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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations 2011; 29 CFR 531.59 2011. These regulations were consistent with the Departments longstanding position on tipped employees, and the Department stated that, although the statutory language did not expressly address the use of an employees tips when an employer does not take a tip credit and pays a direct cash wage equal to or greater than the minimum wage, the regulations filled a gap in the statutory scheme.3 See 76 FR 1884142.
On March 23, 2018, Congress enacted the CAA, which amended section 3m of the FLSA to expressly prohibit employers from keeping employees tips for any purposes, regardless 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. Section 3m2B also prohibits employers from allowing managers or supervisors to keep any portion of employees tips. Id. In addition, the CAA suspended 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 Public Law 115141, Div. S, Tit. XII, sec. 1201c.
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 authorize the assessment of a civil money 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 4 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 3 In December 2017, the Department published an NPRM proposing to rescind the portions of its 2011
tip regulations that imposed restrictions on employers that do not take a tip credit against their minimum wage obligations, in part because of litigation involving these regulatory provisions. See 82 FR 57395. The Department withdrew this NPRM
in October 2019 after the CAA amendments to the FLSA directly impacted the subject of the rulemaking. See 84 FR 53960. For a more detailed history of this rulemaking, see 86 FR 15817.
4 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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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 that prohibited an employer that does not take a tip credit from requiring tip pooling, 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 explained that the amendments prohibit employers, including managers or supervisors, from keeping tips received by their employees, regardless of whether the employer takes a tip credit under 29 U.S.C. 203m. In addition, the FAB provided 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. Finally, the FAB stated 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 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 violations only when the violations are repeated or willful . See 29 U.S.C.
216e2. The Departments regulations at 29 CFR 578.3c and 579.2 address 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. For many years, these regulations identified two specific circumstances in which a
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violation shall be deemed willful. 29
CFR 578.3c2 and 3, 579.2.
Specifically, the Departments regulations at sections 578.3c2 and 579.2 provided that an employers conduct shall be deemed knowing, among other situations, if the employer received prior advice from WHD that its conduct was unlawful. Additionally, 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 failed to inquire further into the lawfulness of its conduct when it should have. The Departments regulations further provided 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.
In Baystate Alt. 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 the regulatory provisions deeming two specific circumstances to be willful, and the Richland Shoe standard on which the regulation is based which takes 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 also 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, 103031 D.C.
Cir. 2016.
C. 2020 Tip Final Rule On October 8, 2019, the Department issued an NPRM proposing to revise the Departments tip regulations to incorporate the CAA amendments, among other things. See 84 FR 53956.
Because the Department was revising its CMP regulations to incorporate the new CMP provision for section 3m2B
violations, the Department also proposed to address the willful provisions of the Departments existing FLSA CMP regulations in light of the decisions of the courts of appeals in Baystate and Rhea Lana. See id. at 53964. The Department published the Tip final rule on December 30, 2020.
See 85 FR 86756. The 2020 Tip final rule was initially scheduled to go into effect on March 1, 2021; however, 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,
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