she may not keep any
portion of the tip the customer leaves
for the server since that tip was not
earned solely by the manager or
supervisor.
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The Department also declines to
amend the regulations to allow
mandatory tip pools comprised only of
managers and supervisors, as proposed
by NRA. The statute does not permit
such arrangements: Managers and
supervisors are employees under the
FLSA, see 29 U.S.C. 203(e)(1), and
3(m)(2)(B) prohibits employers from
allowing managers or supervisors to
keep other ‘‘employees’ tips.’’ 15 This
includes other managers and
supervisors’ tips. Moreover, to permit
scenarios in which a higher-ranking
manager or supervisor—for example, the
general manager of a restaurant—could
keep tips from a lower-ranking manager
or supervisor—for example, a shift
supervisor who also tends bar—would
undermine the CAA’s mandate of
preventing employers and their agents
from keeping employees’ tips.
2. Managers and Supervisors May
Contribute Tips To, But Not Receive
Tips From, Tip Pools
In this final rule, the Department also
amends §§ 531.54(c)(3) and 531.54(d) to
clarify that an employer may not allow
a manager or supervisor to receive tips
from employer-mandated tip pools or
tip sharing arrangements, but may
require a manager and supervisor to
contribute tips to such an arrangement.
As discussed above, section 3(m)(2)(B)
prohibits managers and supervisors
from keeping any portion of other
employees’ tips. See also § 531.52(b)(2).
Sections 531.54(c)(3) and (d), as
amended by the 2020 Tip final rule,
implement this prohibition by barring
employers from ‘‘includ[ing]’’ such
managers and supervisors in mandatory
15 A manager or supervisor who performs tipped
work may satisfy the definition of a ‘‘tipped’’
employee under section 3(t) because they are
engaged in an occupation in which they
‘‘customarily and regularly receive[ ] more than $30
a month in tips.’’ See 29 U.S.C. 203(t). Under those
circumstances, an employer may take a tip credit
for the hours worked in the tipped occupation
pursuant to section 3(m)(2)(A), assuming that all
other requirements for the tip credit are satisfied.
If the employer does so, it may not require the
tipped manager to contribute tips to a
nontraditional tip pool, and may only require the
tipped manager or supervisor to contribute their
tips to a traditional tip pool comprised of other
tipped employees. Regardless of whether an
employee is engaged in a tipped occupation,
however, if the employee satisfies the duties test for
managers and supervisors, including the
requirement that management is the employee’s
primary duty, the employee cannot receive other
employees’ tips from a mandatory tip pool or tip
sharing arrangement pursuant to section 3(m)(2)(B).
Thus, even if a manager or supervisor is engaged
as a tipped employee under section 3(t) and can be
paid with a tip credit and participate in a tip pool
under section 3(m)(2)(A), they may also still qualify
as manager or supervisor under 3(m)(2)(B), in
which case they would be prohibited from receiving
tips from the tip pool, and from otherwise keeping
other employees’ tips.
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tip pools. The preamble accompanying
the 2020 Tip final rule interpreted
§ 531.54(c)(3) and (d) to prohibit
employers from requiring managers and
supervisors to contribute, as well as
from allowing them to receive, tips from
mandatory tip pooling or sharing
arrangements. 85 FR 86764. As a result
of the Department’s interpretation in the
2020 Tip final rule, a restaurant
employer, for example, can require nonmanagerial servers to give a portion of
their tips to the bussers, but is
prohibited from requiring a manager
who also serves tables to similarly
contribute. Or a salon employer may
require non-supervisory stylists to share
a portion of tips with the shampoo
assistant, but cannot require a stylist
who is also a supervisor to do the same.
In the CMP NPRM, the Department
therefore sought comment on whether it
should adjust its regulations to allow
managers and supervisors, like other
employees who receive tips, to
contribute tips to eligible employees in
mandatory tip pools or tip sharing
arrangements, so long as: (1) They do
not receive any tips from a pool; or (2)
alternatively, so long as they receive out
of the tip pool no more than what they
contributed.
Commenters overwhelmingly
supported a change to allow employers
to require managers and supervisors,
like other employees who receive tips,
to contribute to tip pooling or sharing
arrangements. See, e.g., EPI; Employee
Rights Center; Public Justice Center;
ROC United; North Carolina Justice
Center; Workplace Justice Project;
National Employment Lawyers
Association; National Employment Law
Project; Kentucky Equal Justice Center;
National Partnership for Women and
Families; National Women’s Law
Center; Worker Justice Center of New
York; NRA.16 NRA noted that
mandatory tip sharing arrangements in
which managers or supervisors who
have ‘‘responsibility for serving tables’’
share a portion of their tips with
bartenders, bussers, or other employees
16 Several commenters argued that permitting
managers and supervisors to contribute to
mandatory tip sharing arrangements ‘‘makes it all
the more important that only employees who are
bona fide managers and supervisors are classified
as such,’’ and urged the Department to reconsider
the definition of ‘‘manager or supervisor’’ adopted
in its 2018 FAB and 2020 Tip final rule. ROC
United; NELP; National Partnership for Women and
Families. These commenters urged the Department
to include a salary component in the definition. The
CMP NPRM did not contemplate changes to the
regulatory definition of the terms ‘‘manager or
supervisor,’’ however, and revisions incorporating a
salary level are outside of the scope of this
rulemaking. The Department lacks sufficient
information to consider such changes as part of the
final rule.
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who help them, are common in the
restaurant industry. Commenters also
stated that allowing managers and
supervisors who earn tips to contribute
them to eligible employees in
mandatory tip pools would benefit nonmanagerial employees. See Werman
Salas; NRA. In addition, the Center for
Workplace Compliance commented that
modifying the regulations to allow
managers and supervisors to contribute
to mandatory tip pools would benefit
employers by giving them ‘‘a little more
flexibility to adopt tip pooling practices
that work best in their industry.’’ NRA
also stated that the statute does not
prohibit employers from requiring
managers and supervisors to share their
own tips.
To the extent that commenters
addressed the possibility of allowing
managers and supervisors who
contribute tips to a tip pool to receive
tips from the arrangement up to the
amount they contributed, commenters
opposed this alternative. See Werman
Salas; NRA. Werman Salas asserted that
a policy allowing managers or
supervisors to receive some tips from a
tip pool, but no more than what the
manager or supervisor contributes,
‘‘would be difficult or impossible to
apply.’’ In contrast, allowing employers
to require managers and supervisors to
contribute a portion of their tips to
mandatory tip pooling or sharing
arrangements, while preserving ‘‘the
prohibition on managers and
supervisors receiving any tips from such
pooling or sharing arrangements’’ would
maintain ‘‘the integrity of the tip
pooling arrangements without improper
participation from managers or
supervisors.’’
Having considered the comments, the
Department adopts changes to its
regulations to clarify that, while an
employer may not allow a manager or
supervisor to keep other employees’ tips
by receiving tips from a tip pool or tip
sharing arrangement, section 3(m)(2)(B)
does not prohibit an employer from
requiring a manager and supervisor who
receives tips directly from customers to
contribute some portion of those tips to
eligible employees in an employermandated tip pooling or tip sharing
arrangement. The final rule similarly
provides that employers—some of
whom may themselves be managers or
supervisors who perform tipped work—
may not receive tips from a tip pool or
sharing arrangement, but does not bar
employers who receive tips directly
from customers from sharing those tips
with their employees.
The Department agrees with
commenters that allowing employers to
require managers and supervisors to
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share their tips with other eligible
employees will benefit non-managerial
employees. When managers or
supervisors contribute tips to mandatory
tip pools, non-managerial employees
(e.g., bussers, other servers, and
bartenders) may earn more from the
pool and tipped non-managerial
employees (e.g., servers and bartenders)
may be required to contribute less to the
pool. The Department believes that
allowing employers to require managers
and supervisors, like other employees
who receive tips, to contribute to tip
sharing is particularly important given
that managers or supervisors may have
the opportunity to serve the largest
tables or groups of customers, or work
the more desirable shifts. In addition,
the Department takes note of
commenters’ statement that section
3(m)(2)(B) does not expressly prohibit
employers from requiring managers or
supervisors to share tips.
The Department expressed concerns
in the 2020 Tip final rule that allowing
managers and supervisors to participate
in tip pools for one purpose
(contributing tips) and not for another
(receiving tips) could ‘‘create confusion
among employers and employees,’’ and
lead to situations in which compliance
is difficult. 85 FR 86764. On further
consideration, however, the Department
has determined that any compliance
difficulties created by this policy are
minimal and are outweighed by the
benefits noted above. The far more
intractable challenge for compliance
and enforcement, as commenters noted,
would be to allow managers and
supervisors to contribute to employermandated tip pooling or tip sharing
arrangements and also receive tips from
the pool. Under such a policy, it would
be very difficult to ensure that managers
and supervisors are not taking more
than the equivalent of their own tips in
violation of the statute. The Department
believes, however, that employers can
more easily implement a bright line rule
in which managers or supervisors
contribute tips to mandatory tip sharing
arrangements, but do not receive any
tips from those arrangements.
As finalized, § 531.54(c)(3) and (d)
provide that, consistent with section
3(m)(2)(B) of the FLSA, an employer
may not receive and may not allow a
manager or supervisor to receive any
tips from a tip pool or tip sharing
arrangement. As amended, the
regulations do not prohibit an employer
from contributing tips to, or from
requiring a manager and supervisor who
receives tips to contribute tips to,
eligible employees in an employermandated tip pooling or tip sharing
arrangement. When a manager or
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V. Analysis Conducted in Accordance
With Executive Order 12866,
Regulatory Planning and Review and
Executive Order 13563, Improved
Regulation and Regulatory Review
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 rule and
was prepared pursuant to the abovementioned executive orders.
Pursuant to Subtitle E of the Small
Business Regulatory Enforcement
Fairness Act of 1996 (also known as the
Congressional Review Act) (5 U.S.C. 801
et seq.), OIRA has not designated this
rule as a major rule, as defined by 5
U.S.C. 804(2).
A. Introduction
B. Background
supervisor directly receives tips for a
service the manager or supervisor
directly and solely provides, an
employer may allow the manager or
supervisor to keep the tips, and may
also require the manager or supervisor
to share some portion of the tips with
other eligible employees. Neither of
these options runs afoul of section
3(m)(2)(B)’s prohibition on managers
and supervisors ‘‘keep[ing]’’ other
employees’ tips.
IV. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA), 44 U.S.C. 3501 et seq., and its
attendant regulations, 5 CFR part 1320,
require the Department to consider the
agency’s need for its information
collections, their practical utility, the
impact of paperwork and other
information collection burdens imposed
on the public, and how to minimize
those burdens. This final rule does not
contain a collection of information
subject to OMB approval under the
PRA.
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
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
rule is not economically significant
under section 3(f) of Executive Order
12866.
17 See
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In this final rule, the Department
modifies the portion of the 2020 Tip
final rule incorporating the CAA’s new
provisions authorizing the assessment of
CMPs for violations of section
3(m)(2)(B) of the Act. The Department
also modifies an additional portion of
its CMP regulations addressing willful
violations. Because these changes will
only apply when an employer violates
the FLSA, the Department does not
believe that they will have an impact on
costs or transfers. The Department has
also decided to clarify in this final rule
that while managers and supervisors
may not receive tips from tip pools or
tip sharing arrangements, managers or
supervisors are not prohibited from
contributing to mandatory tip pools or
sharing arrangements. The Department
has discussed this change qualitatively
due to data limitations. Other provisions
codifying the CAA amendments were
already discussed and quantified in the
2020 Tip final rule, and so have not
been quantified again here. The only
costs quantified here are the rule
familiarization costs associated with
reviewing the rule. The Department
qualitatively discusses possible benefits
associated with this rule.
58 FR 51735, 51741 (Oct. 4, 1993).
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C. Costs
rule, the Department uses both the
number of establishments and the
number of firms to estimate a potential
range for regulatory familiarization
costs. The lower bound of the range is
calculated assuming that one specialist
per firm will review the rule, and the
upper bound of the range assumes one
specialist per establishment.
The most recent data on private sector
entities at the time this rule was drafted
are from the 2017 Statistics of U.S.
Businesses (SUSB).19 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
1. Rule Familiarization Costs
Regulatory familiarization costs
represent direct costs to businesses
associated with reviewing the new
regulation. It is not clear whether
regulatory familiarization costs are a
function of the number of
establishments or the number of firms.18
Presumably, the headquarters of a firm
will conduct the regulatory review for
businesses with multiple locations, and
may also require these locations to
familiarize themselves with the
regulation at the establishment level. To
avoid underestimating the costs of this
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 Department
understands that there may be entities
in other industries with tipped workers
who may review this rule, but did not
receive any comments about other
industries that should be included in
the analysis. See Table 1 for a list of the
number of firms and establishments in
each of these industries.
TABLE 1—FIRMS AND ESTABLISHMENTS IN TIPPED INDUSTRIES
Industry
NAICS
NAICS
NAICS
NAICS
NAICS
NAICS
713210
721110
722410
722511
722513
722515
Firms
Establishments
(Casinos) ............................................................................................................................
(Hotels and Motels) ............................................................................................................
(Drinking Places (Alcoholic Beverages)) ............................................................................
(Full-Service Restaurants) ..................................................................................................
(Limited Service Restaurants) ............................................................................................
(Snack and Nonalcoholic Beverage Bars) .........................................................................
221
42,795
39,323
217,111
157,353
47,112
292
53,869
40,156
250,871
251,100
65,010
Total ......................................................................................................................................................
503,915
661,198
Source: Statistics of U.S. Businesses 2017.
The Department believes 30 minutes
per entity, on average, to be an
appropriate review time for this rule,
because most of the information related
to the CAA amendments that employers
would have to familiarize themselves
with was already captured in the 2020
Tip final rule. The changes in this rule
are small, and one is consistent with the
Department’s existing enforcement. This
review time represents an average of
employers who will spend less than 30
minutes reviewing, and others who will
spend more time. In the NPRM, the
Department estimated that average
review time would be 15 minutes, but
has increased it here to account for the
additional provisions on managers’
participation in tip pools.
The Department’s analysis assumes
that the rule would be reviewed by
Compensation, Benefits, and Job
Analysis Specialists (SOC 13–1141) or
employees of similar status and
comparable pay. The median hourly
wage for these workers was $32.30 per
hour in 2020, the most recent year of
data available.20 The Department also
assumes that benefits are paid at a rate
of 46 percent 21 and overhead costs are
paid at a rate of 17 percent of the base
wage, resulting in a fully loaded hourly
rate of $52.65.
The Department estimates that the
lower bound of regulatory
familiarization cost range would be
$13,265,562 (503,915 firms × $52.65 ×
0.5 hours), and the upper bound,
$17,406,037 (661,198 establishments ×
$52.65 × 0.5 hours). The Department
estimates that all regulatory
familiarization costs would occur in
Year 1.
Additionally, the Department
estimated average annualized costs of
this rule over 10 years. Over 10 years,
it would have an average annual cost of
$1.8 million to $2.3 million, calculated
at a 7 percent discount rate ($1.5 million
to $1.9 million calculated at a 3 percent
discount rate). All costs are in 2020
dollars.
