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Federal Register / Vol. 86, No. 56 / Thursday, March 25, 2021 / Proposed Rules
preserve the Departments full discretion to assess CMPs for violations of 3m2B, consistent with the statutory language which gives the Department authority to assess such CMPs as the Secretary determines appropriate.
The Department is reproposing language in 578.4, 579.1, 580.2, 580.3, and 580.12 that would, similarly to the language in the 2020 Tip final rule, adopt the same rules, procedures, and amount considerations for tip CMPs, as the Department applies for other FLSA CMPs.10 The Department believes that adopting these same rules, procedures, and considerations will promote the goals of consistency and familiarity that the Department emphasized in the 2020 Tip final rule.
B. Civil Money Penalties for Willful Violations of the Fair Labor Standards Act The Department proposes to revise portions of the Departments 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 16e. Regarding how it determines whether an FLSA violation is willful for purposes of assessing CMPs, the Department proposes to withdraw and repropose with a modification the language at 29 CFR 578.3c2 and 29
CFR 579.2 addressing when an employers violation is knowing, and further proposes to reinsert language at 29 CFR 578.3c3 and 29 CFR 579.2 to address the meaning of reckless disregard. These proposals will address appellate court decisions regarding these regulations and provide guidance on circumstances where employers conduct may constitute reckless disregard.
Sections 578.3c and 579.2 address what violations are willful under the Act. As previously explained,11 the Departments definition of a willful violation in 578.3c 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. Sections 578.3c1 and 579.2 incorporate this holding and state that all of the facts 10 The Department is also proposing to revise 580.18b3 to eliminate the reference in that regulation to willful violations of section 3m2B, which was a technical error since the CAA
Amendments did not provide for criminal penalties for violations of section 3m2B. Therefore, the Department is proposing to withdraw the change in the regulation made by the 2020 Tip final rule and revert back to the prior language of 580.18.
11 See 85 FR 86773; 84 FR 53964.

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and circumstances surrounding the violation shall be taken into account in determining whether a violation was willful. The 2020 Tip final rule makes no changes to this language,12 and the Department proposes none here.
For many years, the Departments CMP regulations in 578.3c2 and 579.2 provided that an employers conduct shall be deemed knowing, among other situations, if the employer received advice from a responsible official of WHD to the effect that the conduct in question is not lawful.
Sections 578.3c3 and 579.2 stated that an employers conduct shall be deemed to be in reckless disregard of the requirements of the Act, among other situations, if the employer should have inquired further into whether its conduct was in compliance with the Act, and failed to make adequate further inquiry. In the NPRM for the 2020 Tip final rule, the Department discussed concerns with this shall be deemed language that two appellate courts had identified. See 84 FR 5396465
discussing Rhea Lana, Inc. v. Dept of Labor, 824 F.3d 1023, 103032 D.C. Cir.
2016, and Baystate Alt. Staffing, Inc. v.
Herman, 163 F.3d 668, 68081 1st Cir.
1998. Those courts noted the inconsistency between the 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 all of the facts and circumstances surrounding the violation when determining willfulness. See id. The Department 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 and that, although an employers receipt of advice from WHD that its conduct was unlawful can be sufficient to prove willfulness, it would not necessarily be so notwithstanding the regulatory language that appears to be to the contrary. See 84 FR 53965. In light of the appellate courts opinions and the Departments acknowledgement of how it litigates willfulness, the NPRM for the 2020 Tip final rule proposed to revise 578.3c23 and 579.2 to clarify that, in considering all of the facts and circumstances, an employers 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.
12 See
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After considering comments received, the 2020 Tip final rule revises 578.3c2 and the corresponding language in 579.2 to state that, in considering all of the facts and circumstances, an employers receipt of advice from WHD that its conduct was unlawful can be sufficient to show that the violation is willful but is not automatically dispositive. See 85 FR
86774. The 2020 Tip final rule explains that this revision addressed concerns raised by commenters that one fact should not automatically result in a violation being willful but that an employers receipt of advice from WHD
that its conduct was unlawful can be sufficient for a violation to be willful.
See id. The 2020 Tip final rule further explains that an employers receipt of advice from WHD that its conduct is unlawful is a relevant, and may be a determining, factor regarding that employers willfulness, but the law also requires examining all facts and circumstances surrounding the violation. See id.
In addition, the 2020 Tip final rule deletes 578.3c3 and the corresponding language in 579.2
addressing the meaning of reckless disregard. The 2020 Tip final rule explains that, unlike 578.3c2, 578.3c3 does not just identify a fact and address how that fact impacts a willfulness finding; instead, it addresses a scenarioshould have inquired further 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 578.3c3 in the same manner as 578.3c2 did not seem helpful, and retaining 578.3c3 without modifying it would not resolve the concerns raised by the appellate decisions discussed above. Id.
It further explained that, among other situations, proof that an employer should have inquired further into whether its conduct was in compliance with the Act and failed to make adequate further inquiry is only one indicium of reckless disregard. Id.
Having considered the issues further, the Department continues to believe that revisions to 578.3c2 and the corresponding language in 579.2 are warranted for all of the reasons described above and in the 2020 Tip final rule, but that a modification is needed in order to clarify that multiple circumstances, not just the circumstance identified, can be sufficient to show that a violation was knowing and thus willful. Accordingly, the Department proposes here to withdraw and repropose 578.3c2 and the
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