                          UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF COLUMBIA
____________________________________
                                    )
NATIONAL RESTAURANT                 )
ASSOCIATION, et al.,                )
                                    )
                     Plaintiffs,    )
                                    )
      v.                            )              Civil Action No. 11-1116 (ABJ)
                                    )
HILDA L. SOLIS, Secretary, U.S.     )
Department of Labor, et al.,        )
                                    )
                     Defendants.    )
____________________________________)


                                MEMORANDUM OPINION

       Plaintiffs National Restaurant Association, Counsel of State Restaurant Associations,

Inc., and National Federation of Independent Businesses bring this action against defendants

Hilda L. Solis, in her official capacity as Secretary of the U.S. Department of Labor; Nancy

Leppink, in her official capacity as Acting Administrator of the U.S. Department of Labor; and

the U.S. Department of Labor (“the Department” or “DOL”). Plaintiffs allege that defendants

violated the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 611, 702 (2006), when DOL

promulgated a new regulation, 29 C.F.R. § 531.59(b) (2011), concerning an employer’s

obligation to inform tipped employees of the “tip credit” requirements of the Federal Labor

Standards Act of 1938 (“FLSA”), 29 U.S.C. §§ 201–219 (2006). Defendants have moved to

dismiss, or, in the alternative, for summary judgment, [Dkt. # 15], and plaintiffs have filed a

cross-motion for summary judgment. [Dkt. # 24]. Since the agency complied with the APA

notice requirements when it conducted this rulemaking exercise, and the public was fully and
specifically informed of the subject matter under consideration, the Court will deny plaintiffs’

motion for summary judgment and grant defendants’ motion.

   I.      BACKGROUND

        The FLSA requires employers covered by the statute to pay hourly employees a

minimum wage. 29 U.S.C. § 206. But the statute as it is currently configured also permits

employers to pay employees who collect tips less than the minimum wage under certain

circumstances. 29 U.S.C. § 203(m) (“section 3(m)”). Referred to as the “tip credit,” section

3(m) allows employers to use tips received by tipped employees to partially satisfy the hourly

minimum wage requirement if an employee “has been informed by the employer of the

provisions of this subsection . . . .” Id. In other words, if an employer fails to inform its tipped

employees of the provisions of section 3(m), then no tip credit can be taken, and the employer is

liable for the full minimum wage.

        A. Statutory and Regulatory Background

        In 1966, Congress passed the amendment to FLSA that first enabled employers to take

advantage of a tip credit. Pub. L. No. 89-601 §101(a), 80 Stat. 830 (1966). The following year,

the Department promulgated its first regulation implementing section 3(m). 29 C.F.R. § 531.59

(1967). As originally enacted, neither section 3(m) nor the implementing regulation required

employers to inform employees about the statutory provision before taking the tip credit. That

changed in 1974, when Congress again amended FLSA to require employers to inform

employees of the provisions of section 3(m) in order to be eligible for the tip credit. Pub. L. No.

93-259, § 13, 88 Stat. 55 (1974). 1 As amended, FLSA provides:



1      Although section 3(m) of FLSA has been amended several times since 1974, the
language from the 1974 amendments is the same language currently found in the statute.


                                                 2
       In determining the wage an employer is required to pay a tipped employee, the
       amount paid such employee by the employee’s employer shall be an amount equal
       to –

       (1) the cash wage paid such employee which for purposes of such determination
       shall be not less than the cash wage required to be paid such an employee on
       August 20, 1996; and

       (2) an additional amount on account of the tips received by such employee which
       amount is equal to the difference between the wage specified in paragraph (1) and
       the wage in effect under section 206(a)(1) of this title.

       The additional amount on account of tips may not exceed the value of the tips
       actually received by an employee. The preceding [two] sentences shall not apply
       with respect to any tipped employee unless such employee has been informed by
       the employer of the provisions of this subsection, and all tips received by such
       employee have been retained by the employee, except that this subsection shall
       not be construed to prohibit the pooling of tips among employees who
       customarily and regularly receive tips.

29 U.S.C. § 203(m) (2006) (emphasis added).             A Senate Report concerning the 1974

amendments explained that “[t]he tip credit provision . . . is designed to insure employer

responsibility for proper computation of the tip allowance and to make clear that the employer is

responsible for informing the tipped employee of how such employee’s wage is calculated. Thus

the bill specifically requires that the employer must explain the tip provision of the Act to the

Employees . . . . ” S. Rep. No. 93-690, at 43 (1974).

       B. The Proposed Rule

       Although Congress enacted the requirement that employers inform their employees prior

to taking the tip credit in 1974, the Department did not initiate further rulemaking until 2008. On

July 28, 2008, the Department published a Notice of Proposed Rulemaking (“NPRM”), which

stated in its preamble:

       In this proposed rule, the Department of Labor . . . proposes to revise regulations
       issued pursuant to the Fair Labor Standards Act of 1938 (FLSA) . . . that have
       become out of date because of subsequent legislation or court decisions. These



                                                3
       proposed revisions will conform the regulations to FLSA Amendments passed in
       1974, 1977, 1996, 1997, 1998, 1999, 2000, and 2007 . . . .

Updating Regulations Issued Under the Fair Labor Standards Act (“Proposed Rule”), 73 Fed.

Reg. at 43654 (July 28, 2008) (to be codified at 29 C.F.R. pts. 4, 531, 553, 778, 779, 780, 785,

786, & 790). The agency was clear about the broad scope of the undertaking: “The Department

requests comments on all issues related to this notice of proposed rulemaking.” Id. at 43655.

       Section 3(m) was one of several statutory provisions specifically identified in the NPRM

as being a particular subject of the announced rulemaking. The NPRM included a section

entitled “Tipped Employees,” and the notice expressly referred to the 1974 amendments:

        Section 13(e) of the Fair Labor Standards Act Amendments of 1974 amended
        the last sentence of section 3(m) by providing that an employer could not take a
        tip credit unless: “(1) [its] employee has been informed by the employer of the
        provisions of this subsection . . . .”