18 An establishment is a single economic unit that
produces goods or services. Establishments are
typically at one physical location and engaged in
one, or predominantly one, type of economic
activity. An establishment is in contrast to a firm,
or a company, which is a business and may consist
of one or more establishments.
19 Statistics of U.S. Businesses 2017, https://
www.census.gov/data/tables/2017/econ/susb/2017susb-annual.html, 2017 SUSB Annual Data Tables
by Establishment Industry.
20 Occupational Employment and Wages, May
2020. https://www.bls.gov/oes/current/
oes131141.htm.
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D. Transfers Associated With Managers’
Contributing to Tip Pools
As noted above, in the 2020 Tip final
rule, the Department implemented
section 3(m)(2)(B) of the FLSA by
prohibiting employers from including
managers or supervisors in mandatory
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tip pooling or sharing arrangements. See
29 CFR 531.54(c)(3), (d) (April 30,
2021). The preamble accompanying the
2020 Tip final rule interpreted
§ 531.54(c)(3) and (d) to prohibit
employers from requiring managers and
supervisors to contribute, as well as
from allowing them to receive, tips from
mandatory tip pooling or sharing
arrangements. 85 FR 86764. This final
rule clarifies that managers and
supervisors are not prohibited from
contributing to eligible employees in
mandatory tip pools or sharing
arrangements, but they may not receive
tips from tip pools or tip sharing
arrangements. If, prior to this final rule,
a manager was prevented from
contributing to tip pools, but is now
able to contribute following this rule,
their tipped income and overall
earnings could decrease, while the
tipped income and overall earnings of
the other employees in the tip pool
could increase. The magnitude of this
change could be estimated by observing
how managers’ and non-manager
employees’ tipped income and overall
earnings changed following the
provisions of the 2020 Tip final rule that
21 The benefits-earnings ratio is derived from the
Bureau of Labor Statistics’ Employer Costs for
Employee Compensation data using variables
CMU1020000000000D and CMU1030000000000D.
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prevented managers from contributing
to tip pools. Although the Department
lacks comprehensive data on the
number of managers who perform
tipped work, the Department used data
from the Current Population Survey
(CPS) to estimate the number of people
in the occupation ‘‘First-Line
Supervisors of Food Preparation and
Serving Workers.’’ The Department
acknowledges that this could be an
undercount of the number of food
service managers or supervisors who
receive tips, and that this is not the only
industry in which managers may receive
tips. According to CPS, in 2019 there
were 590,900 First-Line Supervisors of
Food Preparation and Serving
Workers.22 Their overall average hourly
earnings were $17.48 (includes hourly
and non-hourly workers and tipped and
non-tipped workers). Of those workers
who are paid hourly, 24 percent report
regularly receiving tips, overtime, or
commissions (this question is only
asked of hourly workers). After backing
out estimated overtime pay, the
Department estimates that these FirstLine Supervisors of Food Preparation
and Serving Workers earned an average
of $19.71 per hour, which includes
$5.68 per hour in tips. Several
commenters asserted that it is common
for managers and supervisors to perform
tipped work. For example, Werman
Salas stated, ‘‘Our experience from
litigation is that managers and
supervisors who arguably satisfy the
executive employee duties test also
frequently perform tipped work. For
example, in litigation against a national
casual dining establishment, both
assistant managers and managers who
arguably met the duties test for
executive employees, frequently greeted
customers and ran food to tables as part
of promoting the ‘guest experience.’ ’’
The Department did not receive any
comments with data on the earnings of
these managers and supervisors.
It would also be difficult to discern
whether any change in earnings would
be related to the provisions of the 2020
Tip final rule that prevented managers
22 The Department notes that this analysis relies
on data from 2019, which is prior to the COVID
pandemic, because it believes that 2019 data
provides a more accurate picture of the restaurant
industry going forward than 2020 data. Due to the
COVID–19 pandemic, many food services and
drinking places (NAICS 722) adjusted their business
models, and employment in this industry subsector
fell in 2020. See Ansell, R. and Mullins, J. (2021),
‘‘COVID–19 ends longest employment recovery and
expansion in CES history, causing unprecedented
job losses in 2020,’’ Monthly Labor Review, U.S.
Bureau of Labor Statistics, June 2021, https://
doi.org/10.21916/mlr.2021.13. However, although
employment in this industry subsector has
recovered significantly in 2021, it still remains
below its January 2020 level. See Id.
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from contributing to mandatory tip
pools, because the rule had only been in
effect since April 30, 2021. Prior to the
2020 Tip final rule, it was unclear to the
regulated community whether an
employer could require a manager to
contribute to tip pools following the
2018 CAA amendments. See NRA,
Comment on the 2019 Tip NPRM
(requesting clarity on this issue).
E. Benefits
This rule replaces regulatory language
in the CMP regulations so that the
Department is not limited in its
assessment of tip CMPs to only repeated
and willful violations of section
3(m)(2)(B). This change is consistent
with the text of section 16(e) of the
FLSA, which provides that ‘‘[a]ny
person who violates section 3(m)(2)(B)
shall be subject to a civil penalty . . .
for each such violation, as the Secretary
determines appropriate.’’ 29 U.S.C.
216(e). The Department believes that
this change, by ensuring that the
Department has the ability to impose
CMPs for violations of section
3(m)(2)(B) when it deems appropriate,
can help improve the enforcement of the
statute, potentially discourage more
employers from violating the FLSA, and
better ensure that employees keep the
tips they receive.
This rule also revises portions of the
Department’s CMP regulations regarding
when a violation of section 6 (minimum
wage) or section 7 (overtime) of the
FLSA is ‘‘willful,’’ and thus subject to
a CMP under section 16(e). As discussed
above, these portions of the
Department’s regulations are based on
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.’’
This rule modifies the CMP regulations
to clarify that multiple circumstances,
including those not specified in the
rule, can be sufficient to show a
knowing violation of section 6 or 7. The
Department also reinserts language in
the CMP regulations to address the
meaning of reckless disregard. The
Department believes that these revisions
will better align its CMP regulations
with how it actually litigates willfulness
and make clearer to the regulated
community when a violation is knowing
or in reckless disregard and thus willful.
This increased clarity will enable
employers to better understand when
they may be subject to a CMP for
violating the FLSA’s minimum wage or
overtime requirements, which may
enhance the penalty’s deterrent effect.
This rule revises the Department’s
regulation addressing managers and
supervisors who cannot keep other
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52985
employees’ tips under section 3(m)(2)(B)
of the FLSA. The final rule provides that
managers and supervisors cannot
receive tips from tip pools or tip sharing
arrangements, but does not prohibit
managers and supervisors, who may
earn their own tips from customers,
from contributing tips to such
arrangements. The Department believes
that these changes will result in
increased flexibility in tip pooling
arrangements.
VI. 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
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 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 rule 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.
The per-entity cost for small business
employers is the regulatory
familiarization cost of $26.33, or the
fully loaded mean hourly wage of a
Compensation, Benefits, and Job
Analysis Specialist ($52.65) multiplied
by 1⁄2 hour (thirty minutes). Because this
cost is minimal for small business
entities, and well below one percent of
23 Statistics of U.S. Businesses 2017, https://
www.census.gov/data/tables/2017/econ/susb/2017susb-annual.html, 2016 SUSB Annual Data Tables
by Establishment Industry.
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their gross annual revenues, which is
typically at least $100,000 per year for
the smallest businesses, the Department
certifies that this rule will not have a
significant economic impact on a
substantial number of small entities.
VII. 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 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.
VIII. Executive Order 13132,
Federalism
The Department has (1) reviewed this
rule in accordance with Executive Order
13132 regarding federalism and (2)
determined that it does not have
federalism implications. The 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.
VII. Executive Order 13175, Indian
Tribal Governments
This 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.
List of Subjects
29 CFR Part 531
Wages.
24 See
2 U.S.C. 1501.
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.
25 Calculated
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16:01 Sep 23, 2021
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29 CFR Part 578
employees customarily and regularly
receive tips. An employer may not
receive tips from such a tip pool and
may not allow supervisors and
managers to receive tips from the tip
pool.
Penalties, Wages.
29 CFR Part 579
Child labor, Penalties.
29 CFR Part 580
Administrative practice and
procedure, Child labor, Penalties,
Wages.
For the reasons set forth above, the
Department amends title 29, parts 531,
578, 579, and 580 of the Code of Federal
Regulations as follows:
PART 531—WAGE PAYMENTS UNDER
THE FAIR LABOR STANDARDS ACT
OF 1938
1. The authority citation for part 531
continues to read as follows:
■
Authority: 29 U.S.C. 203(m) and (t), as
amended by sec. 3(m), Pub. L. 75–718, 52
Stat. 1060; sec. 2, Pub. L. 87–30, 75 Stat. 65;
sec. 101, sec. 602, Pub. L. 89–601, 80 Stat.
830; sec. 29(B), Pub. L. 93–259, 88 Stat. 55
sec. 3, sec. 15(c), Pub. L. 95–151, 91 Stat
1245; sec. 2105(b), Pub. L. 104–188, 110 Stat
1755; sec. 8102, Pub. L. 110–28, 121 Stat.
112; and sec. 1201, Div. S., Tit. XII, Pub. L.
115–141, 132 Stat. 348.
2. Revise § 531.52(b)(2) to read as
follows:
*
*
*
*
*
(b) * * *
(2) An employer may not allow
managers and supervisors to keep any
portion of an employee’s tips, regardless
of whether the employer takes a tip
credit. A manager or supervisor may
keep tips that he or she receives directly
from customers based on the service
that he or she directly and solely
provides. For purposes of section
3(m)(2)(B), the term ‘‘manager’’ or
‘‘supervisor’’ shall mean any employee
whose duties match those of an
executive employee as described in
§ 541.100(a)(2) through (4) or § 541.101
of this chapter.
■ 3. Amend § 531.54 by revising
paragraphs (c)(3) and (d) to read as
follows:
*
*
*
*
*
(c) * * *
(3) An employer may not receive tips
from such a tip pool and may not allow
managers and supervisors to receive tips
from the tip pool.
(d) Employers that do not take a
section 3(m)(2)(A) tip credit. An
employer that pays its tipped employees
the full minimum wage and does not
take a tip credit may impose a tip
pooling arrangement that includes
dishwashers, cooks, or other employees
in the establishment who are not
employed in an occupation in which
■
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Fmt 4700
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PART 578—TIP RETENTION, MINIMUM
WAGE, AND OVERTIME
VIOLATIONS—CIVIL MONEY
PENALTIES
4. The authority citation for part 578
continues to read as follows:
■
Authority: 29 U.S.C. 216(e), as amended
by sec. 9, Pub. L. 101–157, 103 Stat. 938, sec.
3103, Pub. L. 101–508, 104 Stat. 1388–29,
sec. 302(a), Pub. L. 110–233, 122 Stat. 920,
and sec. 1201, Div. S., Tit. XII, Pub. L. 115–
141, 132 Stat. 348; Pub. L. 101–410, 104 Stat.
890 (28 U.S.C. 2461 note), as amended by
sec. 31001(s), Pub. L. 104–134, 110 Stat.
1321–358, 1321–373, and sec. 701, Pub. L.
114–74, 129 Stat 584.
■
5. Revise § 578.3 to read as follows:
§ 578.3 What types of violations may result
in a penalty being assessed?
(a) In general. (1) A penalty of up to
$1,162 per violation may be assessed
against any person who violates section
3(m)(2)(B) of the Act.
(2) A penalty of up to $2,074 per
violation may be assessed against any
person who repeatedly or willfully
violates section 6 (minimum wage) or
section 7 (overtime) of the Act. The
amount of the penalties stated in
paragraphs (a)(1) and (2) of this section
will be determined by applying the
criteria in § 578.4.
(b) Repeated violations. An
employer’s violation of section 6 or
section 7 of the Act shall be deemed to
be ‘‘repeated’’ for purposes of this
section:
(1) Where the employer has
previously violated section 6 or section
7 of the Act, provided the employer has
previously received notice, through a
responsible official of the Wage and
Hour Division or otherwise
authoritatively, that the employer
allegedly was in violation of the
provisions of the Act; or
(2) Where a court or other tribunal has
made a finding that an employer has
previously violated section 6 or section
7 of the Act, unless an appeal therefrom
which has been timely filed is pending
before a court or other tribunal with
jurisdiction to hear the appeal, or unless
the finding has been set aside or
reversed by such appellate tribunal.
(c) Willful violations. (1) An
employer’s violation of section 6 or
section 7 of the Act shall be deemed to
be ‘‘willful’’ for purposes of this section
where the employer knew that its
conduct was prohibited by the Act or
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showed reckless disregard for the
requirements of the Act. All of the facts
and circumstances surrounding the
violation shall be taken into account in
determining whether a violation was
willful.
(2) For purposes of this section, the
employer’s receipt of advice from a
responsible official of the Wage and
Hour Division to the effect that the
conduct in question is not lawful,
among other situations, can be sufficient
to show that the employer’s conduct is
knowing, but is not automatically
dispositive.
(3) For purposes of this section,
reckless disregard of the requirements of
the Act means, among other situations,
that the employer should have inquired
further into whether its conduct was in
compliance with the Act and failed to
make adequate further inquiry.
■
6. Revise § 578.4(a) to read as follows:
§ 578.4
Determination of penalty.
(a) In determining the amount of
penalty to be assessed for any violation
of section 3(m)(2)(B) or repeated or
willful violation of section 6 or section
7 of the Act, the Administrator shall
consider the seriousness of the
violations and the size of the employer’s
business.
*
*
*
*
*
PART 579—CHILD LABOR
VIOLATIONS—CIVIL MONEY
PENALTIES
7. The authority citation for part 579
continues to read as follows:
8. Amend § 579.1 by redesignating
paragraph (a)(2) as paragraph (a)(2)(i),
revising newly designated paragraph
(a)(2)(i) and adding paragraph (a)(2)(ii)
to read as follows:
■
Purpose and scope.
(a) * * *
(2)(i) Any person who repeatedly or
willfully violates section 206 or 207 of
the FLSA, relating to wages, shall be
subject to a civil penalty not to exceed
$2,074 for each such violation.
(ii) Any person who violates section
203(m)(2)(B) of the FLSA, relating to the
retention of tips, shall be subject to a
civil penalty not to exceed $1,162 for
each such violation.
*
*
*
*
*
16:01 Sep 23, 2021
Jkt 253001
Definitions.
*
*
*
*
*
Willful violations under this section
has several components. An employer’s
violation of section 12 or section 13(c)
of the Act relating to child labor or any
regulation issued pursuant to such
sections, shall be deemed to be willful
for purposes of this section where the
employer knew that its conduct was
prohibited by the Act or showed
reckless disregard for the requirements
of the Act. All of the facts and
circumstances surrounding the violation
shall be taken into account in
determining whether a violation was
willful. In addition, for purposes of this
section, the employer’s receipt of advice
from a responsible official of the Wage
and Hour Division to the effect that the
conduct in question is not lawful,
among other situations, can be sufficient
to show that the employer’s conduct is
knowing, but is not automatically
dispositive. For purposes of this section,
reckless disregard of the requirements of
the Act means, among other situations,
that the employer should have inquired
further into whether its conduct was in
compliance with the Act and failed to
make adequate further inquiry.
