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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations
evidence other than an employers receipt of advice from WHD that its conduct was unlawful can be sufficient to show that a violation was knowing.
As noted above, the AG Coalition urged the Department to finalize this proposed change. This rule thus makes clear that other circumstances, not just the circumstance identified in 578.3c2, can be sufficient to show that a violation is knowing.
This rule also restores regulatory text regarding the meaning of willfulness by reinserting language regarding reckless disregard in 578.3c3 and 579.2.
The Department agrees with the AG
Coalition and advocacy groups representing employees who argued that simply deleting 578.3c3 and the corresponding language in 579.2 may have led to confusion and uncertainty.
The revised language in 578.3c3
and 579.2 regarding reckless disregard aligns the Departments regulations with appellate court precedent, pursuant to which an employers failure to adequately inquire into whether it violated the FLSA when it should have done so is considered tantamount to reckless disregard. See Davila v.
Menendez, 717 F.3d 1179, 1184 11th Cir. 2013. The revisions to 578.3c3
and the corresponding language in 579.2 also make clear that reckless disregard can be proven by evidence other than that the employer should have inquired further but did not do so adequately. When determining reckless disregard, the Department must still consider all of the relevant facts and circumstances. See 578.3c1.
Accordingly, under revised 578.3c3 and 579.2, an employer is in reckless disregard of the FLSA when, among other situations, the Department determines based on all of the facts and circumstances that the employer should have inquired into whether its conduct was lawful but failed to do so adequately.
The Department appreciates the concern of commenters representing employees that the circumstances identified in 578.3c2 and 3 be accorded appropriate weight in the willfulness analysis. However, the Department declines to incorporate into its regulations a rebuttable presumption that a violation of the FLSA is willful in these scenarios. Any rebuttable presumption would need to be carefully calibrated to ensure that it is consistent with 578.3c1s requirement, derived from Richland Shoe, that all facts and circumstances be considered in determining willfulness.13 Incorporating 13 Additionally, courts have made clear that the burden of proving that an employer acted willfully
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a rebuttable presumption into these provisions would also create administrative difficulties, as it would require a change in how WHD assesses CMPs and how the Department litigates CMP proceedings.
Moreover, the Department does not agree that incorporating a rebuttable presumption of willfulness into its CMP
regulations would accord greater weight to the scenarios identified in 578.3c2 and 3 than is accorded by its revisions to these provisions. As discussed above, under the proposed revisionswhich this rule finalizesan employers receipt of advice from WHD
that its conduct was unlawful can be sufficient to establish a knowing violation; thus, the revisions accord significant, and possibly determinative, weight to this fact in the willfulness analysis. Additionally, as noted above, an employer is in reckless disregard of the FLSA when, based on all of the facts and circumstances, it should have inquired into the lawfulness of its conduct but failed to do so adequately.
Since any rebuttable presumption would need to be carefully calibrated to avoid conflicting with the requirement that all facts and circumstances be considered and would necessitate a change in how the Department administers CMPs and litigates willfulness, and given that incorporating a rebuttable presumption into the regulations would not necessarily accord greater weight to the scenarios in 578.3c2 and 3 and 579.2, the Department declines to incorporate a rebuttable presumption of willfulness into its CMP regulations.
Finally, the Department declines to retain the 2020 Tip final rules willfulness revisions, as urged by the NRA and NFIB. Upon review of the comments and for the reasons discussed above, the Department believes that the proposed revisions to 578.3c2 and 3 and 579.2 make needed modifications to its CMP regulations.14
The Department also declines NFIBs suggestion to preserve the 2020 Tip final rules willfulness revisions for smaller employers. Consistent with the text of section 16e2 of the FLSA, which ultimately falls in the employee. See, e.g., Davila, 717 F.3d at 118485.
14 The Department notes that it disagrees with the NRAs assertion that the proposed willfulness changes represent a sudden change in position from the 2020 Tip final rule. Although the proposed revisions make important and needed modifications to 578.3c2 and 3 and 579.2, these revisions clearly build upon rather than depart from the fundamental reasoning behind and objectives of the 2020 Tip final rules willfulness revisions: To better align the Departments CMP regulations with appellate court precedent and with how the Department actually litigates willfulness.

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provides that any person who repeatedly or willfully violates section 6 or 7 of the FLSA shall be subject to a civil penalty, 29 U.S.C. 216e2, the Department has always maintained a uniform standard of willfulness applicable to all persons who violate the FLSA. See 57 FR 49128. Adopting different standards of willfulness for different sizes of employers would present administrative difficulties for WHD.
Accordingly, the final rule adopts the revisions to 578.3c2 and c3 and 579.2 as proposed.
C. Managers and Supervisors Under 3m2B
Section 3m2B prohibits employers, regardless of whether they take a tip credit, from keeping tips received by employees, including allowing managers or supervisors to keep any portion of employees tips. 29
U.S.C. 203m2B. Section 531.52b2, as amended by the 2020
Tip final rule, reiterates the prohibition in section 3m2B that an employer may not allow managers and supervisors to keep any portion of an employees tips, regardless of whether the employer takes a tip credit. 29 CFR
531.52b2. However, 531.52b2
clarifies that an employer does not violate 3m2B when a manager or supervisor keeps tips that he or she receives directly from customers based on the service that he or she directly provides. The Department explained in the 2020 Tip final rule that section 3m2B does not bar managers and supervisors from keeping their own tips but only prohibits managers and supervisors from keeping tips received by employees other than themselves.
See 85 FR 86764. Thus, for example, a salon manager may keep tips left by customers whose hair she personally styles, without violating the statute. Id.
In the CMP NPRM, the Department observed that some managers and supervisors may directly engage in a significant amount of tipped work for which they earn tips, and requested comments on whether it could make additional adjustments to the regulations to better address these employees without running afoul of section 3m2Bs prohibition of these individuals keeping other employees tips. The Department asked whether language in the current regulation is sufficient to allow managers and supervisors to retain the tips they earn from customer service work. The Department also requested comment on whether it should modify the regulation to clarify that managers and supervisors can contribute tips to mandatory tip
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