US appeals court scraps Biden tipped wages rule

By Nate Raymond

(Reuters) – A U.S. appeals court on Friday struck down a rule adopted by President Joe Biden’s administration designed to raise pay for tipped workers, citing a recent U.S. Supreme Court ruling that curtailed federal agencies’ ability to issue regulations.

A three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals sided unanimously with two restaurant industry trade groups in finding that the U.S. Department of Labor’s 2021 rule was contrary to federal labor law.

The Labor Department had no immediate comment.

The rule required employers to pay tipped workers the federal minimum wage of $7.25 an hour, and not the lower $2.13 minimum wage for tipped work, for non-tipped tasks that take up more than 20% of their time or 30 consecutive minutes.

The rule replaced a regulation adopted during Republican former President Donald Trump’s administration that said workers could be paid the tipped minimum wage if they primarily performed tipped duties.

Two trade groups, the Restaurant Law Center and Texas Restaurant Association, filed a lawsuit in Texas soon after the Biden-era rule was adopted and were appealing a decision from U.S. District Judge Robert Pittman upholding the rule last year.

Pittman had concluded that federal wage law was ambiguous about how tipped workers must be paid for non-tipped tasks and that the Labor Department’s interpretation was entitled to so-called “ Chevron (NYSE:) deference” under a 1984 U.S. Supreme Court ruling.

That doctrine required courts to defer to federal agencies’ interpretations of the laws they administer when those statutes are ambiguous.

But the 6-3 conservative majority U.S. Supreme Court scrapped the Chevron doctrine in June and said courts should apply their independent judgment when interpreting ambiguous laws.

U.S. Circuit Judge Jennifer Walker Elrod, writing for a three-judge panel, cited that ruling in declining to accept the department’s interpretation of the Fair Labor Standards Act.

Elrod said the rule was contrary to the law’s text and “draws a line for application of the tip credit based on impermissible considerations and contrary to the statutory scheme enacted by Congress.”

“Because the Final Rule is contrary to the Fair Labor Standards Act’s clear statutory text, it is not in accordance with law,” she wrote for a panel that included two Republican-appointed judges and one Democratic appointee.