10. The authority citation for part 580
continues to read as follows:
■
Authority: 29 U.S.C. 203(m), (l), 211, 212,
213(c), 216; Reorg. Plan No. 6 of 1950, 64
Stat. 1263, 5 U.S.C. App; secs. 25, 29, Pub.
L. 93–257, 88 Stat. 72, 76; Secretary of
Labor’s Order No. 01–2014 (Dec. 19, 2014),
79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461
Note.
VerDate Sep<11>2014
§ 579.2
PART 580—CIVIL MONEY
PENALTIES—PROCEDURES FOR
ASSESSING AND CONTESTING
PENALTIES
■
§ 579.1
9. Amend § 579.2 by revising the
definition of ‘‘Willful violations’’ to read
as follows:
■
Authority: 29 U.S.C. 9a, 203, 209, 211, 212,
213(c), 216; Reorg. Plan No. 6 of 1950, 64
Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88 Stat.
72, 76; Secretary’s Order 01–2014 (Dec. 19,
2014), 79 FR 77527 (Dec. 24, 2014); 5 U.S.C.
500, 503, 551, 559; 103 Stat. 938.
11. Revise the first sentence of § 580.2
to read as follows:
■
§ 580.2
rules.
Applicability of procedures and
The procedures and rules contained
in this part prescribe the administrative
process for assessment of civil money
penalties for any violation of the child
labor provisions at section 12 of the Act
and any regulation thereunder as set
forth in part 579 of this chapter, and for
assessment of civil money penalties for
any violation of the tip retention
provisions of section 3(m)(2)(B) or any
repeated or willful violation of the
minimum wage provisions of section 6
or the overtime provisions of section 7
of the Act or the regulations thereunder
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52987
set forth in 29 CFR subtitle B, chapter
V. * * *
12. Revise the first sentence of § 580.3
to read as follows:
■
§ 580.3 Written notice of determination
required.
Whenever the Administrator
determines that there has been a
violation by any person of section 12 of
the Act relating to child labor or any
regulation thereunder as set forth in part
579 of this chapter, or determines that
there has been a violation by any person
of section 3(m)(2)(B), or determines that
there has been a repeated or willful
violation by any person of section 6 or
section 7 of the Act, and determines that
imposition of a civil money penalty for
such violation is appropriate, the
Administrator shall issue and serve a
notice of such penalty on such person
in person or by certified mail. * * *
13. Amend § 580.12 by revising the
first sentence of paragraph (b) to read as
follows:
■
§ 580.12 Decision and Order of
Administrative Law Judge.
*
*
*
*
*
(b) The decision of the Administrative
Law Judge shall be limited to a
determination of whether the
respondent has committed a violation of
section 12, a violation of section
3(m)(2)(B), or a repeated or willful
violation of section 6 or section 7 of the
Act, and the appropriateness of the
penalty assessed by the Administrator.
* * *
*
*
*
*
*
14. Amend § 580.18 by revising the
third sentence in paragraph (b)(3) to
read as follows:
■
§ 580.18
penalty.
Collection and recovery of
*
*
*
*
*
(b) * * *
(3) * * * A willful violation of
sections 6, 7, or 12 of the Act may
subject the offender to the penalties
provided in section 16(a) of the Act,
enforced by the Department of Justice in
criminal proceedings in the United
States courts. * * *
Signed in Washington, DC, this 8th day of
September, 2021.
Jessica Looman,
Acting Administrator, Wage and Hour
Division.
[FR Doc. 2021–19795 Filed 9–23–21; 8:45 am]
BILLING CODE 4510–27–P
E:\FR\FM\24SER1.SGM
24SER1
]]>Agencies
[Federal Register Volume 86, Number 183 (Friday, September 24, 2021)]
[Rules and Regulations]
[Pages 52973-52987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19795]
=======================================================================
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 531, 578, 579 and 580
RIN 1235-AA21
Tip Regulations Under the Fair Labor Standards Act (FLSA);
Partial Withdrawal
AGENCY: Department of Labor, Wage and Hour Division.
ACTION: Final rule.
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SUMMARY: In December 2020, the Department promulgated a final rule
(2020 Tip final rule) to amend its tip regulations to address the
Consolidated Appropriations Act of 2018 (CAA) amendments to section
3(m) of the Fair Labor Standards Act (FLSA), among other things. In
this final rule, the Department withdraws two portions of the 2020 Tip
final rule that have not yet gone into effect addressing civil money
penalties (CMPs) and finalizes proposed changes to those portions of
the 2020 Tip final rule. The Department also modifies regulatory
provisions adopted by the 2020 Tip final rule addressing managers and
supervisors.
DATES: As of November 23, 2021 Wage & Hour is withdrawing the revisions
to Sec. Sec. 578.3, 578.4, 579.1, 579.2, 580.2, 580.3, 580.12, and
580.18, published December 30, 2020, at 85 FR 86756, delayed until
April 30, 2021, on February 26, 2021, at 86 FR 11632, and delayed until
December 31, 2021, on April 29, 2021 at 86 FR 22597.
This final rule is effective November 23, 2021.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Director of the
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 final rule 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 (877) 889-5627 to obtain information
or request materials in alternative formats.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov//whd/contact/local-offices for a nationwide listing of WHD district and area
offices.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
Section 3(m) of the FLSA allows an employer that satisfies certain
requirements to count a limited amount of the tips received by its
``tipped employees'' as a credit toward the employer's Federal minimum
wage obligation (known as a ``tip credit''). See 29 U.S.C.
203(m)(2)(A). In 2018, Congress passed the Consolidated Appropriations
Act (CAA), Public Law 115-141, Div. S., Tit. XII, sec. 1201, 132 Stat.
348, 1148-49 (2018), which amended section 3(m). The CAA added a new
statutory provision at section 3(m)(2)(B) which expressly prohibits
employers from keeping employees' tips
[[Page 52974]]
``for any purposes'' regardless of whether the employer claims a tip
credit. This includes prohibiting ``managers or supervisors'' from
keeping employees' tips. The CAA also amended section 16(e)(2) of the
FLSA to give the Department discretion to impose civil money penalties
(CMPs) of up to $1,100 when employers unlawfully keep employees' tips.
On December 30, 2020, the Department issued a final rule (2020 Tip
final rule) that updated the Department's tip regulations to implement
the CAA amendments. The 2020 Tip final rule also made other changes to
the Department's regulations, including revising the definition of
``willful'' in the Department's CMP regulations.
On March 25, 2021, the Department published a notice of proposed
rulemaking (CMP NPRM) in the Federal Register, 86 FR 15817, proposing
to withdraw and repropose two portions of the 2020 Tip final rule and
seeking comment on whether to revise another portion of the 2020 Tip
final rule. The Department proposed to withdraw and repropose: (1) The
portion of the 2020 Tip final rule incorporating the CAA's new
provisions authorizing the assessment of CMPs for violations of section
3(m)(2)(B) of the Act; and (2) the portion of its CMP regulations
addressing willful violations. The Department subsequently finalized a
delay of the effective date of these portions of the rule until
December 31, 2021 to allow the Department to review these and one other
portion of the 2020 Tips final rule. In the CMP NPRM, the Department
also sought comment on whether to revise certain aspects of the 2020
Tip final rule that apply to ``managers or supervisors'' who perform
tipped work and went into effect on April 30, 2021. Section 578.1, as
revised by the 2020 Tip final rule, at 85 FR 86756, and the effective
date of which the Department also delayed, will go into effect on
December 31, 2021.
After considering the comments, the Department has decided to adopt
the NPRM's proposed changes to the portion of the 2020 Tip final rule
incorporating the CAA's new provisions authorizing the assessment of
CMPs for violations of section 3(m)(2)(B) of the Act, and the portion
of its CMP regulations addressing willful violations. The Department
has also decided to modify portions of the 2020 Tip final rule
addressing managers and supervisors who perform tipped work.
The final rule modifies the CMP provisions for violations of
3(m)(2)(B) included in the 2020 Tip final rule by withdrawing
regulatory language in 29 CFR 578.3, 578.4, 579.1, 580.2, 580.3, and
580.12 that limited assessment of CMPs for section 3(m)(2)(B)
violations to only repeated or willful violations.\1\ This modification
upholds the Department's statutorily-granted discretion with regard to
section 3(m)(2)(B) CMPs and aligns the Department's regulations with
the statutory text. At the same time, the final rule adopts the same
rules, procedures, and amount considerations for CMPs for violation of
3(m)(2)(B) as the Department applies for other FLSA CMPs, and therefore
preserves consistent enforcement procedures that are familiar to the
Department and the public.
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\1\ The Department also finalizes as proposed the revision to
Sec. 580.18(b)(3), which corrected a technical error.
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The final rule also modifies the amendments made by the 2020 Tip
final rule to the portion of the Department's CMP regulations at 29 CFR
578.3(c)(2) and (3) and 29 CFR 579.2 addressing when a violation of
section 6 or 7 of the FLSA is willful. Specifically, the rule modifies
these regulations by clarifying that multiple circumstances, not just
the circumstance identified in Sec. Sec. 578.3(c)(2) and (3), can be
sufficient to show that a violation is willful because it is knowing or
is done with reckless disregard for whether the conduct violates the
FLSA and by reinserting language addressing the meaning of reckless
disregard. These revisions further align the Department's regulations
with applicable precedent and how the Department litigates willfulness
and provide improved guidance on circumstances where employers' conduct
may be willful.
In addition, the Department has decided to modify Sec.
531.54(c)(3) and (d), which currently provide that an employer may not
``include'' managers and supervisors in tip pools or sharing
arrangements. The final rule clarifies that while managers and
supervisors may not receive tips from mandatory tip pools or tip
sharing arrangements, managers or supervisors are not prohibited from
contributing tips to eligible employees in mandatory tip pools or
sharing arrangements. The Department is also modifying language in
Sec. 531.52, as amended by the 2020 Tip final rule, which currently
explains that it is not a violation of section 3(m)(2)(B) when a
manager or supervisor keeps tips that the manager or supervisor
receives directly from customers based on the service that the manager
or supervisor directly provides. The modified language clarifies that a
manager or supervisor may keep tips only when the tip is based on a
service the manager or supervisor directly and ``solely'' provides.
Thus, under the Department's tip regulations as revised by this final
rule, when a manager or supervisor directly receives tips for services
the manager or supervisor directly and solely provides, an employer may
allow the manager or supervisor to keep those tips, and may also
require the manager or supervisor to share some portion of the tips
with other eligible employees. The final regulations reflect the
reality that some managers or supervisors perform work for which they
receive tips, while ensuring that managers and supervisors do not keep
any portion of other employees' tips in violation of section
3(m)(2)(B).
II. Background
A. Tips and Tip Pooling
Section 6(a) of the FLSA generally requires covered employers to
pay employees at least the federal minimum wage, which is currently
$7.25 per hour. 29 U.S.C. 206(a). Section 3(m)(2)(A) allows an employer
to satisfy a portion of its minimum wage obligation to any ``tipped
employee'' by taking a partial credit toward the minimum wage based on
tips the employee receives. 29 U.S.C. 203(m)(2)(A). An employer may
take a tip credit only if, among other requirements, the tipped
employee retains all the tips he or she receives. Id. An employer
taking a tip credit is, however, allowed to require tipped employees to
participate in a mandatory, ``traditional'' tip pool \2\ in which
tipped employees share tips with other employees who ``customarily and
regularly receive tips.'' 29 U.S.C. 203(m)(2)(A). The employee must
retain sufficient tips to make up the difference between the cash wage
paid and the minimum wage. Id.
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\2\ The Department uses the term ``tip pool'' to describe any
scenario in which a tip provided by a customer is shared, in whole
or in part, between employees. The Department recognizes, however,
that in some workplaces or under state laws, the term ``tip
pooling'' may refer to a narrower set of practices, and that
employers and workers may use other terms--for example ``tip out,''
``tip sharing,'' or ``tip jar''--to describe certain practices
regarding transferring tips between employees. See 84 FR 53961.
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In 2011, the Department issued regulations interpreting what is now
section 3(m)(2)(A) to prohibit all covered employers--regardless of
whether the employer takes a tip credit--from using employees' tips
other than as a credit against its minimum wage obligation to the
employee, or in furtherance of valid traditional tip pools. See 76 FR
18832, 29 CFR 531.52 (2011); 29 CFR 531.54
[[Page 52975]]
(2011); 29 CFR 531.59 (2011). These regulations were consistent with
the Department's longstanding position on tipped employees, and the
Department stated that, although the statutory language did not
expressly address the use of an employee's tips when an employer does
not take a tip credit and pays a direct cash wage equal to or greater
than the minimum wage, the regulations filled a gap in the statutory
scheme.\3\ See 76 FR 18841-42.
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\3\ In December 2017, the Department published an NPRM proposing
to rescind the portions of its 2011 tip regulations that imposed
restrictions on employers that do not take a tip credit against
their minimum wage obligations, in part because of litigation
involving these regulatory provisions. See 82 FR 57395. The
Department withdrew this NPRM in October 2019 after the CAA
amendments to the FLSA directly impacted the subject of the
rulemaking. See 84 FR 53960. For a more detailed history of this
rulemaking, see 86 FR 15817.
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On March 23, 2018, Congress enacted the CAA, which amended section
3(m) of the FLSA to expressly prohibit employers from keeping
employees' tips ``for any purposes,'' ``regardless of whether or not
the employer takes a tip credit.'' See Public Law 115-141, Div. S.,
Tit. XII, sec. 1201; 29 U.S.C. 203(m)(2)(B). Section 3(m)(2)(B) also
prohibits employers from ``allowing managers or supervisors to keep any
portion of employees' tips.'' Id. In addition, the CAA suspended the
portions of the Department's 2011 regulations that restricted tip
pooling when employers do not take a tip credit, by providing that
those regulations ``shall have no further force or effect until any
future action taken by [the Department of Labor].'' See Public Law 115-
141, Div. S, Tit. XII, sec. 1201(c).
The CAA also amended the penalty provisions in section 16 of the
FLSA to incorporate the new statutory prohibition on employers keeping
tips. Among other things, the CAA amended section 16(e)(2) to authorize
the assessment of a civil money penalty (CMP) for violations of section
3(m)(2)(B): ``Any person who violates section 3(m)(2)(B) shall be
subject to a civil penalty not to exceed $1,100 \4\ for each such
violation, as the Secretary determines appropriate, in addition to
being liable to the employee or employees affected for all tips
unlawfully kept, and an additional equal amount as liquidated
damages[.]''
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\4\ The Federal Civil Penalties Inflation Adjustment Act of 1990
(Pub. L. 101-410), as amended by the Debt Collection Improvement Act
of 1996 (Pub. L. 104-134, sec. 31001(s)) and the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L.
114-74, sec. 701), requires that inflationary adjustments be made
annually in these civil money penalties according to a specified
formula.
