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Federal Register / Vol. 86, No. 56 / Thursday, March 25, 2021 / Proposed Rules
Baystate and Rhea Lana. The 2020 Tip final rule was scheduled to go into effect on March 1, 2021, but on February 26, 2021, the Department delayed the 2020
Tip final rules effective date to April 30, 2021, in order to give the Department additional time to consider issues of law, policy, and fact that warranted additional review.
i. Changes Related to the CAA
Amendments to Section 3m2B and Related Recordkeeping Requirements The 2020 Tip final rule amends the Departments tip pooling regulations at 29 CFR 531.52, 531.54, and 531.59 to implement newly added section 3m2B, an expansive provision which prohibits employersregardless of whether they take a tip creditfrom keeping employees tips for any purposes, including allowing managers and supervisors to keep the tips. The 2020 Tip final rule explains that section 3m2B proscribes all manner of keeping tips, and is so broad as to prohibit an employer from exerting control over employees tips other than to 1 distribute tips to the employee who received them, 2 require employees to share tips with other eligible employees, or, 3 where the employer facilitates tip pooling by collecting and redistributing employees tips, to distribute tips to employees in a tip pool. The 2020 Tip final rule further provides that any employer that collects tips to facilitate a mandatory tip pool must fully redistribute the tips, no less often than when it pays wages, to avoid keeping the tips in violation of section 3m2B.
Further, while the Department observed in the 2020 Tip final rule that it was unlikely to occur, and difficult to enforce, an instance where an employer keeps tips by reducing the wages of workers who receive them can also be a violation of section 3m2B and the broad scope of the prohibition against keeping tips. See 85 FR 86766, 86777.
To the extent that the 2020 Tip final rule can be read to suggest that an employer can never violate 3m2B
by using one employees tips to offset the wages of another employee, the Department does not agree. For example, if an employer hires a nontipped employee at $12 an hour, institutes a nontraditional tip pool in which that employee will receive $2 an hour from the pool, and then informs the non-tipped employee that it will pay her only $10 per hour on account of the tips she is now receiving from the tipped employees, this evidence that the employer is reducing the employees wages and supplementing them with another employees tips can
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demonstrate an unlawful keeping under section 3m2B.5
The 2020 Tip final rule also addresses who is a manager or supervisor, and therefore may not keep employees tips under section 3m2B. The rule defines a manager or supervisor, as an individual who meets the duties test at 541.100a24 or 541.101. The rule specifies, however, that such a manager or supervisor may keep tips that he or she receives directly from customers based on the service that he or she directly provides.
Consistent with the CAA
amendments, the 2020 Tip final rule also removes the portions of the Departments 2011 regulations that imposed restrictions on employers that do not take a tip credit. In addition, the 2020 Tip final rule amends 29 CFR
531.54 to explicitly state that an employer that pays tipped employees the full minimum wage and does not take a tip credit may impose a mandatory tip pooling arrangement that includes dishwashers, cooks, or other employees who are not employed in an occupation in which employees customarily and regularly receive tips, as long as that arrangement does not include any employer, supervisor, or manager. The 2020 Tip final rule also incorporates a new recordkeeping requirement for employers that administer nontraditional tip pools.
These portions of the 2020 Tip final ruleaddressing the CAAs changes to tips and tip pooling in section 3m and related recordkeeping requirements will go into effect on April 30, 2021.
ii. Changes to CMP Regulations The 2020 Tip final rule also makes changes to the Departments CMP
regulations at 29 CFR parts 578, 579, and 580. In a separate NPRM published elsewhere in this issue of the Federal Register, the Department has proposed to delay the effective date of these portions of the 2020 Tip final rule until December 30, 2021, to allow the Department to complete this rulemaking before those discrete portions of the 2020 Tip final rule go into effect. The 2020 Tip final rule updates the 5 The 2020 Tip final rule discusses whether it would be a violation of section 3m2B if employers reduced the wages of back-of-house employees in response to including them in a nontraditional tip pool, and acknowledged that it would be difficult to distinguish between lawful reductions to compensation and unlawful keeping of tips received by its employees. The 2020 Tip final rule did not say whether such a practice would violate section 3m2B. 85 FR 86766. This discussion originated from an acknowledgement in the economic impact analysis of possible employer responses to the rule, and was not intended to serve as an endorsement of the practice.

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Departments FLSA CMP regulations to add references to the new CMP for violations of 3m2B. The 2020 Tip final rule also specifies that the Department may assess CMPs only for repeated or willful violations of section 3m2B, although the statute does not include this limitation. The 2020 Tip final rule also amends the Departments CMP regulations on willful violations specifically, 29 CFR
578.3c2 & 3 and 579.2 to address the appellate court decisions that have, for example, urged the Department to reconsider those regulations to ensure their consistency with the Supreme Courts interpretation of the meaning of willful in the FLSA.6
III. Need for Rulemaking On February 26, 2021 the Department delayed the effective date of the 2020
Tip final rule to 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 M2114. 86 FR 11632. Among other issues, the Department sought to consider whether the 2020 Tip final rule properly implements the CAA
Amendments to section 3m of the FLSA, which prohibit employers from keeping tips for any purpose and whether the final rule otherwise effectuates the CAA amendments to the FLSA, including the statutory provision for CMPs for violations of section 3m2B 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 2020 Tip final rule.7 The complaint argues that the 2020 Tip final rule makes several changes to the Departments regulations 6 Unrelated to the CAA amendments, the 2020
Tip final rule also amends the Departments regulations to reflect agency guidance explaining that an employer may take a tip credit for time that an employee in a tipped occupation spends performing related, non-tipped duties contemporaneously with tipped duties, or for a reasonable time immediately before or after performing the tipped duties. The 2020 Tip final rule also addresses which non-tipped duties are related to a tip-producing occupation. The Department has also proposed to delay the effective date of this portion of the 2020 Tip final rule, in addition to those parts of the final rule addressing CMPs, until December 31, 2020. The Department has requested comments on these issues in a second NPRM published in this issue of the Federal Register and does not address these issues here.
7 Commonwealth of Pennsylvania et al. v. Scalia et al., No. 2:21cv00258 E.D. Pa., Jan. 19, 2021.

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