Id. at 43659 (alteration in original) (quoting Pub. L. No. 93-259, § 13(e), 88 Stat. 55 (1974)).

The Tipped Employees section of the NPRM went on to discuss the legislative history of the tip

credit, and it also summarized the relevant case law on the need to inform employees under

section 3(m):

       Courts have disallowed the use of the tip credit for lack of notice even “where the
       employee has actually received and retained base wages and tips that together
       amply satisfy the minimum wage requirements,” remarking that “[i]f the penalty
       for omitting notice appears harsh, it is also true that notice is not difficult for the
       employer to provide.” Reich v. Chez Robert, Inc., 28 F.3d 401, 404 (3d Cir.
       1994) (citing Martin v. Tango’s Restaurant, 969 F.2d 1319, 1323 (1st Cir. 1992)).
       Although written notice is frequently provided, it is not required to satisfy the
       employer’s notice burden. Compare Kilgore v. Outback Steakhouse of Florida,
       Inc., 160 F.3d 294, 299 (6th Cir. 1998) (written notice provided to all applicants
       as matter of course), with Pellon v. Business Representation Int’l, Inc., 528 F.
       Supp. 2d 1306, 1310-11 (S.D. Fla. 2007), appeal docketed, No. 08-10133 (11th
       Cir. Jan. 8, 2008) (section 3(m)’s requirement was met through verbal notice that
       plaintiff would be paid $2.13 plus tips, combined with prominent display of FLSA
       poster explaining tip credit). Additionally, while employees must be “informed”
       of the employer’s use of the tip credit, the employer need not “explain” the tip
       credit. See Kilgore, 160 F.3d at 298 (“[A]n employer must provide notice to the

                                                 4
       employees, but need not necessarily ‘explain’ the tip credit * * * ‘[I]nform’
       requires less from an employer than the word ‘explain.’ ”); cf. Bonham v. Copper
       Cellar Corp., 476 F. Supp. at 101 & n.6 (“vague references to conversations about
       the minimum wage” are insufficient to establish section 3(m) notice”).

Id. at 43659-60 (alterations in original). Against this backdrop, the NPRM proposed a new

regulation, which stated:

       Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it
       has informed its employees that it intends to avail itself of the tip wage credit.
       Such notice shall be provided in advance of the employer’s use of the tip credit;
       the notice need not be in writing, but must communicate to employees that the
       employer intends to treat tips as satisfying part of the employer’s minimum wage
       obligation.

Id. at 43668. The Department of Labor received comments on the proposed rules from July 28

to September 26, 2008. 2

       C. The Final Rule

       On April 5, 2011, the Department of Labor issued a final rule regarding the FLSA’s tip

credit provision. Updating Regulations Issued Under the Fair Labor Standards Act (“Final

Rule”), 76 Fed. Reg. 18832 (Apr. 5, 2011) (codified at C.F.R. pts. 516, 531, 553, 778, 779, 780,

785, 786, & 790). The introductory summary explained:

       Upon careful reexamination of the terms of the [FLSA], its legislative history, and
       a review of the public comments, the Department is revising its interpretation
       from the NPRM of the level of explanation that employers must provide when
       informing tipped employees about the tip credit pursuant to section 3(m).

Id. at 18844. The final rule, which was codified as 29 C.F.R. § 531.59(b), provided:

       Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it
       has informed its tipped employees in advance of the employer’s use of the tip
       credit of the provisions of section 3(m) of the Act, i.e.: The amount of the cash
       wage that is to be paid to the tipped employee by the employer; the additional


2      The NPRM originally stated that the time period for filing written comments would end
on September 11, 2008, but was later extended by fifteen days to September 26, 2008. Updating
Regulations Issued Under the Fair Labor Standards Act (“Extension of Time”), 73 Fed. Reg.
49621 (Aug. 22, 2008).
                                                 5
          amount by which the wages of the tipped employee are increased on account of
          the tip credit claimed by the employer, which amount may not exceed the value of
          the tips actually received by the employee; that all tips received by the tipped
          employee must be retained by the employee except for a valid tip pooling
          arrangement limited to employees who customarily and regularly receive tips; and
          that the tip credit shall not apply to any employee who has not been informed of
          these requirements in this section.

Id. The rule went into effect on May 5, 2011. 29 C.F.R. § 531.59(b).

          D. The Lawsuit Before This Court

          Plaintiffs are national trade and industry associations whose members employ tipped

employees paid under section 3(m) and are subject to the tip credit notice regulation.

Compl. ¶¶ 8–10. Defendants Hilda L. Solis and Nancy Leppink are government officials sued in

their official capacities. Id. ¶¶ 12, 14. Defendant U.S. Department of Labor is the federal

agency charged with administration and enforcement of the FLSA, including promulgating

regulations and implementing the FLSA. See 29 U.S.C. § 204.

          Plaintiffs filed this lawsuit on June 16, 2011, claiming that defendants violated the APA

when promulgating 29 C.F.R. § 531.59(b). [Dkt. # 1]. The complaint contains the following

claims:

                 Count I alleges that defendants violated section 553 of the APA by failing
                 to provide the public with sufficient notice and opportunity to comment on
                 the tip notice requirements contained in the 2011 Final Rule.
                 Compl. ¶¶ 38–49. Essentially, plaintiffs argue that the agency was bound
                 to re-notice the final rule for another round of public comment given its
                 variance from the original proposal.

