[Federal Register Volume 86, Number 37 (Friday, February 26, 2021)]
[Rules and Regulations]
[Pages 11632-11634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04118]


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DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 10

Wage and Hour Division

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

RIN 1235-AA21


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

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Final rule; delay of effective date.

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SUMMARY: Consistent with the Presidential directive as expressed in the 
memorandum of January 20, 2021 from the Assistant to the President and 
Chief of Staff, entitled ``Regulatory Freeze Pending Review,'' this 
action finalizes the Department of Labor's (``the Department'') 
proposal to delay until April 30, 2021, the effective date of the rule 
titled Tip Regulations Under the Fair Labor Standards Act (FLSA), 
published in the Federal Register on December 30, 2020, to allow the 
Department to review issues of law, policy, and fact raised by the rule 
before it takes effect.

DATES: As of February 26, 2021, the effective date of the regulation 
titled Tip Regulations Under the Fair Labor Standards Act (FLSA), 
published in the Federal Register on December 30, 2020 (85 FR 86756), 
is delayed until April 30, 2021.

FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this 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 1-877-889-5627 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 Wage and Hour Division (``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/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area 
offices.

SUPPLEMENTARY INFORMATION:

I. Background

    In the Consolidated Appropriations Act of 2018 (``CAA''), Congress 
amended section 3(m) of the Fair Labor Standards Act (``FLSA'' or 
``Act'') to prohibit employers from keeping tips received by their 
employees, regardless of whether the employers take a tip credit under 
section 3(m). On December 30, 2020, the Department published Tip 
Regulations Under the Fair Labor Standards Act (FLSA) (the ``Tip 
Rule'') in the Federal Register to address these amendments. See 85 FR 
86756. The Tip Rule would also codify the Wage and Hour Division's 
(``WHD'') guidance regarding the tip credit's application to tipped 
employees who perform tipped and non-tipped duties. See id. The 
effective date of the Tip Rule was March 1, 2021. See id.
    In a memorandum dated January 20, 2021 titled ``Regulatory Freeze 
Pending Review,'' published in the Federal Register on January 28, 2021 
(86 FR 7424) (``Regulatory Freeze Memorandum''), the Assistant to the 
President and Chief of Staff, on behalf

[[Page 11633]]

of the President, directed the heads of Executive Departments and 
Agencies to consider delaying the effective dates of all regulations 
that had been published in the Federal Register but had not yet taken 
effect; the Tip Rule falls into this category. The Regulatory Freeze 
Memorandum states that the purpose of such delays is for agencies to 
review any questions of fact, law, and policy that the rules may raise. 
The memorandum notes certain exceptions that do not apply here. On 
January 20, 2021, the Office of Management and Budget (OMB) also 
published OMB Memorandum M-21-14, Implementation of Memorandum 
Concerning Regulatory Freeze Pending Review, which provides guidance 
regarding the Regulatory Freeze Memorandum. See M-21-14, Implementation 
of Memorandum Concerning Regulatory Freeze Pending Review, https://www.whitehouse.gov/wp-content/uploads/2021/01/M-21-14-Regulatory-Review.pdf (last visited Feb. 19, 2021). OMB Memorandum M-21-14 
explains that pursuant to the Regulatory Freeze Memorandum, agencies 
``should consider postponing the effective dates for 60 days and 
reopening [the] rulemaking processes'' for ``rules that have not yet 
taken effect and about which questions involving law, fact, or policy 
have been raised.'' Id. In accordance with the Regulatory Freeze 
Memorandum and OMB Memorandum M-21-14, on February 5, 2021, the 
Department published in the Federal Register the proposed delay of the 
effective date for the Tip Rule (86 FR 8325) by 60 days to April 30, 
2021.
    The Department explained that delaying the effective date of the 
Tip Rule would provide the Department additional opportunity to review 
and consider the questions of law, policy, and fact raised by the rule, 
as contemplated by the Regulatory Freeze Memorandum and OMB Memorandum 
M-21-14, before the rule goes into effect. The Department added that it 
could consider whether the Tip Rule properly implements the CAA 
Amendments to section 3(m) of the FLSA, which prohibit employers from 
keeping tips for any purpose; whether the Tip Rule adequately 
considered the possible costs, benefits, and transfers between 
employers and employees related to the codification of its guidance 
regarding the tip credit's application to tipped employees who perform 
tipped and non-tipped duties; and whether the Tip Rule otherwise 
effectuates the CAA amendments to the FLSA, including the statutory 
provision for civil money penalties for violations of section 
3(m)(2)(B) of the Act. Additionally, on January 19, 2021, Attorneys 
General from eight states and the District of Columbia filed a 
complaint for declaratory and injunctive relief 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 Tip Rule.\1\ The complaint argues that the Tip Rule 
makes several changes to the Department's regulations that are contrary 
to the FLSA and the CAA, specifically, the Tip Rule's codification of 
WHD's guidance regarding the tip credit's application to tipped 
employees who perform tipped and non-tipped duties, the rule's 
revisions to portions of its Civil Money Penalty (CMP) regulations on 
willful violations, and the rule's imposition of a willfulness 
requirement for CMPs for section 3(m)(2)(B) violations, and it argues 
that the Department failed to justify the changes made in the Tip Rule 
or consider the impact of these changes on workers. The delay of the 
Tip Rule's effective date would also give the Department the 
opportunity to review and consider the rule in light of the issues 
raised by that complaint.
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    \1\ Commonwealth of Pennsylvania et al. v. Scalia et al., No. 
2:21-cv-00258 (E.D. Pa., Jan. 19, 2021).
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    The Department invited public comment on the proposed delay. The 
comment period ended on February 17, 2021.