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Shortly after Congress passed the CAA, the Department issued a
Field Assistance Bulletin (FAB) concerning the Wage and Hour Division's
(WHD) enforcement of the amendments to section 3(m). See FAB No. 2018-3
(Apr. 6, 2018). The Department explained that the CAA had effectively
suspended the regulatory restrictions that prohibited an employer that
does not take a tip credit from requiring tip pooling, and that ``given
these developments, employers who pay the full FLSA minimum wage are no
longer prohibited from allowing employees who are not customarily and
regularly tipped--such as cooks and dishwashers--to participate in tip
pools.'' Id. As a result, the Department explained, such employers may
implement mandatory, ``nontraditional'' tip pools in which employees
who do not customarily and regularly receive tips, such as cooks and
dishwashers, may participate. The FAB also explained that the
amendments prohibit employers, including managers or supervisors, from
keeping tips received by their employees, regardless of whether the
employer takes a tip credit under 29 U.S.C. 203(m). In addition, the
FAB provided that, as ``an enforcement policy, WHD will use the duties
test at 29 CFR 541.100(a)(2)-(4) to determine whether an employee is a
manager or supervisor,'' and thus cannot ``keep'' another employee's
tips under section 3(m)(2)(B). Id. Finally, the FAB stated that the
Department will follow its ``normal procedures'' for FLSA CMPs when
enforcing the new tips CMP, and will assess tips CMPs only when it
determines that a violation of section 3(m)(2)(B) is repeated or
willful. Id.
B. ``Willful'' Requirement for CMPs for FLSA Minimum Wage and Overtime
Violations
Section 16(e)(2) of the FLSA provides for the assessment of CMPs
for violations of the minimum wage (section 6), overtime pay (section
7), and, with the enactment of the CAA, tip provisions (section
3(m)(2)(B)) of the FLSA. Section 16(e)(2) authorizes the Department to
assess CMPs for minimum wage and overtime pay violations only when the
violations are ``repeated[ ] or willful[ ].'' See 29 U.S.C. 216(e)(2).
The Department's regulations at 29 CFR 578.3(c) and 579.2 address what
violations are willful under the Act. These regulations are intended to
implement the Supreme Court's decision in McLaughlin v. Richland Shoe
Co., 486 U.S. 128, 133 (1988), that a willful violation occurs when the
employer knew or showed reckless disregard for whether its conduct was
prohibited by the FLSA. For many years, these regulations identified
two specific circumstances in which a violation ``shall be deemed''
willful. 29 CFR 578.3(c)(2) and (3), 579.2. Specifically, the
Department's regulations at sections 578.3(c)(2) and 579.2 provided
that ``an employer's conduct shall be deemed knowing,'' among other
situations, if the employer received prior advice from WHD that its
conduct was unlawful. Additionally, sections 578.3(c)(3) and 579.2
stated that ``an employer's conduct shall be deemed to be in reckless
disregard of the requirements of the Act,'' among other situations, if
the employer failed to inquire further into the lawfulness of its
conduct when it should have. The Department's regulations further
provided that WHD shall take into account ``[a]ll of the facts and
circumstances surrounding the violation'' when determining whether a
violation is willful. 29 CFR 578.3(c)(1), 579.2.
In Baystate Alt. Staffing, Inc. v. Herman, 163 F.3d 668, 680-81
(1st Cir. 1998), the U.S. Court of Appeals for the First Circuit
identified an ``incongruity'' between the regulatory provisions deeming
two specific circumstances to be willful, and ``the Richland Shoe
standard on which the regulation is based'' which takes into account
all of the facts and circumstances. The court urged the Department ``to
reconsider'' Sec. 578.3(c)(2) and (3) ``to ensure that they comport
with'' Richland Shoe. Id. at 681 n.16. In 2016, the U.S. Court of
Appeals for the D.C. Circuit also addressed these regulations and noted
that the Department had not altered them despite being urged to do so
by the court in Baystate. See Rhea Lana, Inc. v. Dep't of Labor, 824
F.3d 1023, 1030-31 (D.C. Cir. 2016).
C. 2020 Tip Final Rule
On October 8, 2019, the Department issued an NPRM proposing to
revise the Department's tip regulations to incorporate the CAA
amendments, among other things. See 84 FR 53956. Because the Department
was revising its CMP regulations to incorporate the new CMP provision
for section 3(m)(2)(B) violations, the Department also proposed to
address the ``willful'' provisions of the Department's existing FLSA
CMP regulations in light of the decisions of the courts of appeals in
Baystate and Rhea Lana. See id. at 53964. The Department published the
Tip final rule on December 30, 2020. See 85 FR 86756. The 2020 Tip
final rule was initially scheduled to go into effect on March 1, 2021;
however, the Department delayed the 2020 Tip final rule's effective
date to April 30, 2021, in order to give the Department additional time
to consider issues of law, policy,
[[Page 52976]]
and fact that warranted additional review. See 86 FR 11632. The
Department subsequently further delayed the effective date, until
December 31, 2021, of three portions of the 2020 Tip final rule,
including the two portions addressing CMPs. See 86 FR 22597.\5\
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\5\ The third portion of the 2020 Tip final rule, delayed until
December 31, 2021, addresses when an employee is performing both
tipped and non-tipped work (dual jobs) under the FLSA. The
Department has issued a separate notice of proposed rulemaking on
this issue. See 86 FR 32818.
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Most of the provisions of the 2020 Tip final rule went into effect
on April 30, 2021. The 2020 Tip final rule amended the Department's tip
pooling regulations at 29 CFR 531.52, 531.54, and 531.59 to implement
newly added section 3(m)(2)(B), which prohibits employers--regardless
of whether they take a tip credit--from keeping employees' tips for any
purposes, and prohibits managers and supervisors from keeping
employees' tips. The 2020 Tip final rule explained that section
3(m)(2)(B) proscribes all manner of keeping tips, and is so broad as to
prohibit an employer from exerting control over employees' tips other
than to (1) distribute tips to the employee who received them, (2)
require employees to share tips with other eligible employees, or, (3)
where the employer facilitates tip pooling by collecting and
redistributing employees' tips, to distribute tips to employees in a
tip pool. The 2020 Tip final rule further provided that any employer
that collects tips to facilitate a mandatory tip pool must fully
redistribute the tips, no less often than when it pays wages, to avoid
``keep[ing]'' the tips in violation of section 3(m)(2)(B).
The 2020 Tip final rule also addressed who is a manager or
supervisor, and therefore may not keep employees' tips under section
3(m)(2)(B). The rule defined a ``manager or supervisor,'' as an
individual who meets the duties test at Sec. 541.100(a)(2)-(4) or
Sec. 541.101. As a result, a manager or supervisor for purposes of
section 3(m)(2)(B) is any employee (1) whose primary duty is managing
the enterprise or a customarily recognized department or subdivision of
the enterprise; (2) who customarily and regularly directs the work of
at least two or more other full-time employees or their equivalent; and
(3) who has the authority to hire or fire other employees, or whose
suggestions and recommendations as to the hiring or firing are given
particular weight. The definition also includes as managers or
supervisors any individuals who own at least a bona fide 20 percent
equity interest in the enterprise in which they are employed and who
are actively engaged in its management.
The final rule revised Sec. 531.54 to state that FLSA section
3(m)(2)(B) ``prohibits employers from requiring employees to share tips
with managers and supervisors,'' and to state that employers ``may not
include supervisors and managers'' in a tip pool. The rule at Sec.
531.52(b) specified, however, that such a manager or supervisor may
keep tips that he or she receives directly from customers based on the
service that he or she directly provides.
Consistent with the CAA amendments, the 2020 Tip final rule also
removed the provisions of the Department's 2011 regulations that
imposed restrictions on employers that do not take a tip credit. In
addition, the 2020 Tip final rule amended Sec. 531.54 to explicitly
state that an employer that pays tipped employees the full minimum wage
and does not take a tip credit may require tipped employees to share
tips with dishwashers, cooks, or other employees who are not employed
in an occupation in which employees customarily and regularly receive
tips, as long as that arrangement does not include any employer,
supervisor, or manager. The 2020 Tip final rule also incorporated a new
recordkeeping requirement for employers that administer such
``nontraditional'' tip pools.
These portions of the 2020 Tip final rule--addressing the CAA's
changes to tips and tip pooling in section 3(m) and related
recordkeeping requirements, including the provisions on managers and
supervisors--went into effect on April 30, 2021. 86 FR 22597.
The 2020 Tip final rule also made changes to the Department's CMP
regulations at 29 CFR parts 578, 579, and 580. The Department delayed
the effective date of these changes, and the revised provisions have
not gone into effect. See 86 FR 22597. The 2020 Tip final rule updated
the Department's FLSA CMP regulations to add references to the new CMP
for violations of 3(m)(2)(B). The 2020 Tip final rule also specified
that the Department may assess CMPs only for ``repeated or willful''
violations of section 3(m)(2)(B), although the statute does not include
this limitation. The 2020 Tip final rule also amended the Department's
CMP regulations at Sec. Sec. 578.3(c)(2) and 579.2 regarding when a
violation is knowing, and thus willful, to address the appellate court
decisions that have, for example, ``urge[d]'' the Department to
reconsider those regulations to ensure their consistency with the
Supreme Court's interpretation of the meaning of ``willful'' in the
FLSA. See 85 FR 86757. In addition, the 2020 Tip final rule deleted
Sec. 578.3(c)(3) and the corresponding language in Sec. 579.2
regarding when a violation is in reckless disregard of the FLSA. See
id. at 86774.
D. Legal Challenge to the 2020 Tip Final Rule
On January 19, 2021, before the 2020 Tip final rule went into
effect, Attorneys General from eight states and the District of
Columbia (``AG Coalition'') filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, in which they
argued that the Department violated the Administrative Procedure Act in
promulgating the 2020 Tip final rule.\6\ The complaint argues that the
2020 Tip final rule made several changes to the Department's
regulations that are contrary to the FLSA and the CAA, including the
2020 Tip final rule's imposition of a willfulness requirement for CMPs
for section 3(m)(2)(B) violations, and the rule's revisions to its CMP
regulations on willful violations. It further argues that the 2020 Tip
final rule's revisions to the Department's CMP regulations on willful
violations contradict the longstanding Supreme Court precedent on
willfulness. The complaint also asserts that the 2020 Tip final rule's
provisions on managers and supervisors improperly prevent certain
lower-paid managers and supervisors from receiving tips.
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\6\ See Compl., Commonwealth of Pennsylvania et al. v. Scalia et
al., No. 2:21-cv-00258 (E.D. Pa.).
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E. The Department's Proposal
On March 25, 2021, the Department issued an NPRM proposing to
withdraw and repropose the two portions of the 2020 Tip final rule
addressing CMPs and seeking comment on whether to revise another
portion of the 2020 Tip final rule. See 86 FR 15817. Because of its
concerns that the 2020 Tip final rule inappropriately circumscribed the
Department's discretion to assess CMPs for violations of 3(m)(2)(B),
the Department proposed to withdraw that portion of the rule and adopt
regulatory language so that the Department is not limited in its
assessment of CMPs to only repeated and willful violations of section
3(m)(2)(B). At the same time, the Department reproposed language that
would, similar to the language in the 2020 Tip final rule, adopt the
same rules, procedures, and amount considerations for CMPs for
violation of 3(m)(2)(B), as the Department applies for other FLSA CMPs.
The Department also proposed to withdraw the portion of its CMP
regulations addressing
[[Page 52977]]
willful violations, and reproposed those portions with modifications to
further align the regulations with Supreme Court and appellate court
decisions and provide improved guidance on circumstances where
employers' conduct may be willful. Finally, the Department requested
comment on whether to revise the 2020 Tip final rule's language
regarding managers or supervisors, which went into effect on April 30,
2021, to better address the fact that some managers and supervisors
perform tipped work.\7\
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\7\ The Department also asked questions about how it might
improve the recordkeeping requirements in the 2020 Tip final rule in
a future rulemaking.
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The 60-day comment period for the NPRM ended on May 24, 2021. The
Department received 33 unique comments from various constituencies
including small business owners, worker advocacy groups, employer and
industry associations, non-profit organizations, law firms, attorneys
general, and other interested members of the public. All timely
received comments may be viewed on the regulations.gov website, docket
ID WHD-2019-0004. The Department has considered the timely submitted
comments addressing the proposed changes and discusses significant
comments below.
The Department also received a small number of comments on issues
that are beyond the scope of this rulemaking. These include, for
example, comments suggesting that the amount of the federal minimum
wage should be increased, and comments requesting that the Department
revise the regulatory definition of ``managers or supervisors'' that
cannot keep employees' tips to include a salary component. The
Department does not address those issues in this final rule.
III. Final Regulatory Revisions
A. Civil Money Penalties for Violations of Section 3(m)(2)(B)
The CAA amended FLSA section 16(e), which establishes CMPs for
certain violations of the Act, to add new penalty language for
employers who violate section 3(m)(2)(B) by ``keep[ing]'' employees'
tips. 29 U.S.C. 216(e)(2). This provision states that: ``Any person who
violates section 3(m)(2)(B) shall be subject to a civil penalty not to
exceed $1,100 \8\ for each such violation, as the Secretary determines
appropriate, in addition to being liable to the employee or employees
affected for all tips unlawfully kept . . . .'' Unlike the statutory
provisions in section 16(e)(2) setting forth CMPs for minimum wage and
overtime violations, the statute does not limit the assessment of CMPs
to repeated or willful violations of section 3(m)(2)(B). Instead, the
penalty language subjects persons who violate 3(m)(2)(B) to civil
penalties ``as the Secretary determines appropriate.''
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\8\ The CMP amount in the 2020 Tip final rule was adjusted to
$1,162 for inflation, as required by the Federal Civil Penalties
Inflation Adjustment Act of 1990 (Pub. L. 101-410), as amended by
the Debt Collection Improvement Act of 1996 (Pub. L. 104-134, sec.
31001(s)) and the Federal Civil Penalties Inflation Adjustment Act
Improvements Act of 2015 (Pub. L. 114-74, sec. 701).
---------------------------------------------------------------------------
Although the 2020 Tip final rule acknowledged the Department's
discretion to assess CMPs for any violation of section 3(m)(2)(B), the
2020 Tip final rule limited this discretion by restricting CMPs to only
repeated or willful violations of section 3(m)(2)(B). In the CMP NPRM,
the Department proposed to withdraw the 2020 Tip final rule CMP
provisions for violations of 3(m)(2)(B) and adopt regulatory language
in 29 CFR 578.3, 578.4, 579.1, 580.2, 580.3, and 580.12 that retains
the full discretion granted to the Secretary to assess CMPs for any
violation of section 3(m)(2)(B). The Department also proposed to adopt
the same rules, procedures, and amount considerations for CMP
assessments applicable to violation of section 3(m)(2)(B) as the
Department applies to other FLSA CMP assessments.\9\ These procedures
are found in Sec. Sec. 578.3, 578.4, 579.1, 580.2, 580.3, and 580.12.
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\9\ In the 2020 Tip final rule, the Department similarly adopted
the same rules, procedures, and considerations applicable to CMP
assessments for violations of section 3(m)(2)(B) as the Department
applies to other FLSA CMP assessments. As explained above, the
Department proposed to withdraw those provisions, which have not
gone into effect.
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Many commenters, such as the National Partnership for Women &
Families and the Employee Rights Center, supported the proposal,
stating that it ``aligns with the plain language of the FLSA and
Congress's legislative intent.'' Several commenters that supported the
proposal noted that it preserved the full discretion the statute grants
to the Department to assess CMPs for violations of section 3(m)(2)(B).
