Obscure Labor Rule Puts Trump Attorneys in High Court Bind

From labor disputes cases to labor and employment publications, for your research, you’ll find solutions on Bloomberg Law®. Protect your clients by developing strategies based on Litigation...

By Ben Penn

A little-known Obama Labor Department rule on tip pooling has proven vexing for Trump administration attorneys because of a high court challenge that could weaken the entire executive branch, sources familiar with the process tell Bloomberg BNA.

The National Restaurant Association asked the U.S. Supreme Court earlier this year to invalidate the 2011 regulation, which barred certain tip-pool arrangements, and there’s a solid chance justices will take the case, attorneys say. The Trump administration likely wants to reverse the rule, but the rescission process is lengthy.

The Justice Department and DOL have until Sept. 8 to respond to the Supreme Court petition, after being granted four extensions. The government deliberations entail a major dilemma: how, and whether, to drop support of a prior administration’s rule while risking that the justices grant review and narrow the legal doctrine—Chevron deference—that agencies rely on to wield regulatory power.

“I think this is a perfect case for resolving some of the questions about Chevron,” Ronald Cass, a veteran administrative law scholar and dean emeritus at Boston University Law School, told Bloomberg BNA. “Some of the justices have clearly signaled they would like to find an opportunity to revisit the doctrine, so that for me makes this a more likely case to be taken on certiorari and a more likely case to have the Chevron issue addressed.”

The Supreme Court ruled in the 1984 Chevron case that judges must defer to agency interpretations of ambiguities in the laws they administer, unless the rulemakings are unreasonable. Some law professors disagree, but Cass, a senior Obama DOL official, and other attorneys told Bloomberg BNA that the tip-pool case is ripe for a ruling that limits the deference. They cited a scathing 2016 appellate court dissent in which a panel of judges argued that the regulation is an extreme abuse of agency rulemaking authority. The dissenting judges’ views on statutory silence could open up a review of Chevron.

“If the Supreme Court were to rule that silence on the particular issue that you’re regulating on means that the statute forecloses regulations, you’re going to cut down the ability of agencies to regulate significantly,” said the Obama DOL official, who spoke on condition of anonymity.

‘Internal Conflict’

Even to a Trump administration that rails against the business costs of regulations, the undoing of Chevron may present a dangerous disruption of the administrative state. How the DOJ solicitor general’s office proceeds on the tip-pool case could offer an early signal about whether the White House’s deregulatory mission extends to supporting a revision of this widely cited high court precedent.

“I think that that may be an internal conflict that the DOL is looking at: Do we want to challenge this and potentially open the door to have a further refinement to Chevron deference that could be more limiting to the agency?” Jennifer Gokenbach, a solo practitioner representing management in Colorado, told Bloomberg BNA. Gokenbach defended a catering company in an employee lawsuit that recently triggered a federal appellate ruling that the DOL’s tip-pool regulation is invalid. This case, decided in June, creates a cleaner circuit split on the matter, bolstering the chances that the justices will review the restaurant industry petition.

The Supreme Court’s potential to revise the Chevron precedent is seen as one reason the DOJ solicitor general’s office, working in coordination with DOL, continues to postpone filing a brief responding to the NRA’s petition.

In his most recent extension request, Acting Solicitor General Jeffrey Wall, a temporary political appointee under Trump, requested additional time “to allow further consultations within the Executive Branch.”

The Justice Department declined to comment. A Labor Department spokeswoman referred Bloomberg BNA to the DOJ.

Tip-Pool Controversy

The DOL regulation established that tips are the property of employees, and that employers may not disperse those tips to other workers, including at businesses that don’t take a tip credit. The Fair Labor Standards Act allows employers to apply a tip credit in which they pay tipped employees a lower hourly wage as long as the workers’ tips make up the difference between the subminimum wage paid and the $7.25 per hour federal minimum wage.

The FLSA forbids tip pools between servers and kitchen staff when employers apply the tip credit, but the law is silent on the legality of tip sharing at workplaces that decline a credit. The prior administration, citing Chevron, felt this statutory silence authorized a new regulation to fill the gap.

Relative to a heap of other Obama-era labor regulations that were despised by the business community, the tip-pool rule aroused minimal noise. That’s likely because it affected a portion of employers in a single industry. But the NRA, the restaurant industry’s chief lobbying arm, made litigating the rule a priority.

The association contends that the rule unfairly prevents back-of-house employees, such as cooks and dishwashers, from sharing in the fruits of the employees’ joint labor when front-of-house workers, including servers and bartenders, don’t share tips. However, the Obama DOL saw the rule as a way to clarify a longheld position that tips belong to employees, and also a method to prevent unscrupulous employers from skimming tips.

Angelo Amador, the NRA’s senior vice president and counsel of record in the high court petition, told Bloomberg BNA he’s “cautiously optimistic” the justices will take his case, especially after the addition of bona fide conservative Neil Gorsuch to the bench. He knows this technical rule would receive newfound national attention were the justices to use the challenge to review Chevron, but Amador said the NRA would take a win, regardless of the court’s reasoning.

Separately, casino Wynn Las Vegas has asked the high court to overturn the regulation. The Supreme Court’s reshuffling of the schedule on that petition suggests it might consolidate the sister cases, Amador said. If the justices granted cert, oral arguments wouldn’t take place before 2018, he predicted.

Chevron Murkiness

As evidence of the regulation’s application to a broad pool of administrative law advocates, the authors of two amicus briefs filed in support of the NRA’s petition told Bloomberg BNA their primary interest in the case is not from a labor and employment law perspective.

Rather, the friend-of-the-court filers from the free-market organizations Cato Institute and Pacific Legal Foundation both said they want the Supreme Court to review the petition as a means of preventing agency power grabs.

And unlike Cato, the Pacific Legal Foundation expressly argues that the case is an ideal fit for a court that recently said it wants to take a fresh look at Chevron deference.

Some conservative lawmakers, including House Speaker Paul Ryan (R-Wis.), have crusaded against the Chevron ruling, particularly when the decision made it difficult for opponents to sue to block Barack Obama’s active regulatory agenda. But the debate is a thorny one and doesn’t split neatly along partisan lines.

That’s partially what’s making the next step difficult for a Trump DOJ that may not want to cede too much power to Congress or the courts. When the Chevron issue collides with a White House transition to a new political party, the complications are magnified.

“When you have a new administration and a regulation they might not agree with, and it gets to this point procedurally, it’s just a very difficult situation,” Eric Schnapper, a University of Washington Law School professor who represents employee respondents in the Wynn Las Vegas case, told Bloomberg BNA. “They can’t pull the regulation and they wouldn’t want to file a brief and assert the regulation is invalid. I’m not sure what they’re going to do.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com; Chris Opfer at copfer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Labor & Employment on Bloomberg Law