                 Count II alleges that defendants violated section 701 of the APA because
                 the regulation is “arbitrary, capricious, an abuse of discretion, or otherwise
                 not in accordance” with the FLSA tip credit provision, 29 U.S.C. §
                 203(m), because “it conflicts with the DOL’s previously announced
                 positions and established case law, and [is] based on DOL’s unsupported
                 assertion . . . that the changes will not result in any additional compliance
                 costs.” Id. ¶¶ 50–57.




                                                   6
                 Count III alleges that defendants violated section 701 of the APA because
                 the regulation is “arbitrary, capricious, an abuse of discretion, or otherwise
                 not in accordance with Executive Orders 12866 and 13563,” which
                 “require agencies to review existing and proposed regulations to identify
                 whether they may be made more effective or less burdensome.” Id. ¶¶ 58–
                 66. 3

                 Count IV alleges that defendants “violated Sections 604, 605, and 611 of
                 the APA by failing to conduct an adequate regulatory flexibility
                 analysis[.]” Id. ¶¶ 67–74.

          Plaintiffs seek an order vacating 29 C.F.R. § 531.59(b) and enjoining defendants from

“enforcing, applying, or implementing” the tip credit requirements embodied in the regulation.

Id. at 20 (prayer for relief). Plaintiffs also seek litigation costs and attorney’s fees. Id.

    II.       STANDARD OF REVIEW

    A. Motion to dismiss

          “To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted); accord Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007). In Iqbal, the Supreme Court reiterated the two principles

underlying its decision in Twombly: “First, the tenet that a court must accept as true all of the

allegations contained in a complaint is inapplicable to legal conclusions.” 556 U.S. at 678. And

“[s]econd, only a complaint that states a plausible claim for relief survives a motion to dismiss.”

Id. at 679.

          A claim is facially plausible when the pleaded factual content “allows the court to draw

the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678.

“The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a


3        Plaintiffs concede Count III. See Motions Hearing Transcript (“Tr.”) at 20 (May 3,
2012). Accordingly, the motion to dismiss will be granted with respect to that claim, and Count
III will be dismissed.
                                                   7
sheer possibility that a defendant has acted unlawfully.” Id. A pleading must offer more than

“labels and conclusions” or a “formulaic recitation of the elements of a cause of action,” id.,

quoting Twombly, 550 U.S. at 555, and “[t]hreadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.” Id.

        When considering a motion to dismiss under Rule 12(b)(6), the complaint is construed

liberally in plaintiff’s favor, and the Court should grant plaintiff “the benefit of all inferences that

can be derived from the facts alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276

(D.C. Cir. 1994). Nevertheless, the Court need not accept inferences drawn by plaintiff if those

inferences are unsupported by facts alleged in the complaint, nor must the Court accept

plaintiff’s legal conclusions. See Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002);

Kowal, 16 F.3d at 1276. In ruling upon a motion to dismiss for failure to state a claim, a court

may ordinarily consider only “the facts alleged in the complaint, documents attached as exhibits

or incorporated by reference in the complaint, and matters about which the Court may take

judicial notice.” Gustave-Schmidt v. Chao, 226 F. Supp. 2d 191, 196 (D.D.C. 2002) (citations

omitted).

    B. Cross motions for summary judgment

        Summary judgment is appropriate “if the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). The party seeking summary judgment bears the “initial responsibility of informing the

district court of the basis for its motion, and identifying those portions of the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the affidavits, if

any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex

Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). To defeat



                                                   8
summary judgment, the non-moving party must “designate specific facts showing there is a

genuine issue for trial.” Id. at 324 (internal quotation marks omitted). The mere existence of

some factual dispute is insufficient to preclude summary judgment. Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 247–48 (1986). A dispute is “genuine” only if a reasonable fact-finder could

find for the non-moving party; a fact is only “material” if it is capable of affecting the outcome

of the litigation. Id. at 248; Laningham v. U.S. Navy, 813 F.2d 1236, 1241 (D.C. Cir. 1987). In

assessing a party’s motion, “[a]ll underlying facts and inferences are analyzed in the light most

favorable to the non-moving party.” N.S. ex rel. Stein v. District of Columbia, 709 F. Supp. 2d

57, 65 (D.D.C. 2010), citing Anderson, 477 U.S. at 247.

       “The rule governing cross-motions for summary judgment . . . is that neither party waives

the right to a full trial on the merits by filing its own motion; each side concedes that no material

facts are at issue only for the purposes of its own motion.” Sherwood v. Washington Post, 871

F.2d 1144, 1148 n.4 (D.C. Cir. 1989), quoting McKenzie v. Sawyer, 684 F.2d 62, 68 n.3 (D.C.

Cir. 1982). In assessing each party’s motion, “[a]ll underlying facts and inferences are analyzed

in the light most favorable to the non-moving party.” N.S. ex rel. Stein, 709 F. Supp. 2d at 65,

citing Anderson, 477 U.S. at 247.

       Defendants have moved to dismiss under Rule 12(b)(6), or, in the alternative, for

summary judgment under Rule 56(a). Because plaintiffs concede Count III of the complaint, that

claim will be dismissed under Rule 12(b)(6). Because Counts I, II, and IV turn, at least in some

measure, on the Administrative Record submitted in connection with the motion for summary

judgment, the Court will analyze those claims under Rule 56(a).




                                                 9
   III.      ANALYSIS

          A. DOL’s Notice and Comment procedure was sufficient.

          The APA requires that a notice of proposed rulemaking must contain “either the terms of

substance of the proposed rules or a description of the subjects and issues involved.”