II. Comments and Decision

    A total of 19 organizations timely commented on the notice of 
proposed rulemaking (``NPRM'') (86 FR 8325, February 5, 2021) during 
the 12-day comment period that ended on February 17, 2021, which may be 
viewed on www.regulations.gov, document ID WHD-2019-0004-0475. The 
Department received comments from a broad array of stakeholders, 
including Attorneys General from eight states and the District of 
Columbia, a law firm, industry groups, non-profit organizations, and 
advocacy organizations. Seventeen commenters supported the Department's 
proposal to delay the Tip Rule's effective date. Two of the commenters 
opposed the proposed delay.
    Supporters of the proposed delay in the Tip Rule's effective date 
stated that the rule raises questions of law, policy, and fact that 
warrant further review and consideration by the Department in 
accordance with the Regulatory Freeze Memo. Advocacy organizations such 
as the National Employment Law Project (NELP), Network Lobby for 
Catholic Social Justice, and the National Women's Law Center stated 
that the Department should specifically reconsider the following 
changes, which they argued are harmful to workers and inconsistent with 
the FLSA and the CAA amendments: The Tip Rule's codification of WHD's 
guidance regarding the tip credit's application to tipped employees who 
perform tipped and non-tipped duties; the Tip Rule's revisions to 
portions of its CMP regulations on willful violations; and the Tip 
Rule's incorporation of the CAA's language regarding CMPs for section 
3(m)(2)(B) violations into the Department's regulations. Advocacy 
organizations and Attorneys General for eight states and the District 
of Columbia also stated that the Department should consider the issues 
of law raised in the January 19, 2021 complaint.
    The Economic Policy Institute supported the proposed delay because 
it would give the Department time to reassess the Tip Rule's analysis 
of the economic impact of codifying WHD's guidance regarding the tip 
credit's application to tipped employees who perform tipped and non-
tipped duties, which it argued was flawed. Multiple commenters, such as 
Restaurant Opportunities Center United and the Leadership Conference on 
Civil Rights, stated that the Department should delay the Tip Rule in 
light of the COVID-19 pandemic, indicating that tipped workers have 
been particularly harmed by the pandemic and that it has led to a 
restructuring of the restaurant industry. Additionally, NELP stated 
that a delay in the Tip Rule's effective date is appropriate to avoid 
additional compliance costs and training that employers would incur if 
the rule becomes effective and then is revised by the Department after 
its review.
    Two commenters opposed any delay in the effective date. The Center 
for Workplace Compliance (CWC) stated that it does not believe a delay 
in the Tip Rule's effective date is necessary; it largely dedicated its 
comment to explaining why it supports the Rule. The Department 
disagrees; as discussed below, the Department concludes that supporters 
of the proposed delay have identified issues of fact, law, and policy 
raised by the Tip Rule that merit further review in accordance with the 
Regulatory Freeze Memo. The National Federation of Independent 
Businesses (NFIB) expressed its support for the Tip Rule as well, and 
stated that instead of delaying the rule's effective date, the 
Department should allow it to go into effect and then consider whether 
to propose any changes. The Department disagrees with this approach. 
Allowing