The AG Coalition noted that by including regulatory language in the
proposal that differentiates between violations of section 3(m)(2)(B)
and repeated or willful minimum wage and overtime violations, the
``Department retains its discretion to levy CMPs against employers that
violate the FLSA, as intended by Congress and limited only by the
statute.'' Texas RioGrande Legal Aid stated that the discretion
permitted by the proposal would mean that ``DOL investigators will have
more tools at their disposal to help workers'' and argued that the
Department should not ``hamper its own investigations'' by restricting
such discretion.
Other commenters opposed the proposal. The National Restaurant
Association (NRA) stated that the Department should instead retain the
2020 Tip final rule requirement that the Department would only assess
CMPs for repeated and willful violations of section 3(m)(2)(B), noting
that the Department had previously explained that this limitation was
``consistent with how the Department enforces other FLSA wage
violations.'' The NRA also argued that making such a differentiation
between violations of sections 6 and 7 and violations of section
3(m)(2)(B) will ``destroy the public trust.'' The Department disagrees.
The statute itself distinguishes between violations of sections 6 and 7
and violations of section 3(m)(2)(B) with regard to the assessment of
CMPs. Thus, removing the 2020 Tip final rule's repeated or willful
requirement for section 3(m)(2)(B) CMPs is consistent with the FLSA
itself. Moreover, the Department's enforcement of different sections of
the FLSA currently varies depending on whether the statutory text
limits CMPs to repeated or willful violations or not. The child labor
provisions of the FLSA--like the statutory text for violations of
section 3(m)(2)(B)--do not limit CMPs to repeated or willful
violations. Compare 29 U.S.C. 216(e)(1)(A)(i) (``Any person who
violates the provisions of sections 212 or 213(c) of this title,
relating to child labor . . . shall be subject to a civil penalty . . .
for each employee who was the subject of such a violation'') with 29
U.S.C. 216(e)(1)(A)(ii) (CMPs for violations that caused the death or
serious injury of a child employee ``may be doubled where the violation
is a repeated or willful violation''). The Department's final rule will
bring the assessment of section 3(m)(2)(B) CMPs into harmony with the
statutory text, as is currently the case with the child labor CMP
provisions. Furthermore, this final rule adopts the same rules,
procedures, and amount considerations for determining section
3(m)(2)(B) CMPs that the Department uses to determine CMPs for other
FLSA wage violations. Therefore, the final rule will preserve
consistent enforcement procedures familiar to the Department and the
public.
The National Federation of Independent Businesses (NFIB) also
opposed the proposal. Recognizing that the statute ``vests wide
discretion in the Secretary of Labor,'' NFIB asked the Department to
keep the ``repeated or
[[Page 52978]]
willful'' requirement from the 2020 Tip final rule for small businesses
that violate section 3(m)(2)(B). The Department declines to adopt this
recommendation, because it would not be consistent with its enforcement
in other areas to impose the requirement that CMPs be assessed against
small businesses only when the violations committed are repeated and
willful. However, NFIB also requested that the Department preserve the
requirement that it consider the seriousness of the violation and the
size of the employer's business when assessing CMPs for section
3(m)(2)(B). The Department's final rule does preserve that requirement,
because, as explained above, it adopts the same longstanding rules and
procedures that the Department applies for other FLSA CMPs for the
assessment of section 3(m)(2)(B) CMPs. This includes the obligation,
required by 29 U.S.C. 216(e)(3), to consider the size of the employer's
business when determining the amount of any civil money penalty.
After review of the comments, the Department agrees that it was
inappropriate to limit the statutorily-granted discretion by regulation
and that instead the regulations should reflect the statutory text.
Therefore, the Department finalizes the revisions to 29 CFR 578.3,
578.4, 579.1, 580.2, 580.3, and 580.12 that eliminate the references
limiting CMP assessments for violations of section 3(m)(2)(B) to
repeated and willful violations as proposed. The Department also
finalizes as proposed the other revisions to Sec. Sec. 578.3, 578.4,
579.1, 580.2, 580.3, and 580.12 which amend those provisions to adopt
the same rules, procedures, and amount considerations for tip CMP
assessments as the Department applies for other FLSA CMP assessments,
which will promote the goals of consistency and familiarity that the
Department emphasized in the 2020 Tip final rule.
The Department also finalizes as proposed the revision to Sec.
580.18(b)(3), which eliminates the reference in that regulation to
willful violations of section 3(m)(2)(B), which was a technical error
in the 2020 Tip final rule, since the CAA Amendments did not provide
for criminal penalties for violations of section 3(m)(2)(B).
B. Civil Money Penalties for Willful Violations of the Fair Labor
Standards Act
1. Summary of Proposed Changes to Portions of CMP Regulations
Addressing When a Violation of Section 6 or Section 7 of the FLSA Is
Willful
In addition to revising its regulations to preserve the
Department's full discretion to assess CMPs for violations of section
3(m)(2)(B), the Department proposed to further modify Sec. Sec.
578.3(c) and 579.2 of its CMP regulations, which address when a
violation of the FLSA is ``willful,'' and thus subject to a CMP under
section 16(e). 86 FR 15822. Specifically, the Department proposed to
withdraw and repropose with a modification the language at Sec. Sec.
578.3(c)(2) and 579.2 addressing when an employer's violation is
knowing, and further proposed to reinsert language at Sec. Sec.
578.3(c)(3) and 579.2 to provide guidance regarding the meaning of
reckless disregard.
As previously explained,\10\ the Department's definition of a
``willful'' violation in Sec. Sec. 578.3(c) and 579.2 is based on
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. The
Department incorporated this holding into Sec. 578.3(c)(1) of its CMP
regulations when they were first promulgated in 1992, and Sec.
578.3(c)(1) further states that ``[a]ll of the facts and circumstances
surrounding the violation shall be taken into account in determining
whether a violation was willful.'' 29 CFR 578.3(c)(1); 57 FR 49130
(1992). The 2020 Tip final rule made no changes to this language in
Sec. 578.3(c)(1), and the Department did not propose any in the CMP
NPRM. See 86 FR 15822.
---------------------------------------------------------------------------
\10\ See supra Section II.B.
---------------------------------------------------------------------------
The Department's 1992 CMP regulations identified two specific
circumstances in which a violation ``shall be deemed'' knowing and in
reckless disregard, respectively, and thus willful: Prior advice from
WHD to the employer that its conduct was unlawful, and the employer's
failure to adequately inquire further into the lawfulness of its
conduct when it should have. 57 FR 49130; 29 CFR 578.3(c)(2)-(3). As
the Department noted in the NPRM for the 2020 Tip final rule, two
appellate courts identified an inconsistency between the 1992
regulations' language, on the one hand, that conduct ``shall be deemed
knowing'' if the employer was previously advised by WHD that the
conduct was unlawful, and its language, on the other hand, derived from
Richland Shoe, that WHD shall take into account ``[a]ll of the facts
and circumstances surrounding the violation'' when determining
willfulness. See 84 FR 53964-65 (discussing Rhea Lana, Inc. v. Dep't of
Labor, 824 F.3d 1023, 1030-32 (D.C. Cir. 2016), and Baystate Alt.
Staffing, Inc. v. Herman, 163 F.3d 668, 680-81 (1st Cir. 1998)). The
Department also explained in the NPRM for the 2020 Tip final rule that
it does evaluate all of the facts and circumstances surrounding a
violation when litigating willfulness, notwithstanding the regulatory
language that appeared to be to the contrary. See 84 FR 53965.
Accordingly, the NPRM for the 2020 Tip final rule proposed to revise
Sec. Sec. 578.3(c)(2)-(3) and 579.2 to state that an employer's
receipt of advice from WHD that its conduct is unlawful and its failure
to inquire further regarding the legality of its conduct are each ``a
relevant fact and circumstance'' in determining willfulness. See 84 FR
53978.
After considering comments received, the 2020 Tip final rule
revised Sec. 578.3(c)(2) and the corresponding language in Sec. 579.2
to state that, in considering all of the facts and circumstances, an
employer's receipt of advice from WHD that its conduct was unlawful
``can be sufficient'' to show that the violation is knowing but is
``not automatically dispositive.'' See 85 FR 86774. In addition, the
2020 Tip final rule deleted Sec. 578.3(c)(3) and the corresponding
language in Sec. 579.2 addressing the meaning of reckless disregard.
The 2020 Tip final rule explained that, unlike Sec. 578.3(c)(2), Sec.
578.3(c)(3) does not just identify a fact and address how that fact
impacts a willfulness finding; instead, it addresses a scenario--in
which an employer should have inquired further into the lawfulness of
its conduct but did not do so adequately--that is ``tantamount to
reckless disregard.'' See 85 FR 86774 (citing Davila v. Menendez, 717
F.3d 1179, 1185 (11th Cir. 2013)). According to the 2020 Tip final
rule, revising Sec. 578.3(c)(3) in the same manner as Sec.
578.3(c)(2) thus ``did not seem helpful.'' Id.
In the CMP NPRM, the Department stated that it believed a
modification to Sec. 578.3(c)(2) and the corresponding language in
section Sec. 579.2 regarding knowing violations was necessary to
clarify that other circumstances, not just the circumstance identified
in these regulations, can be sufficient to show that a violation is
knowing. Accordingly, the Department proposed to withdraw and repropose
Sec. 578.3(c)(2)
[[Page 52979]]
and the corresponding language in Sec. 579.2 to state that ``the
employer's receipt of advice from a responsible [WHD] official . . . to
the effect that the conduct in question is not lawful, among other
situations, can be sufficient to show that the employer's conduct is
knowing, but is not automatically dispositive.'' 86 FR 15823. The
Department also explained in the CMP NPRM that, although the preamble
to the 2020 Tip final rule stated that an employer's failure to make
adequate further inquiry into the lawfulness of its conduct when it
should have done so is ``tantamount to reckless disregard,'' the rule's
deletion of Sec. 578.3(c)(3) and the corresponding language in Sec.
579.2 could be read as suggesting the opposite. See id. Accordingly,
the Department proposed to reinsert language in Sec. Sec. 578.3(c)(3)
and 579.2 addressing reckless disregard--specifically, that ``reckless
disregard of the requirements of the Act means, among other situations,
that the employer should have inquired further into whether its conduct
was in compliance with the Act and failed to make adequate further
inquiry.'' 86 FR 15823.
2. Comments Regarding Proposed Willfulness Changes
Multiple commenters supported the willfulness changes proposed in
the CMP NPRM. The AG Coalition stated that the proposed revisions to
Sec. Sec. 578.3(c)(2) and (3) and 579.2 would address their concerns
with the 2020 Tip final rule's amendments to these provisions, which
``[left] the regulated community without guidance in determining when
reckless conduct is willful'' (among other concerns). The AG Coalition
supported the Department's proposal to ``clarif[y] that there may be
other situations'' where a violation can be found knowing, in addition
to when an employer has received advice from WHD that its conduct is
unlawful. The AG Coalition also supported the Department's proposal to
reinstate regulatory text regarding the meaning of reckless disregard
in Sec. Sec. 578.3(c)(3) and 579.2, including the Department's
proposal that reckless disregard may be established in situations other
than where ``the employer should have inquired further but did not do
so adequately.'' \11\ The Center for Workplace Compliance (CWC) stated
that it was ``pleased to support'' the Department's proposal to retain
language in Sec. Sec. 578.3(c)(2) and 579.2 stating that an employer's
receipt of advice from WHD that its conduct was unlawful is ``not
automatically dispositive'' of willfulness. According to CWC, this
language ``recognizes that employers should not be automatically
subject to [CMPs] where legitimate questions exist concerning . . .
coverage.''
---------------------------------------------------------------------------
\11\ The AG Coalition also stated that ``section 578.3(c)(2)
could be strengthened by re-inserting the `shall be deemed' language
while maintaining consistency with Richland Shoe, though the
proposed revision is much improved from the 2020 Tip Rule.''
---------------------------------------------------------------------------
Commenters representing employees generally supported the proposed
willfulness changes in part. Commenters such as Restaurant
Opportunities Centers United (ROC United), the North Carolina Justice
Center (NCJC), and the National Employment Lawyers Association (NELA)
supported the Department's affirmation in the CMP NPRM that the two
scenarios identified in its regulations--an employer's receipt of
advice from WHD that its conduct was unlawful and an employer's failure
to adequately inquire into the lawfulness of its conduct when it should
have done so--``can be sufficient'' to establish willfulness. See also
Texas RioGrande Legal Aid (TRLA) (``TRLA appreciate[s] the DOL's
improvement between the prior notice of proposed rulemaking and this
reproposal.''). These commenters noted that they understood the
Department's concern that the 1992 versions of Sec. Sec. 578.3(c)(2)
and (3) and 579.2 ``may be in tension'' with Richland Shoe and with
Sec. 578.3(c)(1)'s requirement that all facts and circumstances be
considered.\12\ However, to give the scenarios identified in the
regulations ``the proper weight,'' commenters representing employees
recommended that the Department ``establish a rebuttable presumption
that a violation is knowing when an employer received notice from WHD
that its conduct was unlawful, and that a violation is in reckless
disregard of the law if the employer failed to make adequate inquiry
into whether its conduct was compliant.'' See, e.g., ROC United; NCJC;
NELA; NELP; TRLA.
---------------------------------------------------------------------------
\12\ In contrast, NELP stated that ``the longstanding regulatory
language'' in Sec. Sec. 578.3(c)(2) and (3) and 579.2 stating that
violations ``shall be deemed'' willful in certain scenarios is ``not
in tension with language elsewhere in FLSA regulations and in
precedent requiring that `all of the facts and circumstances' be
considered in determining whether a violation was willful.''
---------------------------------------------------------------------------
The NRA and NFIB urged the Department to retain the 2020 Tip final
rule's revisions to Sec. Sec. 578.3(c)(2) and (3) and 579.2. The NRA
stated that it supported the 2020 Tip final rule's willfulness changes
``for the reasons that the Department already outlined'' in the 2020
Tip final rule before the Department's ``sudden'' change of opinion in
the CMP NPRM. The NFIB supported the 2020 Tip final rule's willfulness
changes over those proposed in the CMP NPRM as well, characterizing the
2020 revisions as ``reasonable and practical.'' In the alternative,
NFIB requested that the Department retain the 2020 Tip final rule's
willfulness changes for ``small and independent businesses.''
3. Discussion of Comments and Rationale for Finalizing Proposed Changes
to Portions of CMP Regulations Addressing When a Violation Is Willful
After considering all the comments, the Department is finalizing
the revisions to Sec. Sec. 578.3(c)(2) and (c)(3) and 579.2 as
proposed.
The Department continues to believe that revisions to its 1992
regulations regarding when a violation of the FLSA is willful are
necessary for the reasons identified in the 2020 Tip final rule: To
resolve the tensions identified by appellate courts within Sec.
578.3(c) and between Sec. 578.3(c) and Richland Shoe and to align
these provisions more closely with how the Department actually
litigates. Accordingly, as proposed in the CMP NPRM, the Department is
retaining the language in Sec. 578.3(c)(2) and the corresponding
language in Sec. 579.2 that an employer's receipt of advice from WHD
that its conduct is unlawful is ``not automatically dispositive'' of a
knowing violation. By clarifying that an employer's receipt of advice
from WHD that its conduct is unlawful is not automatically dispositive,
the Department also addresses the concern raised by CWC that such
evidence should not ``automatically subject'' an employer to CMPs where
the employer has a legitimate disagreement with WHD concerning the
FLSA's coverage.
