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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations
and fact that warranted additional review. See 86 FR 11632. The Department subsequently further delayed the effective date, until December 31, 2021, of three portions of the 2020 Tip final rule, including the two portions addressing CMPs. See 86
FR 22597.5
Most of the provisions of the 2020 Tip final rule went into effect on April 30, 2021. The 2020 Tip final rule amended the Departments tip pooling regulations at 29 CFR 531.52, 531.54, and 531.59 to implement newly added section 3m2B, which prohibits employers regardless of whether they take a tip creditfrom keeping employees tips for any purposes, and prohibits managers and supervisors from keeping employees tips. The 2020 Tip final rule explained 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 provided 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.
The 2020 Tip final rule also addressed who is a manager or supervisor, and therefore may not keep employees tips under section 3m2B. The rule defined a manager or supervisor, as an individual who meets the duties test at 541.100a24 or 541.101. As a result, a manager or supervisor for purposes of section 3m2B is any employee 1 whose primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise; 2 who customarily and regularly directs the work of at least two or more other fulltime employees or their equivalent; and 3 who has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing are given particular weight. The definition also includes as managers or supervisors any individuals who own at least a bona fide 20 percent equity 5 The third portion of the 2020 Tip final rule, delayed until December 31, 2021, addresses when an employee is performing both tipped and nontipped work dual jobs under the FLSA. The Department has issued a separate notice of proposed rulemaking on this issue. See 86 FR
32818.

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interest in the enterprise in which they are employed and who are actively engaged in its management.
The final rule revised 531.54 to state that FLSA section 3m2B prohibits employers from requiring employees to share tips with managers and supervisors, and to state that employers may not include supervisors and managers in a tip pool. The rule at 531.52b specified, 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 removed the provisions of the Departments 2011 regulations that imposed restrictions on employers that do not take a tip credit. In addition, the 2020 Tip final rule amended 531.54 to explicitly state that an employer that pays tipped employees the full minimum wage and does not take a tip credit may require tipped employees to share tips with 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 incorporated a new recordkeeping requirement for employers that administer such 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, including the provisions on managers and supervisorswent into effect on April 30, 2021. 86 FR 22597.
The 2020 Tip final rule also made changes to the Departments CMP
regulations at 29 CFR parts 578, 579, and 580. The Department delayed the effective date of these changes, and the revised provisions have not gone into effect. See 86 FR 22597. The 2020 Tip final rule updated the Departments FLSA CMP regulations to add references to the new CMP for violations of 3m2B. The 2020 Tip final rule also specified 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 amended the Departments CMP
regulations at 578.3c2 and 579.2
regarding when a violation is knowing, and thus willful, 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
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willful in the FLSA. See 85 FR 86757.
In addition, the 2020 Tip final rule deleted 578.3c3 and the corresponding language in 579.2
regarding when a violation is in reckless disregard of the FLSA. See id. at 86774.
D. Legal Challenge to the 2020 Tip Final Rule On January 19, 2021, before the 2020
Tip final rule went into effect, Attorneys General from eight states and the District of Columbia AG Coalition filed a complaint 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.6
The complaint argues that the 2020 Tip final rule made several changes to the Departments regulations that are contrary to the FLSA and the CAA, including the 2020 Tip final rules imposition of a willfulness requirement for CMPs for section 3m2B
violations, and the rules revisions to its CMP regulations on willful violations. It further argues that the 2020 Tip final rules revisions to the Departments CMP regulations on willful violations contradict the longstanding Supreme Court precedent on willfulness. The complaint also asserts that the 2020 Tip final rules provisions on managers and supervisors improperly prevent certain lower-paid managers and supervisors from receiving tips.
E. The Departments Proposal On March 25, 2021, the Department issued an NPRM proposing to withdraw and repropose the two portions of the 2020 Tip final rule addressing CMPs and seeking comment on whether to revise another portion of the 2020 Tip final rule. See 86 FR 15817. Because of its concerns that the 2020 Tip final rule inappropriately circumscribed the Departments discretion to assess CMPs for violations of 3m2B, the Department proposed to withdraw that portion of the rule and adopt regulatory language so that the Department is not limited in its assessment of CMPs to only repeated and willful violations of section 3m2B. At the same time, the Department reproposed language that would, similar to the language in the 2020 Tip final rule, adopt the same rules, procedures, and amount considerations for CMPs for violation of 3m2B, as the Department applies for other FLSA CMPs. The Department also proposed to withdraw the portion of its CMP regulations addressing 6 See Compl., Commonwealth of Pennsylvania et al. v. Scalia et al., No. 2:21cv00258 E.D. Pa..

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