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the Tip Rule to go into effect while the Department undertakes a 
further review of the Tip Rule could lead to confusion and uncertainty 
among workers and employers in the event that the Department proposes 
revisions to the rule following its review.
    In addition to opposing a delay in the effective date, the NFIB 
questioned whether this rulemaking could properly become effective 
before the Tip Rule's original effective date. NFIB believes that a 
delay of the Tip Rule's effective date must be published 30 days before 
it takes effect. The Department disagrees. Section 553(d) of the 
Administrative Procedure Act provides that substantive rules should 
take effect not less than 30 days after the date they are published in 
the Federal Register unless ``otherwise provided by the agency for good 
cause found.'' 5 U.S.C. 553(d)(3). The Department finds that it has 
good cause to make this rule effective immediately upon publication 
because allowing for a 30-day delay between publication and the 
effective date of this rulemaking would result in the Tip Rule taking 
effect before the delay begins, which would undermine the purpose for 
which this rule is being promulgated and result in additional confusion 
for regulated entities. The Regulatory Freeze Memorandum was issued on 
January 20, 2021, only 40 days before the Tip Rule's original effective 
date of March 1, 2021. It would not have been practicable to issue an 
NPRM proposing to delay the Tip Rule and allow for ample time for 
public comment on that proposal in time to publish a final rule not 
less than 30 days before March 1. Moreover, this rulemaking institutes 
a 60-day delay of the Tip Rule, rather than itself imposing any new 
compliance obligations on employers; therefore, the Department finds 
that a lapse between publication and the effective date of this rule 
delaying the Tip Rule's effective date is unnecessary. Because allowing 
for a 30-day period between publication and the effective date of this 
rulemaking is both unnecessary and impracticable, this final rule 
delaying the Tip Rule's effective date is effective immediately upon 
publication.
    After reviewing timely comments submitted, the Department agrees 
with the supporters of the proposed delay in the Tip Rule's effective 
date that the Tip Rule raises multiple issues of law, policy, and fact 
that warrant additional review and consideration in accordance with the 
Regulatory Freeze Memo. These issues include the Tip Rule's 
codification of WHD's guidance regarding the tip credit's application 
to tipped employees who perform tipped and non-tipped duties; the Tip 
Rule's revisions to portions of its CMP regulations on willful 
violations; the Tip Rule's incorporation of the CAA's language 
regarding CMPs for section 3(m)(2)(B) violations into the Department's 
regulations; and the Tip Rule's analysis of the economic impact of 
codifying WHD's guidance regarding the tip credit's application to 
tipped employees who perform tipped and non-tipped duties. As numerous 
advocacy organizations and the Attorneys' General for eight states and 
the District of Columbia noted in their comments, a delay in the Tip 
Rule's effective date would also give the Department more time to 
review the issues of law raised in the January 19 complaint. Allowing 
the Tip Rule to go into effect while the Department undertakes a review 
of these issues identified by commenters could lead to confusion among 
workers and employers in the event that the Department proposes to 
revise the Tip Rule after its review; delaying the Tip Rule would avoid 
such confusion. Additionally, the Department agrees with NELP that a 
delay in the Tip Rule's effective date would prevent employers from 
incurring potentially unnecessary additional costs to familiarize 
themselves with the Tip Rule if the Department elects to propose 
revising the Tip Rule following its review. To give the Department 
additional time to review issues of law, policy, and fact raised by the 
Tip Rule before the Tip Rule goes into effect, the Department therefore 
finalizes the proposed delay in effective date.

    Signed this 24th day of February, 2021.
Milton A. Stewart,
Acting Secretary of Labor.
[FR Doc. 2021-04118 Filed 2-24-21; 4:15 pm]
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