At the same time, this rule's revisions to Sec. Sec. 578.3(c)(2)
and 579.2 affirm that an employer's receipt of advice from WHD that its
conduct is unlawful ``can be sufficient'' to show that a violation is
knowing and thus willful. In accordance with Sec. 578.3(c)(1), all
facts and circumstances surrounding the violation must be taken into
account when determining willfulness. However, an employer's receipt of
advice from WHD that its conduct is unlawful is a significant, and may
be a determining, factor regarding that employer's willfulness.
By finalizing the proposed changes to Sec. 578.2(c)(2) and the
corresponding language in Sec. 579.2, this rule also makes explicit,
consistent with considering all of the facts and circumstances, that
[[Page 52980]]
evidence other than an employer's receipt of advice from WHD that its
conduct was unlawful can be sufficient to show that a violation was
knowing. As noted above, the AG Coalition urged the Department to
finalize this proposed change. This rule thus makes clear that other
circumstances, not just the circumstance identified in Sec.
578.3(c)(2), can be sufficient to show that a violation is knowing.
This rule also restores regulatory text regarding the meaning of
willfulness by reinserting language regarding reckless disregard in
Sec. Sec. 578.3(c)(3) and 579.2. The Department agrees with the AG
Coalition and advocacy groups representing employees who argued that
simply deleting Sec. 578.3(c)(3) and the corresponding language in
Sec. 579.2 may have led to confusion and uncertainty. The revised
language in Sec. Sec. 578.3(c)(3) and 579.2 regarding reckless
disregard aligns the Department's regulations with appellate court
precedent, pursuant to which an employer's failure to adequately
inquire into whether it violated the FLSA when it should have done so
is considered tantamount to reckless disregard. See Davila v. Menendez,
717 F.3d 1179, 1184 (11th Cir. 2013). The revisions to Sec.
578.3(c)(3) and the corresponding language in Sec. 579.2 also make
clear that reckless disregard can be proven by evidence other than that
the employer should have inquired further but did not do so adequately.
When determining reckless disregard, the Department must still consider
all of the relevant facts and circumstances. See Sec. 578.3(c)(1).
Accordingly, under revised Sec. Sec. 578.3(c)(3) and 579.2, an
employer is in reckless disregard of the FLSA when, among other
situations, the Department determines based on all of the facts and
circumstances that the employer should have inquired into whether its
conduct was lawful but failed to do so adequately.
The Department appreciates the concern of commenters representing
employees that the circumstances identified in Sec. Sec. 578.3(c)(2)
and (3) be accorded appropriate weight in the willfulness analysis.
However, the Department declines to incorporate into its regulations a
rebuttable presumption that a violation of the FLSA is willful in these
scenarios. Any rebuttable presumption would need to be carefully
calibrated to ensure that it is consistent with Sec. 578.3(c)(1)'s
requirement, derived from Richland Shoe, that all facts and
circumstances be considered in determining willfulness.\13\
Incorporating a rebuttable presumption into these provisions would also
create administrative difficulties, as it would require a change in how
WHD assesses CMPs and how the Department litigates CMP proceedings.
---------------------------------------------------------------------------
\13\ Additionally, courts have made clear that the burden of
proving that an employer acted willfully ultimately falls in the
employee. See, e.g., Davila, 717 F.3d at 1184-85.
---------------------------------------------------------------------------
Moreover, the Department does not agree that incorporating a
rebuttable presumption of willfulness into its CMP regulations would
accord greater weight to the scenarios identified in Sec. Sec.
578.3(c)(2) and (3) than is accorded by its revisions to these
provisions. As discussed above, under the proposed revisions--which
this rule finalizes--an employer's receipt of advice from WHD that its
conduct was unlawful ``can be sufficient'' to establish a knowing
violation; thus, the revisions accord significant, and possibly
determinative, weight to this fact in the willfulness analysis.
Additionally, as noted above, an employer is in reckless disregard of
the FLSA when, based on all of the facts and circumstances, it should
have inquired into the lawfulness of its conduct but failed to do so
adequately. Since any rebuttable presumption would need to be carefully
calibrated to avoid conflicting with the requirement that all facts and
circumstances be considered and would necessitate a change in how the
Department administers CMPs and litigates willfulness, and given that
incorporating a rebuttable presumption into the regulations would not
necessarily accord greater weight to the scenarios in Sec. Sec.
578.3(c)(2) and (3) and 579.2, the Department declines to incorporate a
rebuttable presumption of willfulness into its CMP regulations.
Finally, the Department declines to retain the 2020 Tip final
rule's willfulness revisions, as urged by the NRA and NFIB. Upon review
of the comments and for the reasons discussed above, the Department
believes that the proposed revisions to Sec. Sec. 578.3(c)(2) and (3)
and 579.2 make needed modifications to its CMP regulations.\14\ The
Department also declines NFIB's suggestion to preserve the 2020 Tip
final rule's willfulness revisions for smaller employers. Consistent
with the text of section 16(e)(2) of the FLSA, which provides that
``any person who repeatedly or willfully violates'' section 6 or 7 of
the FLSA ``shall be subject to a civil penalty,'' 29 U.S.C. 216(e)(2),
the Department has always maintained a uniform standard of willfulness
applicable to all persons who violate the FLSA. See 57 FR 49128.
Adopting different standards of willfulness for different sizes of
employers would present administrative difficulties for WHD.
---------------------------------------------------------------------------
\14\ The Department notes that it disagrees with the NRA's
assertion that the proposed willfulness changes represent a
``sudden'' change in position from the 2020 Tip final rule. Although
the proposed revisions make important and needed modifications to
Sec. Sec. 578.3(c)(2) and (3) and 579.2, these revisions clearly
build upon rather than depart from the fundamental reasoning behind
and objectives of the 2020 Tip final rule's willfulness revisions:
To better align the Department's CMP regulations with appellate
court precedent and with how the Department actually litigates
willfulness.
---------------------------------------------------------------------------
Accordingly, the final rule adopts the revisions to Sec. Sec.
578.3(c)(2) and (c)(3) and 579.2 as proposed.
C. Managers and Supervisors Under 3(m)(2)(B)
Section 3(m)(2)(B) prohibits employers, regardless of whether they
take a tip credit, from keeping tips received by employees, ``including
allowing managers or supervisors to keep any portion of employees'
tips.'' 29 U.S.C. 203(m)(2)(B). Section 531.52(b)(2), as amended by the
2020 Tip final rule, reiterates the prohibition in section 3(m)(2)(B)
that ``[a]n employer may not allow managers and supervisors to keep any
portion of an employee's tips, regardless of whether the employer takes
a tip credit.'' 29 CFR 531.52(b)(2). However, Sec. 531.52(b)(2)
clarifies that an employer does not violate 3(m)(2)(B) when a manager
or supervisor keeps tips that ``he or she receives directly from
customers based on the service that he or she directly provides.'' The
Department explained in the 2020 Tip final rule that section 3(m)(2)(B)
does not bar managers and supervisors from keeping their own tips but
only prohibits managers and supervisors from keeping ``tips received by
employees other than themselves.'' See 85 FR 86764. Thus, for example,
a salon manager may ``keep tips left by customers whose hair she
personally styles,'' without violating the statute. Id.
In the CMP NPRM, the Department observed that some managers and
supervisors may directly engage in a significant amount of tipped work
for which they earn tips, and requested comments on whether it could
make additional adjustments to the regulations to better address these
employees without running afoul of section 3(m)(2)(B)'s prohibition of
these individuals ``keeping'' other employees' tips. The Department
asked whether language in the current regulation is sufficient to allow
managers and supervisors to retain the tips they earn from customer
service work. The Department also requested comment on whether it
should modify the regulation to clarify that managers and supervisors
can contribute tips to mandatory tip
[[Page 52981]]
pools. In addition, the Department asked general questions about
managers and supervisors and tipped work, including: (1) How commonly
managers and supervisors perform tipped work; (2) whether, prior to the
CAA, managers and supervisors who perform tipped work typically
participated in tip pools or tip sharing arrangements; and (3) whether
it is common for tips provided for work performed by a manager or
supervisor to be commingled with other employees' tips.
1. Managers and Supervisors May Keep Tips They Directly Receive for
Service They Directly and Solely Provide
Commenters--representing both employers and employees--generally
noted that it is not unusual for managers and supervisors in service
industries to perform tipped work. See Werman Salas; NRA. NRA stated
that, in the restaurant industry, managers and supervisors ``take
orders,'' and ``serve food . . . on [a] daily basis throughout the
country.'' NRA also explained that, in ``some circumstances,'' a
``manager might be the only individual serving tables because it is a
slow day or because it is an event outside the restaurant location and
only supervisors are managing it.'' One brewery employer noted that its
bar manager has three jobs codes--manager, bartender, and brewery
assistant--and that ``there are many times'' when the manager ``must
change roles and work under a bartender job code for 4 hours of a 6
hour shift.'' The commenter further noted that even in large
restaurants, ``[i]f a bartender doesn't show up for work,'' the manager
may be ``forced to stop managing and become the bartender for a
night.'' Commenters also indicated that managers and supervisors are
performing more tipped work as a result of the COVID-19 pandemic. The
Employment Rights Center commented that, as a result of the pandemic, a
manager might, for example, be more likely to ``serve an unexpected in-
person table, while a server is staffing a takeout counter or preparing
to-go orders.'' ROC United stated that managers and supervisors at
full-service restaurants ``have performed tipped work on a daily and
hourly basis over the last year.''
Nearly all commenters supported regulatory language allowing
managers and supervisors who receive their own tips for services they
directly provide to keep those tips. See, e.g., Economic Policy
Institute (EPI); Employee Rights Center; Public Justice Center;
Kentucky Equal Justice Center; National Employment Lawyers Association;
National Employment Law Project; NFIB; National Partnership for Women
and Families; National Women's Law Center; ROC United; and Worker
Justice Center of New York. NFIB stated that this policy, ``reasonably
recognizes situations in which a manager or supervisor provides
leadership services with respect to other employees, but also furnishes
services to customers on the same basis as those employees, as happens
frequently, for example, in the restaurant business.'' One individual
commenter, however, argued that managers and supervisors should not be
able to keep the tips that they receive for their direct service, as
this would incentivize managers or supervisors to ``use less staff, so
they `have to' lend a hand.''
Commenters also described instances in which tips provided for work
performed by a manager or supervisor may be commingled with tips
provided to other tipped employees. Werman Salas commented that
commingling frequently occurs in two scenarios: When a manager or
supervisor ``performs tipped work alongside other tipped employees and
there is a common tip jar,'' or when the manager or supervisor assists
with tipped work, but ``is not solely responsible for the service that
results in the gratuity being given by the customer.'' For example a
manager or supervisor might run food to a table, but the ``server is
otherwise responsible for the balance of the guest experience.'' Id.
The Department requested comments on whether it was possible to
modify the regulations so that a manager or supervisor could retain
tips in commingling scenarios without allowing the manager or
supervisor to keep other employees' tips in violation of 3(m)(2)(B).
Commenters who responded to this question generally stated that such an
approach was not feasible because it will often be impossible to
determine the amount of the tip ``earned'' by the manager or
supervisor. See Werman Salas; NWLC. For example, NWLC stated that when
a customer leaves a single tip for a service experience in which both a
manager or supervisor and a non-managerial tipped employee participate,
it is not possible to attribute a portion of the tip to the manager or
supervisor. Rather than revise the language in Sec. 531.52(b)(2) to
allow a manager or supervisor to keep commingled tips, these commenters
proposed revising the regulation to ``state the opposite'' and provide
that a manager or supervisor may keep a tip he or she directly receives
for service he or she directly provides only if the tip is not
commingled with and is segregable from other employees' tips. Werman
Salas Law Firm; see also NWLC. NRA, on the other hand, agreed generally
that ``tips to managers and supervisors should not be `commingled' with
tips provided to tipped employees,'' but suggested that managers and
supervisors could pool tips among themselves. According to the NRA,
``no tipped employee shares tips with a supervisor or manager'' in
these scenarios.
Having carefully considered the comments, the Department has
decided to slightly modify the statement in Sec. 531.52(b)(2) that a
manager or supervisor may keep tips that ``he or she receives directly
from customers based on the service that he or she directly provides.''
In this final rule, the Department amends the regulatory language to
clarify that a manager or supervisor may keep tips only for services
the manager or supervisor directly and ``solely'' provides.
Particularly given comments highlighting the prevalence of tipped work
among managers and supervisors in the service industry, it is important
that the Department's regulations continue to reflect the fact that
section 3(m)(2)(B) does not prohibit managers and supervisors who are
tipped employees from keeping tips that are theirs alone. Moreover, as
one individual commenter noted, if managers and supervisor cannot keep
such tips, it is unclear who would be entitled to them.
However, by clarifying that a manager or supervisor may keep tips
only for services the manager or supervisor directly and ``solely''
provides, the modified regulatory text will prevent managers and
supervisors from keeping tips when it is not possible to attribute the
tip solely to the manager or supervisor. The modified regulatory text
thus helps to ensure that managers and supervisors do not keep ``any
portion'' of other employees' tips, see 29 U.S.C. 203(m)(2)(B). With
respect to commenters' suggestion that the Department specify that such
tips must be segregable from or not commingled with other employees'
tips, the Department believes that the clarified language of Sec.
531.52(b)(2) makes clear that a manager or supervisor may keep only
those tips that the manager or supervisor receives directly for a
service that the manager or supervisor directly and solely provides.
Thus, a manager who serves her own tables may keep her own tips, for
example. However, when a manager simply runs food to a table for which
a server is otherwise responsible, she may not keep any portion of the
tip the customer leaves for the server since that tip was not earned
solely by the manager or supervisor.
[[Page 52982]]
The Department also declines to amend the regulations to allow
mandatory tip pools comprised only of managers and supervisors, as
proposed by NRA. The statute does not permit such arrangements:
Managers and supervisors are employees under the FLSA, see 29 U.S.C.
203(e)(1), and 3(m)(2)(B) prohibits employers from allowing managers or
supervisors to keep other ``employees' tips.'' \15\ This includes other
managers and supervisors' tips. Moreover, to permit scenarios in which
a higher-ranking manager or supervisor--for example, the general
manager of a restaurant--could keep tips from a lower-ranking manager
or supervisor--for example, a shift supervisor who also tends bar--
would undermine the CAA's mandate of preventing employers and their
agents from keeping employees' tips.
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\15\ A manager or supervisor who performs tipped work may
satisfy the definition of a ``tipped'' employee under section 3(t)
because they are engaged in an occupation in which they
``customarily and regularly receive[ ] more than $30 a month in
tips.'' See 29 U.S.C. 203(t). Under those circumstances, an employer
may take a tip credit for the hours worked in the tipped occupation
pursuant to section 3(m)(2)(A), assuming that all other requirements
for the tip credit are satisfied. If the employer does so, it may
not require the tipped manager to contribute tips to a
nontraditional tip pool, and may only require the tipped manager or
supervisor to contribute their tips to a traditional tip pool
comprised of other tipped employees. Regardless of whether an
employee is engaged in a tipped occupation, however, if the employee
satisfies the duties test for managers and supervisors, including
the requirement that management is the employee's primary duty, the
employee cannot receive other employees' tips from a mandatory tip
pool or tip sharing arrangement pursuant to section 3(m)(2)(B).