5 U.S.C. § 553(b)(3) (2006) (emphasis added). The APA’s notice and comment requirements

“serve the salutary purposes of (1)‘ensur[ing] that agency regulations are tested via exposure to

diverse public comment, (2) ensur[ing] fairness to affected parties, and (3) [giving] affected

parties an opportunity to develop evidence in the record to support their objections to the rule

and thereby enhance the quality of judicial review.’” AFL-CIO v. Chao, 496 F. Supp. 2d 76, 91

(D.D.C. 2007), citing Int’l Union, United Mine Workers of Am. v. Mine Safety and Health

Admin., 407 F.3d 1250, 1259 (D.C. Cir. 2005). Thus, the relevant inquiry in determining

whether notice of a proposed rule was adequate is whether it served those goals. Nat’l Ass’n of

Psychiatric Health Sys. v. Shalala, 120 F. Supp. 2d 33, 39 (D.D.C. 2000), citing Nat’l Mining

Ass’n v. Mine Safety and Health Admin., 116 F.3d 520, 531 (D.C. Cir. 1997).

          Because comments received by the agency are expected to shape the outcome of a final

rule, a final rule need not be identical to the proposed rule. Small Refiner Lead Phase-Down

Task Force v. EPA (“Small Refiner”), 705 F.2d 506, 546 (D.C. Cir. 1983). Indeed, “[t]he whole

rationale of notice and comment rests on the expectation that the final rules will be somewhat

different and improved from the rules originally proposed by the agency.” Trans-Pac. Freight

Conf. of Japan/Korea v. Fed. Mar. Comm’n, 650 F.2d 1235, 1249 (D.C. Cir. 1980). It is not

“uncommon for a final rule to contain new provisions that are ‘substantially different’ from those

in the proposed rule.” Select Specialty Hospital-Akron, LLC v. Sebelius, 820 F. Supp. 2d 13, 23

(D.D.C. 2011), quoting Health Ins. Ass’n of Am., Inc., 23 F.3d 412 at 421 (D.C. Cir. 1994). “A



                                                10
standard that required otherwise would obligate an agency to engage in successive rounds of

notice and comment any time a final rule differs from what it proposed, greatly impeding and

delaying an agency’s ability to address a problem.” Id., citing Am. Med. Ass’n v. United States,

887 F.2d 760, 768 (7th Cir. 1989).

       Plaintiffs claim here, though, that the final rule adopted by the agency “deviates so

greatly” from the proposed rule that the notice “failed to appropriately structure the issue and

afford the public a reasonable opportunity to comment.” Pls.’ Mem. in Supp. of Cross-Mot. for

Summ. J. and Opp. to Defs.’ Mot. to Dismiss, or, in the Alternative, Mot. for Summ. J. (“Pls.’

Mem./Opp.”) [Dkt. # 23] at 12 (citation omitted). Both plaintiffs and defendants direct the Court

to the D.C. Circuit’s opinion in Conn. Light & Power Co. v. Nuclear Reg. Comm’n, 673 F.2d

525, 533 (D.C. Cir. 1982), which they agree sets out the appropriate test. In that case, the court

explained:

       An agency adopting final rules that differ from its proposed rules is required to
       renotice when the changes are so major that the original notice did not adequately
       frame the subjects for discussion. The purpose of the new notice is to allow
       interested parties a fair opportunity to comment upon the final rules in their
       altered form. The agency need not re-notice changes that follow logically from or
       that reasonably develop the rules it proposed originally.

Id.

       Drawing on this language, the parties submit that the question the Court must answer is

whether the final rule was the “logical outgrowth” of the rule in the NPRM. But that is only part

of the analysis. According to Conn. Light & Power, the operative question is whether the

original notice “adequately frame[d] the subjects for discussion.” Id. That makes sense because

the inquiry grows directly out of the language of the APA, which requires the agency to put

interested parties on notice of either the substance of the proposed rule or the subject matter of

the rulemaking. 5 U.S.C. § 553(b) (emphasis added). In other words, the Court’s task is not

                                               11
simply to compare the final rule with the text of the originally proposed rule, but more

fundamentally, to compare the final rule with the agency’s original description of the subject of

the upcoming rulemaking. Moreover, Conn. Light & Power makes it clear that an agency need

not re-notice revised rules that either flow logically or “reasonably develop” the rules originally

suggested. 673 F.2d at 533. Viewed through any of these lenses, DOL’s notice of proposed

rulemaking was adequate, and the agency was not required to issue a second notice in this case.

       1. The NPRM adequately framed the subject of the rulemaking.

       The NPRM adequately framed the subject of the rulemaking as required by the APA and

Conn. Light & Power: the notice specifically apprised the public of the agency’s intention to

promulgate a rule implementing the unambiguous statutory requirement that employers notify

employees of the provisions of the statute concerning the tip credit.

       On the very first page of the NPRM, the agency announced that the objective of the

rulemaking was to “conform the regulations to FSLA amendments passed in 1974” as well as

later amendments. Proposed Rule, 73 Fed. Reg. at 43654. In the “Tipped Employees” section of

the notice, the NPRM again specifically invoked the 1974 amendments and quoted the language

of the 1974 legislation that provided: “an employer could not take a tip credit unless . . . [its]

employee has been informed by the employer of the provisions of this subsection . . . . ” Id. at

43659, citing Pub. L. No. 93-259, § 13(e), 88 Stat. 5. The NPRM went on to survey the limited

body of existing case law, pointing out that courts have held “that notice is not difficult . . . to

provide,” id. at 43569, citing Chez Robert, 28 F.3d at 404, and that written notice has not been

explicitly required although it is often given. Id. The agency also reported that under the case

law, “while employees must be ‘informed’ of the employer’s use of the tip credit, the employer

need not ‘explain’ the tip credit.” Id., citing Kilgore, 160 F.3d at 298. So, it was not a mystery



                                                12
after the NPRM was issued that the agency had the question of how employees are to be

informed squarely on the table in front of it.

