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Federal Register / Vol. 86, No. 56 / Thursday, March 25, 2021 / Proposed Rules On December 5, 2017, the Department published an NPRM proposing to rescind the portions of its 2011 tip regulations that imposed restrictions on employers that pay a direct cash wage of at least the full Federal minimum wage and do not take a tip credit against their minimum wage obligations. See 82
FR 57395 Dec. 5, 2017. The Departments proposal would have allowed these employers to establish nontraditional tip pools that include employees who may contribute to the customers experience but do not customarily and regularly receive tips, such as dishwashers or cooks. See, e.g., 82 FR 57399. A number of commenters on the 2017 NPRM supported allowing employers to establish nontraditional tip pools. Many commenters, however, expressed concern that under the Departments proposal, an employer could keep an employees tips for the employers own use. See, e.g., 84 FR
53959.
On March 23, 2018, Congress enacted the CAA, which amended section 3m of the FLSA to prohibit employers from keeping employees tips for any purposesregardless of whether or not the employer takes a tip credit. See Public Law 115141, Div. S., Tit. XII, sec. 1201; 29 U.S.C. 203m2B. In adding section 3m2B to the FLSA, Congress gave the Department express statutory authority to prevent employers from keeping employees tips, even when the employer does not take a tip credit and pays the employee a cash wage equal to the full Federal minimum wage. Section 3m2B also prohibits employers from allowing managers or supervisors to keep any portion of employees tips. Id. The CAA also addressed the portions of the Departments 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 CAA, Div. S, Tit. XII, sec.
1201c.2 However, the CAA left unchanged section 3ms then-existing text, renumbered as section 3m2A, thus preserving the longstanding statutory and regulatory requirements that apply to employers that take a tip credit.
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Among other things, the CAA amended section 16e2 to add a civil money 2 In light of the CAA amendments, the Department rescinded its 2017 NPRM on October 8, 2019. See 84 FR 53956.

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penalty CMP for violations of section 3m2B: Any person who violates section 3m2B shall be subject to a civil penalty not to exceed $1,100 3 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 Assistance Bulletin FAB concerning the Wage and Hour Divisions WHD
enforcement of the amendments to section 3m. See FAB No. 20183 Apr.
6, 2018. The Department explained that the CAA had effectively suspended the regulatory restrictions on an employers ability to require tip pooling when it does not take a tip credit, 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 tippedsuch as cooks and dishwashersto 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 provides that, as an enforcement policy, WHD
will use the duties test at 29 CFR
541.100a24 to determine whether an employee is a manager or supervisor, and thus cannot keep another employees tips under section 3m2B. Id. The FAB also states 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 3m2B is repeated or willful. Id.
B. Willful Requirement for CMPs for FLSA Minimum Wage and Overtime Violations As discussed above, section 16e2
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 3m2B of the FLSA. Section 16e2 authorizes the Department to assess CMPs for minimum wage and overtime pay 3 The Federal Civil Penalties Inflation Adjustment Act of 1990 Pub. L. 101410, as amended by the Debt Collection Improvement Act of 1996 Pub. L.
104134, sec. 31001s and the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 Pub. L. 11474, sec. 701, requires that inflationary adjustments be made annually in these civil money penalties according to a specified formula.

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violations only when the violations are repeated or willful. See 29 U.S.C.
216e2 emphasis added. The Departments regulations at 29 CFR
578.3c and 579.2 4 define what violations are willful under the Act.
These regulations are intended to implement the Supreme Courts 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. These regulations further provide that WHD
shall take into account all of the facts and circumstances surrounding the violation when determining whether a violation is willful. 29 CFR 578.3c1, 579.2. And these regulations identify two specific circumstancesprior advice from WHD to the employer that the conduct was unlawful and the employers failure to adequately inquire further into the lawfulness of its conduct when it should havein which a violation shall be deemed willful.
29 CFR 578.3c2 & 3, 579.2.
In Baystate Alternative Staffing, Inc.
v. Herman, 163 F.3d 668, 68081 1st Cir. 1998, the U.S. Court of Appeals for the First Circuit identified an incongruity between, on the one hand, the regulatory provisions deeming two specific circumstances to be willful, and on the other hand, the Richland Shoe standard on which the regulation is based and taking into account all of the facts and circumstances. The court urged the Department to reconsider 578.3c2 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 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. Dept of Labor, 824 F.3d 1023, 103032 D.C.
Cir. 2016.
C. 2020 Tip Final Rule On December 30, 2020, after considering comments on an NPRM for the 2020 Tip final rule 84 FR 67681, the Department issued a final rule revising the Departments tip regulations to incorporate the CAA
amendments. See 85 FR 86756. Because the Department was revising its CMP
regulations to incorporate the new tips CMP for section 3m2B violations, the 2020 Tip final rule also addresses the willful portions of the Departments CMP regulations in light of the court of appeals decisions in 4 Section 579.2 defines what violations of the FLSAs child labor provisions are willful.

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