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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Rules and Regulations
willful requirement from the 2020 Tip final rule for small businesses that violate section 3m2B. The Department declines to adopt this recommendation, because it would not be consistent with its enforcement in other areas to impose the requirement that CMPs be assessed against small businesses only when the violations committed are repeated and willful.
However, NFIB also requested that the Department preserve the requirement that it consider the seriousness of the violation and the size of the employers business when assessing CMPs for section 3m2B. The Departments final rule does preserve that requirement, because, as explained above, it adopts the same longstanding rules and procedures that the Department applies for other FLSA
CMPs for the assessment of section 3m2B CMPs. This includes the obligation, required by 29 U.S.C.
216e3, to consider the size of the employers business when determining the amount of any civil money penalty.
After review of the comments, the Department agrees that it was inappropriate to limit the statutorilygranted discretion by regulation and that instead the regulations should reflect the statutory text. Therefore, the Department finalizes the revisions to 29
CFR 578.3, 578.4, 579.1, 580.2, 580.3, and 580.12 that eliminate the references limiting CMP assessments for violations of section 3m2B to repeated and willful violations as proposed. The Department also finalizes as proposed the other revisions to 578.3, 578.4, 579.1, 580.2, 580.3, and 580.12 which amend those provisions to adopt the same rules, procedures, and amount considerations for tip CMP assessments as the Department applies for other FLSA CMP assessments, which will promote the goals of consistency and familiarity that the Department emphasized in the 2020 Tip final rule.
The Department also finalizes as proposed the revision to 580.18b3, which eliminates the reference in that regulation to willful violations of section 3m2B, which was a technical error in the 2020 Tip final rule, since the CAA Amendments did not provide for criminal penalties for violations of section 3m2B.

B. Civil Money Penalties for Willful Violations of the Fair Labor Standards Act 1. Summary of Proposed Changes to Portions of CMP Regulations Addressing When a Violation of Section 6 or Section 7 of the FLSA Is Willful In addition to revising its regulations to preserve the Departments full discretion to assess CMPs for violations of section 3m2B, the Department proposed to further modify 578.3c and 579.2 of its CMP regulations, which address when a violation of the FLSA is willful, and thus subject to a CMP
under section 16e. 86 FR 15822.
Specifically, the Department proposed to withdraw and repropose with a modification the language at 578.3c2 and 579.2 addressing when an employers violation is knowing, and further proposed to reinsert language at 578.3c3 and 579.2 to provide guidance regarding the meaning of reckless disregard.
As previously explained,10 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. The Department incorporated this holding into 578.3c1 of its CMP regulations when they were first promulgated in 1992, and 578.3c1 further states that all of the facts and circumstances surrounding the violation shall be taken into account in determining whether a violation was willful. 29 CFR
578.3c1; 57 FR 49130 1992. The 2020 Tip final rule made no changes to this language in 578.3c1, and the Department did not propose any in the CMP NPRM. See 86 FR 15822.
The Departments 1992 CMP
regulations identified two specific circumstances in which a violation shall be deemed knowing and in reckless disregard, respectively, and thus willful: Prior advice from WHD to the employer that its conduct was unlawful, and the employers failure to adequately inquire further into the lawfulness of its conduct when it should have. 57 FR 49130; 29 CFR
578.3c23. As the Department noted in the NPRM for the 2020 Tip final rule, two appellate courts identified an inconsistency between the 1992 regulations language, on the one hand, that conduct shall be deemed knowing if the employer was previously advised by WHD that the 10 See
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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 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. The Department also 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, notwithstanding the regulatory language that appeared to be to the contrary. See 84 FR 53965. Accordingly, the NPRM
for the 2020 Tip final rule proposed to revise 578.3c23 and 579.2 to state that 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.
After considering comments received, the 2020 Tip final rule revised 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 knowing but is not automatically dispositive. See 85 FR
86774. In addition, the 2020 Tip final rule deleted 578.3c3 and the corresponding language in 579.2
addressing the meaning of reckless disregard. The 2020 Tip final rule explained 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 scenarioin which an employer should have inquired further into the lawfulness of its conduct but did not do so adequatelythat 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 thus did not seem helpful. Id.
In the CMP NPRM, the Department stated that it believed a modification to 578.3c2 and the corresponding language in section 579.2 regarding knowing violations was necessary to clarify that other circumstances, not just the circumstance identified in these regulations, can be sufficient to show that a violation is knowing.
Accordingly, the Department proposed to withdraw and repropose 578.3c2

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