       Plaintiffs argue that because the text of the originally proposed regulation only provided

that “an employer is not eligible to take the tip credit unless it has informed its employees that it

intends to avail itself of the tip wage credit,” id. at 43668, the NPRM served to notify them that

DOL might adopt a rule requiring only that employers inform employees of their intent to avail

themselves of the credit and nothing more. Tr. at 21–22 (“It is our position that the Department

issued notice and comment and proposed the standard where they suggested that all the employer

was required to do was essentially inform employees that it was intending to claim the tip credit.

That is a far cry from the actual final regulations that were proposed here.”) But the proposed

regulation is only one part of the notice, and plaintiffs’ cramped interpretation is not supported

by a reading of the NPRM as a whole. 4 See Statement of P. & A. in Supp. of Defs.’ Mot. to

Dismiss, or, in the Alternative, for Summ. J. (“Defs.’ Mem.”) [Dkt. # 15] at 12. Notwithstanding

the approach embodied in DOL’s first cut at the issue, the public was fully informed that the goal

of the exercise was to come up with a regulation that implemented the statute. And the operative

portion of the statute – which was explicitly set forth in the notice – calls for employees to be

informed “of the provisions of this subsection.”        Proposed Rule, 73 Fed. Reg. at 43659

(emphasis added). Plaintiffs can hardly complain now that the NPRM was insufficient to put




4       Indeed, as plaintiffs repeatedly emphasize, the NPRM specifically cited the Kilgore
opinion from the Sixth Circuit. And, in that case, the record reflected that the employees were
provided with a written policy that not only notified them “that tips will be used as a credit
against the minimum wage,” but also “fully quoted subsection 3(m) of the FLSA.” 160 F.3d at
299.


                                                 13
them on notice of what ultimately took place, which was the promulgation of a regulation that

requires employers to do just that. 5

       Plaintiffs contend nonetheless that the notice did not adequately inform the public that the

agency was contemplating requiring employers to make more specific disclosures.

Pls.’ Mem./Opp. at 13 (asserting that the NPRM “gives no hint that DOL was contemplating

imposing significant additional notice requirements[] and does not ask the public to comment on

what additional notice requirements should be imposed”). But the APA does not require that the

NPRM include this level of detail. What is required is that the NPRM “adequately frame the

subjects for discussion,” Conn. Light & Power Co., 673 F.2d at 533, so that the notice “affords

exposure to diverse public comment, fairness to affected parties, and an opportunity to develop

evidence in the record.” Nat’l Ass’n of Psychiatric Health Sys., 120 F. Supp. 2d at 39 (quoting

Nat’l Mining Ass’n, 116 F.3d at 531). The NRPM clearly meets that test here. After all, the

agency did solicit comments “on all issues related to this notice of proposed rulemaking,”

Proposed Rule, 73 Fed. Reg. at 43655 (emphasis added). And the volume of comments it

received – from both employees and management – addressing the nature of the information to

be provided to employees, see, e.g., Administrative Record (“A.R.”) [Dkt. # 29] at 427

(comments from Epstein Becker & Green. P.C. (“Epstein Becker”)), A.R. at 124 (comments

from AFL-CIO), A.R. at 150–51 (comments from National Employment Lawyers Association



5       Plaintiffs agreed during oral argument that the final rule does not stray from or add to the
statutory requirements in any way. Tr. at 29. Plaintiffs complained at the hearing that the final
rule is punitive because an employer may not claim the credit without providing employees with
the specified information. Id. But that requirement is mandated by the statute, and the NPRM
plainly informed the public that the rule under discussion would implement the law enacted in
1974 stating that an employer could not avail itself of the credit “unless” its tipped employees
were properly informed. Proposed Rule, 73 Fed. Reg. at 43668.



                                                14
(“NELA”)), is a strong indication that interested parties plainly understood what was at stake, 6

and that plaintiffs’ claim that commenters “didn’t anticipate” that there could be a notice

requirement beyond what was originally proposed, Tr. at 39, rings hollow. Thus, the Court finds

that the NPRM “adequately framed” the issue of how employees should be informed of the

provisions of section 3(m) as a subject for discussion in the rulemaking.

               2. The Final Rule was the logical outgrowth and/or a reasonable development of
                  the proposed rule.

       While the Court believes that the key Conn. Light & Power test has thus been satisfied, it

will also consider the question posed by the parties: whether the final rule is a logical outgrowth

or a reasonable development of the proposed rule. This question must be answered on a case-by-

case basis because the D.C. Circuit has provided “no precise definition of what counts as a

‘logical outgrowth[.]’” Nat’l Ass’n of Psychiatric Health Sys., 120 F. Supp. 2d at 40, citing Nat’l

Mining Ass’n, 116 F.3d at 531. Therefore, the Court must examine the specific facts of this case

to determine whether the final rule was a logical outgrowth of the one proposed.

       It is true that in this case, the final rule is more specific than the proposed rule in the

sense that it requires employers to make five specific disclosures, which were not itemized in the

proposed rule. 7 Plaintiffs argue that they therefore did not have a meaningful opportunity to



6       While plaintiffs are correct that an agency cannot “bootstrap notice from a comment[]
submitted after the NPRM is issued,” Pls.’ Mem./Opp. at 16, citing AFL-CIO v. Donovan, 757
F.2d 330, 340 (D.C. Cir. 1985), this Circuit has also held that “insightful comments may be
reflective of notice and may be adduced as evidence of its adequacy.” Horsehead Res. Dev. Co.
v. Browner, 16 F.3d 1246, 1268 (D.C. Cir. 1994). Here, there were a number of comments
demonstrating an awareness that defendant planned to promulgate a rule regarding the “inform”
requirement.

7       The Court notes that plaintiffs mischaracterize what the NPRM actually proposed, and
their hyperbole did not advance consideration of the issues. The complaint alleges, for example,
that the NPRM “proposed to make only technical and non-substantive changes to the tip credit
regulations.” Compl. ¶ 25. The complaint also describes the NPRM as proposing only “minor
                                                15
provide comments on the particular disclosures that are now required under the final rule. Pls.’