Thus, even if a manager or supervisor is engaged as a tipped
employee under section 3(t) and can be paid with a tip credit and
participate in a tip pool under section 3(m)(2)(A), they may also
still qualify as manager or supervisor under 3(m)(2)(B), in which
case they would be prohibited from receiving tips from the tip pool,
and from otherwise keeping other employees' tips.
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2. Managers and Supervisors May Contribute Tips To, But Not Receive
Tips From, Tip Pools
In this final rule, the Department also amends Sec. Sec.
531.54(c)(3) and 531.54(d) to clarify that an employer may not allow a
manager or supervisor to receive tips from employer-mandated tip pools
or tip sharing arrangements, but may require a manager and supervisor
to contribute tips to such an arrangement. As discussed above, section
3(m)(2)(B) prohibits managers and supervisors from keeping any portion
of other employees' tips. See also Sec. 531.52(b)(2). Sections
531.54(c)(3) and (d), as amended by the 2020 Tip final rule, implement
this prohibition by barring employers from ``includ[ing]'' such
managers and supervisors in mandatory tip pools. The preamble
accompanying the 2020 Tip final rule interpreted Sec. 531.54(c)(3) and
(d) to prohibit employers from requiring managers and supervisors to
contribute, as well as from allowing them to receive, tips from
mandatory tip pooling or sharing arrangements. 85 FR 86764. As a result
of the Department's interpretation in the 2020 Tip final rule, a
restaurant employer, for example, can require non-managerial servers to
give a portion of their tips to the bussers, but is prohibited from
requiring a manager who also serves tables to similarly contribute. Or
a salon employer may require non-supervisory stylists to share a
portion of tips with the shampoo assistant, but cannot require a
stylist who is also a supervisor to do the same. In the CMP NPRM, the
Department therefore sought comment on whether it should adjust its
regulations to allow managers and supervisors, like other employees who
receive tips, to contribute tips to eligible employees in mandatory tip
pools or tip sharing arrangements, so long as: (1) They do not receive
any tips from a pool; or (2) alternatively, so long as they receive out
of the tip pool no more than what they contributed.
Commenters overwhelmingly supported a change to allow employers to
require managers and supervisors, like other employees who receive
tips, to contribute to tip pooling or sharing arrangements. See, e.g.,
EPI; Employee Rights Center; Public Justice Center; ROC United; North
Carolina Justice Center; Workplace Justice Project; National Employment
Lawyers Association; National Employment Law Project; Kentucky Equal
Justice Center; National Partnership for Women and Families; National
Women's Law Center; Worker Justice Center of New York; NRA.\16\ NRA
noted that mandatory tip sharing arrangements in which managers or
supervisors who have ``responsibility for serving tables'' share a
portion of their tips with bartenders, bussers, or other employees who
help them, are common in the restaurant industry. Commenters also
stated that allowing managers and supervisors who earn tips to
contribute them to eligible employees in mandatory tip pools would
benefit non-managerial employees. See Werman Salas; NRA. In addition,
the Center for Workplace Compliance commented that modifying the
regulations to allow managers and supervisors to contribute to
mandatory tip pools would benefit employers by giving them ``a little
more flexibility to adopt tip pooling practices that work best in their
industry.'' NRA also stated that the statute does not prohibit
employers from requiring managers and supervisors to share their own
tips.
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\16\ Several commenters argued that permitting managers and
supervisors to contribute to mandatory tip sharing arrangements
``makes it all the more important that only employees who are bona
fide managers and supervisors are classified as such,'' and urged
the Department to reconsider the definition of ``manager or
supervisor'' adopted in its 2018 FAB and 2020 Tip final rule. ROC
United; NELP; National Partnership for Women and Families. These
commenters urged the Department to include a salary component in the
definition. The CMP NPRM did not contemplate changes to the
regulatory definition of the terms ``manager or supervisor,''
however, and revisions incorporating a salary level are outside of
the scope of this rulemaking. The Department lacks sufficient
information to consider such changes as part of the final rule.
---------------------------------------------------------------------------
To the extent that commenters addressed the possibility of allowing
managers and supervisors who contribute tips to a tip pool to receive
tips from the arrangement up to the amount they contributed, commenters
opposed this alternative. See Werman Salas; NRA. Werman Salas asserted
that a policy allowing managers or supervisors to receive some tips
from a tip pool, but no more than what the manager or supervisor
contributes, ``would be difficult or impossible to apply.'' In
contrast, allowing employers to require managers and supervisors to
contribute a portion of their tips to mandatory tip pooling or sharing
arrangements, while preserving ``the prohibition on managers and
supervisors receiving any tips from such pooling or sharing
arrangements'' would maintain ``the integrity of the tip pooling
arrangements without improper participation from managers or
supervisors.''
Having considered the comments, the Department adopts changes to
its regulations to clarify that, while an employer may not allow a
manager or supervisor to keep other employees' tips by receiving tips
from a tip pool or tip sharing arrangement, section 3(m)(2)(B) does not
prohibit an employer from requiring a manager and supervisor who
receives tips directly from customers to contribute some portion of
those tips to eligible employees in an employer-mandated tip pooling or
tip sharing arrangement. The final rule similarly provides that
employers--some of whom may themselves be managers or supervisors who
perform tipped work--may not receive tips from a tip pool or sharing
arrangement, but does not bar employers who receive tips directly from
customers from sharing those tips with their employees.
The Department agrees with commenters that allowing employers to
require managers and supervisors to
[[Page 52983]]
share their tips with other eligible employees will benefit non-
managerial employees. When managers or supervisors contribute tips to
mandatory tip pools, non-managerial employees (e.g., bussers, other
servers, and bartenders) may earn more from the pool and tipped non-
managerial employees (e.g., servers and bartenders) may be required to
contribute less to the pool. The Department believes that allowing
employers to require managers and supervisors, like other employees who
receive tips, to contribute to tip sharing is particularly important
given that managers or supervisors may have the opportunity to serve
the largest tables or groups of customers, or work the more desirable
shifts. In addition, the Department takes note of commenters' statement
that section 3(m)(2)(B) does not expressly prohibit employers from
requiring managers or supervisors to share tips.
The Department expressed concerns in the 2020 Tip final rule that
allowing managers and supervisors to participate in tip pools for one
purpose (contributing tips) and not for another (receiving tips) could
``create confusion among employers and employees,'' and lead to
situations in which compliance is difficult. 85 FR 86764. On further
consideration, however, the Department has determined that any
compliance difficulties created by this policy are minimal and are
outweighed by the benefits noted above. The far more intractable
challenge for compliance and enforcement, as commenters noted, would be
to allow managers and supervisors to contribute to employer-mandated
tip pooling or tip sharing arrangements and also receive tips from the
pool. Under such a policy, it would be very difficult to ensure that
managers and supervisors are not taking more than the equivalent of
their own tips in violation of the statute. The Department believes,
however, that employers can more easily implement a bright line rule in
which managers or supervisors contribute tips to mandatory tip sharing
arrangements, but do not receive any tips from those arrangements.
As finalized, Sec. 531.54(c)(3) and (d) provide that, consistent
with section 3(m)(2)(B) of the FLSA, an employer may not receive and
may not allow a manager or supervisor to receive any tips from a tip
pool or tip sharing arrangement. As amended, the regulations do not
prohibit an employer from contributing tips to, or from requiring a
manager and supervisor who receives tips to contribute tips to,
eligible employees in an employer-mandated tip pooling or tip sharing
arrangement. When a manager or supervisor directly receives tips for a
service the manager or supervisor directly and solely provides, an
employer may allow the manager or supervisor to keep the tips, and may
also require the manager or supervisor to share some portion of the
tips with other eligible employees. Neither of these options runs afoul
of section 3(m)(2)(B)'s prohibition on managers and supervisors
``keep[ing]'' other employees' tips.
IV. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department
to consider the agency's need for its information collections, their
practical utility, the impact of paperwork and other information
collection burdens imposed on the public, and how to minimize those
burdens. This final rule does not contain a collection of information
subject to OMB approval under the PRA.
V. Analysis Conducted in Accordance With 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 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 rule 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 rule and
was prepared pursuant to the above-mentioned executive orders.
Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act) (5
U.S.C. 801 et seq.), OIRA has not designated this rule as a major rule,
as defined by 5 U.S.C. 804(2).
B. Background
In this final rule, the Department modifies the portion of the 2020
Tip final rule incorporating the CAA's new provisions authorizing the
assessment of CMPs for violations of section 3(m)(2)(B) of the Act. The
Department also modifies an additional portion of its CMP regulations
addressing willful violations. Because these changes will only apply
when an employer violates the FLSA, the Department does not believe
that they will have an impact on costs or transfers. The Department has
also decided to clarify in this final rule that while managers and
supervisors may not receive tips from tip pools or tip sharing
arrangements, managers or supervisors are not prohibited from
contributing to mandatory tip pools or sharing arrangements. The
Department has discussed this change qualitatively due to data
limitations. Other provisions codifying the CAA amendments were already
discussed and quantified in the 2020 Tip final rule, and so have not
been quantified again here. The only costs quantified here are the rule
familiarization costs associated with reviewing the rule. The
Department qualitatively discusses possible benefits associated with
this rule.
[[Page 52984]]
C. Costs
1. Rule Familiarization Costs
Regulatory familiarization costs represent direct costs to
businesses associated with reviewing the new regulation. It is not
clear whether regulatory familiarization costs are a function of the
number of establishments or the number of firms.\18\ Presumably, the
headquarters of a firm will conduct the regulatory review for
businesses with multiple locations, and may also require these
locations to familiarize themselves with the regulation at the
establishment level. To avoid underestimating the costs of this rule,
the Department uses both the number of establishments and the number of
firms to estimate a potential range for regulatory familiarization
costs. The lower bound of the range is calculated assuming that one
specialist per firm will review the rule, and the upper bound of the
range assumes one specialist per establishment.
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\18\ An establishment is a single economic unit that produces
goods or services. Establishments are typically at one physical
location and engaged in one, or predominantly one, type of economic
activity. An establishment is in contrast to a firm, or a company,
which is a business and may consist of one or more establishments.
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The most recent data on private sector entities at the time this
rule was drafted are from the 2017 Statistics of U.S. Businesses
(SUSB).\19\ 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 Department understands that
there may be entities in other industries with tipped workers who may
review this rule, but did not receive any comments about other
industries that should be included in the analysis. See Table 1 for a
list of the number of firms and establishments in each of these
industries.
---------------------------------------------------------------------------
\19\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2017 SUSB Annual
Data Tables by Establishment Industry.
Table 1--Firms and Establishments in Tipped Industries
------------------------------------------------------------------------
Industry Firms Establishments
------------------------------------------------------------------------
NAICS 713210 (Casinos)............ 221 292
NAICS 721110 (Hotels and Motels).. 42,795 53,869
NAICS 722410 (Drinking Places 39,323 40,156
(Alcoholic Beverages))...........
NAICS 722511 (Full-Service 217,111 250,871
Restaurants).....................
NAICS 722513 (Limited Service 157,353 251,100
Restaurants).....................
NAICS 722515 (Snack and 47,112 65,010
Nonalcoholic Beverage Bars)......
-------------------------------------
Total......................... 503,915 661,198
------------------------------------------------------------------------
Source: Statistics of U.S. Businesses 2017.
The Department believes 30 minutes per entity, on average, to be an
appropriate review time for this rule, because most of the information
related to the CAA amendments that employers would have to familiarize
themselves with was already captured in the 2020 Tip final rule. The
changes in this rule are small, and one is consistent with the
Department's existing enforcement. This review time represents an
average of employers who will spend less than 30 minutes reviewing, and
others who will spend more time. In the NPRM, the Department estimated
that average review time would be 15 minutes, but has increased it here
to account for the additional provisions on managers' participation in
tip pools.
The Department's analysis assumes that the rule would be reviewed
by Compensation, Benefits, and Job Analysis Specialists (SOC 13-1141)
or employees of similar status and comparable pay. The median hourly
wage for these workers was $32.30 per hour in 2020, the most recent
year of data available.\20\ The Department also assumes that benefits
are paid at a rate of 46 percent \21\ and overhead costs are paid at a
rate of 17 percent of the base wage, resulting in a fully loaded hourly
rate of $52.65.
---------------------------------------------------------------------------
\20\ Occupational Employment and Wages, May 2020. https://www.bls.gov/oes/current/oes131141.htm.
\21\ The benefits-earnings ratio is derived from the Bureau of
Labor Statistics' Employer Costs for Employee Compensation data
using variables CMU1020000000000D and CMU1030000000000D.
---------------------------------------------------------------------------
The Department estimates that the lower bound of regulatory
familiarization cost range would be $13,265,562 (503,915 firms x $52.65
x 0.5 hours), and the upper bound, $17,406,037 (661,198 establishments
x $52.65 x 0.5 hours). The Department estimates that all regulatory
familiarization costs would occur in Year 1.
Additionally, the Department estimated average annualized costs of
this rule over 10 years. Over 10 years, it would have an average annual
cost of $1.8 million to $2.3 million, calculated at a 7 percent
discount rate ($1.5 million to $1.9 million calculated at a 3 percent
discount rate). All costs are in 2020 dollars.
D. Transfers Associated With Managers' Contributing to Tip Pools
As noted above, in the 2020 Tip final rule, the Department
implemented section 3(m)(2)(B) of the FLSA by prohibiting employers
from including managers or supervisors in mandatory tip pooling or
sharing arrangements. See 29 CFR 531.54(c)(3), (d) (April 30, 2021).
The preamble accompanying the 2020 Tip final rule interpreted Sec.
531.54(c)(3) and (d) to prohibit employers from requiring managers and
supervisors to contribute, as well as from allowing them to receive,
tips from mandatory tip pooling or sharing arrangements. 85 FR 86764.
This final rule clarifies that managers and supervisors are not
prohibited from contributing to eligible employees in mandatory tip
pools or sharing arrangements, but they may not receive tips from tip
pools or tip sharing arrangements. If, prior to this final rule, a
manager was prevented from contributing to tip pools, but is now able
to contribute following this rule, their tipped income and overall
earnings could decrease, while the tipped income and overall earnings
of the other employees in the tip pool could increase. The magnitude of
this change could be estimated by observing how managers' and non-
manager employees' tipped income and overall earnings changed following
the provisions of the 2020 Tip final rule that
[[Page 52985]]
prevented managers from contributing to tip pools. Although the
Department lacks comprehensive data on the number of managers who
perform tipped work, the Department used data from the Current
Population Survey (CPS) to estimate the number of people in the
occupation ``First-Line Supervisors of Food Preparation and Serving
Workers.'' The Department acknowledges that this could be an undercount
of the number of food service managers or supervisors who receive tips,
and that this is not the only industry in which managers may receive
tips. According to CPS, in 2019 there were 590,900 First-Line
Supervisors of Food Preparation and Serving Workers.\22\ Their overall
average hourly earnings were $17.48 (includes hourly and non-hourly
workers and tipped and non-tipped workers). Of those workers who are
paid hourly, 24 percent report regularly receiving tips, overtime, or
commissions (this question is only asked of hourly workers). After
backing out estimated overtime pay, the Department estimates that these
First-Line Supervisors of Food Preparation and Serving Workers earned
an average of $19.71 per hour, which includes $5.68 per hour in tips.
