Restaurants could be 'slaughtered' in court under Biden wage rule, court told

(Reuters) - Some restaurants will face "bankruptcy-level litigation" if a Biden administration rule regulating the way tipped workers are paid is not blocked, a lawyer for two trade groups told a U.S. appeals court on Tuesday.

The 2021 rule saddles businesses with the impossible task of tracking the amount of time workers spend on duties that generate tips and those that do not and exposes them to class action lawsuits for not doing so, the lawyer, Paul DeCamp, told a 5th U.S. Circuit Court of Appeals panel in New Orleans.

The U.S. Department of Labor (DOL) rule says workers must be paid the federal minimum wage of $7.25 an hour, and not the $2.13 tipped minimum wage, for non-tipped tasks that take up more than 20% of their time or 30 consecutive minutes.

DeCamp, of Epstein Becker & Green, represents the Restaurant Law Center and Texas Restaurant Association. The groups say in their challenge to the rule that federal wage law only distinguishes between separate occupations, and not different tasks performed as part of the same job.

U.S. District Judge Robert Pitman in Austin, Texas in February declined to block the rule pending the outcome of the lawsuit. He said the groups had not shown the rule would cause the "irreparable harm" necessary to warrant blocking it.

Circuit Judge Kyle Duncan on Tuesday asked DeCamp whether the compliance costs associated with the rule, which DOL estimated would total $180 million per year for 470,000 businesses, were enough to meet the bar.

DeCamp said those bookkeeping costs alone justified blocking the rule. But the rule also requires businesses to track the individual tasks workers perform, which is infeasible, in case a business needs to defend itself from a lawsuit, he said.

“This regulation forces employers to maintain records, because you'll get slaughtered in litigation if you don't,” DeCamp said.

DeCamp was the head of DOL's Wage and Hour Division, which enforces federal wage laws including the tip rule, during the administration of Republican former President George W. Bush.

Jennifer Utrecht of the U.S. Department of Justice, who argued for DOL, countered that businesses facing lawsuits could rely on testimony from managers that, for example, workers only performed non-tipped tasks in conjunction with customer service.

The compliance costs of the rule average out to 10 minutes of work per business each week, Utrecht told the panel, which is not enough of a burden to block the rule from remaining in effect.

She said DOL had informally applied the 20% of time spent threshold for decades before adopting the rule, so many businesses were already in compliance and not facing additional costs.

The panel includes Duncan and Circuit Judge Kurt Engelhardt, who are appointees of Republican former President Donald Trump, and Circuit Judge Patrick Higginbotham, who was appointed by former President Ronald Reagan, a Republican.

The case is Restaurant Law Center v. U.S. Department of Labor, 5th U.S. Circuit Court of Appeals, No. 22-50145.

For the RLC: Paul DeCamp of Epstein Becker & Green

For the Department of Labor: Jennifer Utrecht of the U.S. Department of Justice

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