Mem./Opp. at 13. Neither party has pointed to any precedent where the final rule chosen by the

agency is more specific than, as opposed to more stringent than or different from, the proposed

rule. 8

          But as the Court has already observed, the purpose of the rulemaking was to conform the

regulations to the statute. And section 3(m) of FLSA, which is the touchstone for agency

and immaterial changes and technical updates.” Id. ¶ 23. Plaintiffs do not offer any citations for
these statements, and a careful review of the actual language of the NPRM reveals that DOL
never represented that it planned to make only “technical and non-substantive” changes. Rather,
the NPRM plainly stated that DOL intended to “revise regulations issued pursuant to [FLSA] . . .
that have become out of date because of subsequent legislation or court decisions. These
proposed revisions will conform the regulations to FLSA amendments . . . .” Proposed Rule, 73
Fed. Reg. at 43654.
        The complaint also alleges that the NPRM did not announce that DOL was
“contemplating rejecting the established Kilgore decision,” which DOL had “fully endorsed and
adopted.” Compl. ¶ 27. The thrust of plaintiffs’ argument on summary judgment was that the
agency – arbitrarily and without notice – reversed itself: first espousing the position that an
“explanation” of the tip credit was not required and then deciding that it was. Pls.’ Mem./Opp. at
13–14. But the NPRM makes only a brief reference to the Kilgore decision in a paragraph that
summarizes the relevant case law: “Although written notice is frequently provided, it is not
required to satisfy the employer’s notice burden. Compare Kilgore v. Outback Steakhouse of
Florida, Inc. . . . with Pellon v. Business Representation Int’l, Inc. . . . . Additionally, while
employees must be ‘informed’ of the employer’s use of the tip credit, the employer need not
‘explain’ the tip credit. See Kilgore . . . . ” Proposed Rule, 73 Fed. Reg. at 43659. These
sentences hardly amount to an official embrace of the Kilgore decision, and therefore, there was
no basis for plaintiffs’ insistence that the agency had “reversed course” when it supposedly
moved away from Kilgore in the final rule. See Pls.’ Mem./Opp. at 3; Tr. at 39. There was no
“endorsement” or “adoption” of Kilgore at the outset, and indeed, as plaintiffs ultimately
conceded, the final rule doesn’t depart from it either. Tr. at 29.

8       Plaintiffs point to three cases from the D.C. Circuit in which the court found that the
variance between the proposed rule and the final rule was so significant that the notice was
inadequate. Kooritzky v. Reich, 17 F.3d 1509, 1513 (D.C. Cir. 1994); Donovan, 757 F.2d at 339;
Nat’l Mining Ass’n, 116 F.3d at 531. But unlike the Kooritzky case, where the court determined
that the notice was inadequate because “[s]omething is not a logical outgrowth of nothing,” 17
F.3d at 1513, the notice at issue here was much more than nothing. It adequately framed the
subject of the rulemaking when it stated that it intended to promulgate a rule implementing
FLSA’s requirement that employers notify employees of the provisions of the tip credit.
Likewise, the concerns the court expressed about the notices in Donovan and National Mining
Association do not apply here because the NPRM fully alerted the public that the purpose of the
rulemaking was to promulgate a regulation that implemented the statute.
                                                16
rulemaking on this issue, expressly requires employers to disclose the very provisions that are set

out in the final rule. Also, a review of the administrative record reflects that the final rule

developed reasonably and logically from the original proposal because – as DOL expressly

explained when it issued the final rule – the rule was modified to address concerns that the

original proposal could not be squared with the statute. Final Rule, 76 Fed. Reg. at 18843.

       a. The final rule flows directly from the announced purpose of the rulemaking.

       The purpose of the rulemaking was “to revise regulations issued pursuant to [FLSA] . . .

that have become out of date because of subsequent legislation or court decisions.” Proposed

Rule, 73 Fed. Reg. at 43654. DOL stated that the revisions would “conform the regulations to

[the] FLSA amendments,” id., which required employers to inform their employees about the

provisions of section 3(m). The agency proposed a rule calling for employers to advise tipped

employees of their intent to take advantage of the credit, and commenters – including

representatives of employers – responded that the proposal did not fulfill its stated goal.

       Epstein Becker, which identified itself as a firm that “represented the employer in Pellon

v. Business Representation Int’l, Inc. . . . one of the leading cases discussed in the proposed

regulations addressing the tip credit,” admonished the agency that the proposed regulation

“cannot be reconciled with the statutory language.” A.R. at 426-27. It observed:

       The proposed [rule] substantially modifies the existing regulation. These
       modifications are necessary to update the regulation to reflect [the] subsequent
       statutory amendments. However, the portion of [the] proposed [rule] that
       prescribes the content of the tip credit notice deviates from the statutory language.
       The proposed regulation requires only that the tip credit notice communicate the
       employer’s “intent” to use tips to satisfy part of the employer’s minimum wage
       obligation. There is nothing, however, in [section 3(m)] to suggest that the
       employer needs to communicate to its employees its intent to use or not use the
       tip credit. Thus, the current version of the proposed regulation imposes content
       requirements for the tip credit notice that are foreign to the statute, and fails to
       require content that is mentioned in statute.



                                                 17
Id. at 427 (emphasis added). Similarly, the AFL-CIO submitted a comment stating that “the

proposed regulation fails to satisfy to [sic] plain language of the statute, which requires not just

that the employer ‘inform’ the employee that it is taking a tip credit, but that ‘the employer

[inform the employee] of the provisions of this subsection.’” A.R. at 124 (internal citation

omitted) (alteration in original).     Groups representing the employee side also submitted

comments along these lines.       NELA, the largest professional membership organization of

lawyers who represent employees, commented that the proposed rule failed to call for the

disclosure of all of the information required by the statute.         Id. at 150-51.     It said that

“[i]nterpreting Section 203(m) as requiring full disclosure of all of Section 203(m)’s tip credit

requirement is, therefore, clearly within the Department’s authority.”). Id. at 151.