Several commenters asserted that it is common for managers and
supervisors to perform tipped work. For example, Werman Salas stated,
``Our experience from litigation is that managers and supervisors who
arguably satisfy the executive employee duties test also frequently
perform tipped work. For example, in litigation against a national
casual dining establishment, both assistant managers and managers who
arguably met the duties test for executive employees, frequently
greeted customers and ran food to tables as part of promoting the
`guest experience.' '' The Department did not receive any comments with
data on the earnings of these managers and supervisors.
---------------------------------------------------------------------------
\22\ The Department notes that this analysis relies on data from
2019, which is prior to the COVID pandemic, because it believes that
2019 data provides a more accurate picture of the restaurant
industry going forward than 2020 data. Due to the COVID-19 pandemic,
many food services and drinking places (NAICS 722) adjusted their
business models, and employment in this industry subsector fell in
2020. See Ansell, R. and Mullins, J. (2021), ``COVID-19 ends longest
employment recovery and expansion in CES history, causing
unprecedented job losses in 2020,'' Monthly Labor Review, U.S.
Bureau of Labor Statistics, June 2021, https://doi.org/10.21916/mlr.2021.13. However, although employment in this industry subsector
has recovered significantly in 2021, it still remains below its
January 2020 level. See Id.
---------------------------------------------------------------------------
It would also be difficult to discern whether any change in
earnings would be related to the provisions of the 2020 Tip final rule
that prevented managers from contributing to mandatory tip pools,
because the rule had only been in effect since April 30, 2021. Prior to
the 2020 Tip final rule, it was unclear to the regulated community
whether an employer could require a manager to contribute to tip pools
following the 2018 CAA amendments. See NRA, Comment on the 2019 Tip
NPRM (requesting clarity on this issue).
E. Benefits
This rule replaces regulatory language in the CMP regulations so
that the Department is not limited in its assessment of tip CMPs to
only repeated and willful violations of section 3(m)(2)(B). This change
is consistent with the text of section 16(e) of the FLSA, which
provides that ``[a]ny person who violates section 3(m)(2)(B) shall be
subject to a civil penalty . . . for each such violation, as the
Secretary determines appropriate.'' 29 U.S.C. 216(e). The Department
believes that this change, by ensuring that the Department has the
ability to impose CMPs for violations of section 3(m)(2)(B) when it
deems appropriate, can help improve the enforcement of the statute,
potentially discourage more employers from violating the FLSA, and
better ensure that employees keep the tips they receive.
This rule also revises portions of the Department's CMP regulations
regarding when a violation of section 6 (minimum wage) or section 7
(overtime) of the FLSA is ``willful,'' and thus subject to a CMP under
section 16(e). As discussed above, these portions of the Department's
regulations are based on 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.'' This rule modifies the CMP
regulations to clarify that multiple circumstances, including those not
specified in the rule, can be sufficient to show a knowing violation of
section 6 or 7. The Department also reinserts language in the CMP
regulations to address the meaning of reckless disregard. The
Department believes that these revisions will better align its CMP
regulations with how it actually litigates willfulness and make clearer
to the regulated community when a violation is knowing or in reckless
disregard and thus willful. This increased clarity will enable
employers to better understand when they may be subject to a CMP for
violating the FLSA's minimum wage or overtime requirements, which may
enhance the penalty's deterrent effect.
This rule revises the Department's regulation addressing managers
and supervisors who cannot keep other employees' tips under section
3(m)(2)(B) of the FLSA. The final rule provides that managers and
supervisors cannot receive tips from tip pools or tip sharing
arrangements, but does not prohibit managers and supervisors, who may
earn their own tips from customers, from contributing tips to such
arrangements. The Department believes that these changes will result in
increased flexibility in tip pooling arrangements.
VI. 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 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 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 rule 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.
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\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.
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The per-entity cost for small business employers is the regulatory
familiarization cost of $26.33, or the fully loaded mean hourly wage of
a Compensation, Benefits, and Job Analysis Specialist ($52.65)
multiplied by \1/2\ hour (thirty minutes). Because this cost is minimal
for small business entities, and well below one percent of
[[Page 52986]]
their gross annual revenues, which is typically at least $100,000 per
year for the smallest businesses, the Department certifies that this
rule will not have a significant economic impact on a substantial
number of small entities.
VII. 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 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.
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\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.
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VIII. Executive Order 13132, Federalism
The Department has (1) reviewed this rule in accordance with
Executive Order 13132 regarding federalism and (2) determined that it
does not have federalism implications. The 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.
VII. Executive Order 13175, Indian Tribal Governments
This 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.
List of Subjects
29 CFR Part 531
Wages.
29 CFR Part 578
Penalties, Wages.
29 CFR Part 579
Child labor, Penalties.
29 CFR Part 580
Administrative practice and procedure, Child labor, Penalties,
Wages.
For the reasons set forth above, the Department amends title 29,
parts 531, 578, 579, and 580 of the Code of Federal Regulations as
follows:
PART 531--WAGE PAYMENTS UNDER THE FAIR LABOR STANDARDS ACT OF 1938
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1. The authority citation for part 531 continues to read as follows:
Authority: 29 U.S.C. 203(m) and (t), as amended by sec. 3(m),
Pub. L. 75-718, 52 Stat. 1060; sec. 2, Pub. L. 87-30, 75 Stat. 65;
sec. 101, sec. 602, Pub. L. 89-601, 80 Stat. 830; sec. 29(B), Pub.
L. 93-259, 88 Stat. 55 sec. 3, sec. 15(c), Pub. L. 95-151, 91 Stat
1245; sec. 2105(b), Pub. L. 104-188, 110 Stat 1755; sec. 8102, Pub.
L. 110-28, 121 Stat. 112; and sec. 1201, Div. S., Tit. XII, Pub. L.
115-141, 132 Stat. 348.
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2. Revise Sec. 531.52(b)(2) to read as follows:
* * * * *
(b) * * *
(2) An employer may not allow managers and supervisors to keep any
portion of an employee's tips, regardless of whether the employer takes
a tip credit. A manager or supervisor may keep tips that he or she
receives directly from customers based on the service that he or she
directly and solely provides. For purposes of section 3(m)(2)(B), the
term ``manager'' or ``supervisor'' shall mean any employee whose duties
match those of an executive employee as described in Sec.
541.100(a)(2) through (4) or Sec. 541.101 of this chapter.
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3. Amend Sec. 531.54 by revising paragraphs (c)(3) and (d) to read as
follows:
* * * * *
(c) * * *
(3) An employer may not receive tips from such a tip pool and may
not allow managers and supervisors to receive tips from the tip pool.
(d) Employers that do not take a section 3(m)(2)(A) tip credit. An
employer that pays its tipped employees the full minimum wage and does
not take a tip credit may impose a tip pooling arrangement that
includes dishwashers, cooks, or other employees in the establishment
who are not employed in an occupation in which employees customarily
and regularly receive tips. An employer may not receive tips from such
a tip pool and may not allow supervisors and managers to receive tips
from the tip pool.
PART 578--TIP RETENTION, MINIMUM WAGE, AND OVERTIME VIOLATIONS--
CIVIL MONEY PENALTIES
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4. The authority citation for part 578 continues to read as follows:
Authority: 29 U.S.C. 216(e), as amended by sec. 9, Pub. L. 101-
157, 103 Stat. 938, sec. 3103, Pub. L. 101-508, 104 Stat. 1388-29,
sec. 302(a), Pub. L. 110-233, 122 Stat. 920, and sec. 1201, Div. S.,
Tit. XII, Pub. L. 115-141, 132 Stat. 348; Pub. L. 101-410, 104 Stat.
890 (28 U.S.C. 2461 note), as amended by sec. 31001(s), Pub. L. 104-
134, 110 Stat. 1321-358, 1321-373, and sec. 701, Pub. L. 114-74, 129
Stat 584.
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5. Revise Sec. 578.3 to read as follows:
Sec. 578.3 What types of violations may result in a penalty being
assessed?
(a) In general. (1) A penalty of up to $1,162 per violation may be
assessed against any person who violates section 3(m)(2)(B) of the Act.
(2) A penalty of up to $2,074 per violation may be assessed against
any person who repeatedly or willfully violates section 6 (minimum
wage) or section 7 (overtime) of the Act. The amount of the penalties
stated in paragraphs (a)(1) and (2) of this section will be determined
by applying the criteria in Sec. 578.4.
(b) Repeated violations. An employer's violation of section 6 or
section 7 of the Act shall be deemed to be ``repeated'' for purposes of
this section:
(1) Where the employer has previously violated section 6 or section
7 of the Act, provided the employer has previously received notice,
through a responsible official of the Wage and Hour Division or
otherwise authoritatively, that the employer allegedly was in violation
of the provisions of the Act; or
(2) Where a court or other tribunal has made a finding that an
employer has previously violated section 6 or section 7 of the Act,
unless an appeal therefrom which has been timely filed is pending
before a court or other tribunal with jurisdiction to hear the appeal,
or unless the finding has been set aside or reversed by such appellate
tribunal.
(c) Willful violations. (1) An employer's violation of section 6 or
section 7 of the Act shall be deemed to be ``willful'' for purposes of
this section where the employer knew that its conduct was prohibited by
the Act or
[[Page 52987]]
showed reckless disregard for the requirements of the Act. All of the
facts and circumstances surrounding the violation shall be taken into
account in determining whether a violation was willful.
(2) For purposes of this section, the employer's receipt of advice
from a responsible official of the Wage and Hour Division to the effect
that the conduct in question is not lawful, among other situations, can
be sufficient to show that the employer's conduct is knowing, but is
not automatically dispositive.
(3) For purposes of this section, reckless disregard of the
requirements of the Act means, among other situations, that the
employer should have inquired further into whether its conduct was in
compliance with the Act and failed to make adequate further inquiry.
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6. Revise Sec. 578.4(a) to read as follows:
Sec. 578.4 Determination of penalty.
(a) In determining the amount of penalty to be assessed for any
violation of section 3(m)(2)(B) or repeated or willful violation of
section 6 or section 7 of the Act, the Administrator shall consider the
seriousness of the violations and the size of the employer's business.
* * * * *
PART 579--CHILD LABOR VIOLATIONS--CIVIL MONEY PENALTIES
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7. The authority citation for part 579 continues to read as follows:
Authority: 29 U.S.C. 203(m), (l), 211, 212, 213(c), 216; Reorg.
Plan No. 6 of 1950, 64 Stat. 1263, 5 U.S.C. App; secs. 25, 29, Pub.
L. 93-257, 88 Stat. 72, 76; Secretary of Labor's Order No. 01-2014
(Dec. 19, 2014), 79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461 Note.
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8. Amend Sec. 579.1 by redesignating paragraph (a)(2) as paragraph
(a)(2)(i), revising newly designated paragraph (a)(2)(i) and adding
paragraph (a)(2)(ii) to read as follows:
Sec. 579.1 Purpose and scope.
(a) * * *
(2)(i) Any person who repeatedly or willfully violates section 206
or 207 of the FLSA, relating to wages, shall be subject to a civil
penalty not to exceed $2,074 for each such violation.
(ii) Any person who violates section 203(m)(2)(B) of the FLSA,
relating to the retention of tips, shall be subject to a civil penalty
not to exceed $1,162 for each such violation.
* * * * *
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9. Amend Sec. 579.2 by revising the definition of ``Willful
violations'' to read as follows:
Sec. 579.2 Definitions.
* * * * *
Willful violations under this section has several components. An
employer's violation of section 12 or section 13(c) of the Act relating
to child labor or any regulation issued pursuant to such sections,
shall be deemed to be willful for purposes of this section where the
employer knew that its conduct was prohibited by the Act or showed
reckless disregard for the requirements of the Act. All of the facts
and circumstances surrounding the violation shall be taken into account
in determining whether a violation was willful. In addition, for
purposes of this section, the employer's receipt of advice from a
responsible official of the Wage and Hour Division to the effect that
the conduct in question is not lawful, among other situations, can be
sufficient to show that the employer's conduct is knowing, but is not
automatically dispositive. For purposes of this section, reckless
disregard of the requirements of the Act means, among other situations,
that the employer should have inquired further into whether its conduct
was in compliance with the Act and failed to make adequate further
inquiry.
PART 580--CIVIL MONEY PENALTIES--PROCEDURES FOR ASSESSING AND
CONTESTING PENALTIES
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10. The authority citation for part 580 continues to read as follows:
Authority: 29 U.S.C. 9a, 203, 209, 211, 212, 213(c), 216; Reorg.
Plan No. 6 of 1950, 64 Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88
Stat. 72, 76; Secretary's Order 01-2014 (Dec. 19, 2014), 79 FR 77527
(Dec. 24, 2014); 5 U.S.C. 500, 503, 551, 559; 103 Stat. 938.
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11. Revise the first sentence of Sec. 580.2 to read as follows:
Sec. 580.2 Applicability of procedures and rules.
The procedures and rules contained in this part prescribe the
administrative process for assessment of civil money penalties for any
violation of the child labor provisions at section 12 of the Act and
any regulation thereunder as set forth in part 579 of this chapter, and
for assessment of civil money penalties for any violation of the tip
retention provisions of section 3(m)(2)(B) or any repeated or willful
violation of the minimum wage provisions of section 6 or the overtime
provisions of section 7 of the Act or the regulations thereunder set
forth in 29 CFR subtitle B, chapter V. * * *
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12. Revise the first sentence of Sec. 580.3 to read as follows:
Sec. 580.3 Written notice of determination required.
Whenever the Administrator determines that there has been a
violation by any person of section 12 of the Act relating to child
labor or any regulation thereunder as set forth in part 579 of this
chapter, or determines that there has been a violation by any person of
section 3(m)(2)(B), or determines that there has been a repeated or
willful violation by any person of section 6 or section 7 of the Act,
and determines that imposition of a civil money penalty for such
violation is appropriate, the Administrator shall issue and serve a
notice of such penalty on such person in person or by certified mail. *
* *
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13. Amend Sec. 580.12 by revising the first sentence of paragraph (b)
to read as follows:
Sec. 580.12 Decision and Order of Administrative Law Judge.
* * * * *
(b) The decision of the Administrative Law Judge shall be limited
to a determination of whether the respondent has committed a violation
of section 12, a violation of section 3(m)(2)(B), or a repeated or
willful violation of section 6 or section 7 of the Act, and the
appropriateness of the penalty assessed by the Administrator. * * *
* * * * *
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14. Amend Sec. 580.18 by revising the third sentence in paragraph
(b)(3) to read as follows:
Sec. 580.18 Collection and recovery of penalty.
* * * * *
(b) * * *
(3) * * * A willful violation of sections 6, 7, or 12 of the Act
may subject the offender to the penalties provided in section 16(a) of
the Act, enforced by the Department of Justice in criminal proceedings
in the United States courts. * * *
Signed in Washington, DC, this 8th day of September, 2021.
Jessica Looman,
Acting Administrator, Wage and Hour Division.
[FR Doc. 2021-19795 Filed 9-23-21; 8:45 am]
BILLING CODE 4510-27-P
