A United States federal appeals court has struck down the Department of Labor’s revised 2021 80/20 rule. The rule only allowed employers to pay their employees the subminimum wage (or federal tip credit of $2.13 per hour) to supplement earned gratuities while workers were performing tip-supporting tasks for less than 20% of their workweek. The rest of their work had to be paid according to the federal minimum wage of $7.25 per hour.

According to the Fifth Circuit Court of Appeals judges’ ruling on Friday, the 80/20 rule, which legalized the subminimum wage that gives “credit” back to employers of tipped workers that make up “a large portion of earnings” from tips, is “contrary to the Fair Labor Standards Act.” The judges called the 80/20 rule, which was in effect during the Obama administration, rolled back during the Trump administration, and then brought back under the Biden presidential administration, “both arbitrary and capricious.”

The rule was initially challenged in a lawsuit filed by the Restaurant Law Center — an affiliate of the National Restaurant Association — and the Texas Restaurant Association, in December 2021, shortly before the 80/20 rule was set to go into effect at the end of that year. The lawsuit stated that the rule overstepped the authority of the Department of Labor and that it was an attempt to rewrite the Fair Labor Standards Act.

Though the final rule did attempt to clarify some of the details that were a part of earlier forms of this rule, such as what constitutes work on the 80% non-tipped side and the 20% tipped side, ultimately, the appeals court sided with the Restaurant Law Center and Texas Restaurant Association’s lawsuit.

This is one of the first federal appeals court rulings in the aftermath of the U.S. Supreme Court overturning the Chevron USA Inc. v. Natural Resources Defense Council case, in what is known as the Chevron deference. Without the Chevron deference, laws like the 80/20 labor rule, which have been up for interpretation under different presidential administrations, must be written with more precise language that cannot be easily interpreted in different ways by opposing political parties.

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