       Based on comments such as these, DOL revised the proposed rule to track more closely

the requirements of section 3(m), which was the purpose the agency announced for the

rulemaking in the first place. See Final Rule, 76 Fed. Reg. at 18844 (“Accordingly, based on the

express provisions of the statute, and the supporting legislative history, the Department agrees

with the commenters stating that an employer must inform a tipped employee before it utilizes

the tip credit, of the following . . . .”). The Court finds that such a revision “follow[s] logically”

from and “reasonably develop[s]” the rule the agency originally proposed. Conn. Light &

Power, 673 F.2d at 533. 9



9       Plaintiffs rely on cases from this Circuit to support their argument that the final rule was
not the logical outgrowth of the proposed rule. See, e.g., City of Waukesha v. EPA, 320 F.3d
228, 246 (D.C. Cir. 2003); Small Refiner 705 F.2d at 549. As defendants argue, these authorities
are not on point because the rulemaking in those cases concerned highly technical and scientific
subjects that are not at issue in this case. In City of Waukesha, the D.C. Circuit observed that
where technical statutes are involved, “the [logical outgrowth] doctrine must be considered in the
context of th[e] specific statute, where its applicability may be somewhat stricter than in the
generic APA case.” 320 F.3d at 245-46. Similarly, in Small Refiner, the court observed that the
additional notice requirements in the Clean Air Act “suggest that Congress intended agency
                                                 18
       b. The final rule tracks the language of section 3(m).

       While defendants acknowledge that the final rule is more detailed than the proposed rule,

Defs.’ Mem. at 1, they point out that the five disclosures required by the final rule are derived

directly from the statutory text of section 3(m). Defs.’ Reply in Supp. of Mot. to Dismiss, or, in

the Alternative, for Summ. J. and Opp. to Pls.’ Cross-Mot. for Summ. J. [Dkt. # 26] (“Defs.’

Reply”) at 12 (“Just as the statute requires an employer to inform a tipped employee of five items

before the employer may take the tip credit, so too does DOL’s regulation do just that and no

more.”) A side-by-side comparison of section 3(m) and the final regulation illustrates this point:

              29 U.S.C. § 203(m)                                29 CFR § 531.59
“In determining the wage an employer is         “[A]n employer is not eligible to take the tip
required to pay a tipped employee, the amount   credit unless it has informed its tipped
paid such employee by the employee’s            employees in advance of the employer’s use of
employer shall be an amount equal to –          the tip credit provisions of section 3(m) of the
                                                Act, i.e.: The amount of the cash wage that is
(1) the cash wage paid such employee which to be paid to the tipped employee by the
for purposes of such determination shall be not employer;”
less than the cash wage required to be paid
such an employee on August 20, 1996;”
“(2) an additional amount on account of the “the additional amount by which the wages of
tips received by such employee which amount the tipped employee are increased on account
is equal to the difference between the wage of the tip credit claimed by the employer[]”
specified in paragraph (1) and the wage in
effect under section 206(a)(1) of this title.”
“The additional amount on account of tips may “which amount may not exceed the value of
not exceed the value of the tips actually the tips actually received by the employee[]”
received by an employee.”
“The preceding [two] sentences shall not apply “and that the tip credit shall not apply to any
with respect to any tipped employee unless employee who has not been informed of these
such employee has been informed by the requirements in this section[]”
employer of the provisions of this subsection,”
“and all tips received by such employee have “that all tips received by the tipped employee
been retained by the employee, except that this must be retained by the employee except for a
subsection shall not be construed to prohibit valid tip pooling arrangement limited to


notice under the [statute] to be more, not less, extensive than under the APA.” 705 F.2d at 550.
Because the rulemaking here is a classic, generic APA case, the stricter logical outgrowth test
used by the D.C. Circuit in those cases does not apply.

                                                19
the pooling of tips among employees who employees who customarily and regularly
customarily and regularly receive tips.” receive tips[.]”

       In other words, as plaintiffs concede, Tr. at 29, the final rule does not require employers

to do anything other than what they were already obligated to do under section 3(m), which is

“inform employees of the provisions of this subsection.” 29 U.S.C. § 203(m). 10

       c. The purpose of the notice and comment process was served here.

       As noted above, “[t]he whole rationale of notice and comment rests on the expectation

that the final rules will be somewhat different and improved from the rules originally proposed

by the agency.” Trans-Pac. Freight Conf. of Japan/Korea, 650 F.2d at 1249. Here, the agency

heard from many groups that read the NPRM as an opportunity to weigh in on the proposed form

and content of the information to be provided to employees. Organizations speaking on behalf of

employees urged the agency to require employers to explain the tip credit requirement, and in

some cases, went so far as suggesting that the employers provide a clear written explanation of

the tip credit. See, e.g., A.R. at 150–51 (comments from NELA). And comments calling for

specificity and clear directives were not limited to the employee side. The U.S. Chamber of

Commerce commented that “[t]he Chamber agrees with the DOL’s decision to clarify the

methods by which notice may be provided, as well as what an employer must communicate to an

employee for the notice to be sufficient. As drafted, the Proposed Rule will clearly articulate the

required content of the notice, a step that should reduce litigation on this topic.” Id. at 195–96.

Similarly, Littler Mendelsen, the law firm representing plaintiffs in this matter, expressed

satisfaction with the rule as originally written: “Littler supports these changes as they will



10      The Court notes that the firm now representing the plaintiffs, Littler Mendelson, P.C.,
stated in its comments to the entire set of proposals that “[m]any of the proposed changes closely
track the language of the statute and, thus, should not be controversial.” A.R. at 186. The Court
agrees that there is little objectionable about a regulation that “closely tracks the statute.”
                                                20
ensure the rules are transparent to both employers and employees.” Id. at 187. But it also noted

that “[t]he current regulations do not provide sufficient guidance to employees or employers

regarding the required notice, thus leading to significant litigation over this issue[.]” Id. (internal

citation omitted). In light of those broadly based comments calling for clarity, the agency added

specificity to the regulation. In the Court’s view, the final rule that spells out more specifically

what must be disclosed under the statute developed logically and reasonably from the rule that

was originally proposed, particularly in light of its stated purpose.

       B. The Final Rule is not arbitrary and capricious.

       Under the APA, a court may set aside agency action that is “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); Nat’l Ass’n

of Clean Air Agencies v. EPA, 489 F.3d 1221, 1228 (D.C. Cir. 2007). Agency action will be

upheld if the agency “has considered the relevant factors and articulated a ‘rational connection

between the facts found and the choice made.’” Id., quoting Allied Local & Reg’l Mfrs. Caucus

v. EPA, 215 F.3d 61, 68 (D.C. Cir. 2000). The review is “[h]ighly deferential” and “presumes

the validity of agency action.” Id., citing AT&T Corp. v. FCC, 349 F.3d 692, 698 (D.C. Cir.

2003). The agency may rely on comments submitted during the notice and comment period as

justification for the rule, so long as the submissions are examined critically. See Nat’l Ass’n of

Regulatory Util. Comm’rs v. FCC, 737 F.2d 1095, 1125 (D.C. Cir. 1984).

       Plaintiffs contend that the final rule is arbitrary and capricious “because it conflicts with

the DOL’s previously announced positions and established case law[.]”                  Compl. ¶ 52.

Specifically, plaintiffs take issue with the regulation because, in their view, it conflicts with

Kilgore, 160 F.3d 294, which they characterize as “established and settled law, followed by all or




                                                  21
the majority of federal courts [that] have considered the issue of adequate notice under Section

3(m).” Id. ¶ 54.

          In justifying the final rule, DOL stated: “The Department has concluded that notice of the

specific provisions of [section] 3(m) is required to adequately inform the employee of the

requirements of the tip credit.” Final Rule, 76 Fed. Reg. at 18844. Because DOL “considered

the relevant factors and articulated a ‘rational connection between the facts found and the choice

made,’” the Court finds that the final rule is not arbitrary and capricious. Nat’l Ass’n of Clean

Air Agencies, 489 F.3d at 392, quoting Allied Local & Reg’l Mfrs. Caucus, 215 F.3d at 68.

          First and foremost, the agency’s conclusion is consistent with – and probably compelled

by – the statute. See Final Rule, 76 Fed. Reg. at 18844 (“Accordingly, based on the express

provisions of the statute . . . the Department agrees with the commenters stating that an employer

must inform a tipped employee before it utilizes tip credit, of the following. . . . ”) (emphasis

added).

          Second, it is clear from the announcement of the final rule that DOL based its conclusion

that notice of the specific provisions of section 3(m) was required on comments that were

submitted during the notice and comment period.            Id. at 18842.    DOL noted that some

commenters, such as the National Employment Law Project (“NELP”), objected to the proposed

requirement that employers only had to inform employees orally of the tip credit but did not have

to explain it to them or provide anything in writing. Id. NELP pointed to the legislative history

of section 3(m), which includes a statement that “the employer must explain the tip provision of

[FLSA] to the employee and that all tips received by such employee must be retained by the

employee,” as evidence that Congress intended to require employers to do more than simply

inform employees, even if it that is all the statute says. Id., citing S. Rep. 93-690 at 43 (1974).



                                                 22
NELP also asserted that many tipped employees are “low-wage and immigrant employees

working in high-violation industries, and they do not understand the complicated tip credit

rules.” Id. In light of this, the group advocated for “requiring employers to provide a clear

written explanation to employees” because it “would enable them to protect themselves from

litigation claiming that they failed to provide adequate notice and therefore cannot take the tip

credit.” Id. at 18843. DOL noted that groups like the AFL-CIO and Epstein Becker suggested

that employers be required not only to tell employees that the employer will be using the tip

credit but also that they inform employees of the specific provisions of section 3(m). Id. Several

commenters, including AFL-CIO, NELA, and Bruckner Burch PLLC, advocated that DOL

should not follow the Sixth Circuit’s decision in Kilgore, 160 F.3d 294, because “it was wrongly

decided on the notice issue in that it did not take into account the legislative history or the

statutory language [of FLSA] requiring employees to be informed of the provisions of section

3(m).” Id. These commenters asserted that the regulation should provide a sample notice that

employers could follow when informing employees. Id.

       DOL also took note of comments submitted from the management side, including the

U.S. Chamber of Commerce and Littler Mendelson. Id. These groups agreed with the rule as

proposed, but even they stressed the importance of clarity. 11 Littler Mendelson called the

proposal a “positive step in clarifying employer obligations and, thus it should reduce the

litigation on this issue by clearly articulating the required content of the notice.” Id. And,

consistent with the position taken by advocates for employers, the agency rejected the call of



11      Plaintiffs argue there were no comments filed by employer representatives that would
suggest that the NPRM adequately notified interested parties of what the final rule would
require. Pls.’ Reply Mem. in Supp. of Cross-Mot. for Summ. J. [Dkt. # 28] at 4. The record
submitted to the Court belies this claim. See A.R. at 427 (comments from Epstein Becker
asserting that that the proposed regulation “cannot be reconciled with the statutory language”).
                                               23
employee groups for a requirement of notice to employees in writing. Id. (“Although the

Department is not requiring in this rule that the employer ‘inform’ its tipped employees of

section 3(m)’s requirements in writing, employers may wish to do so, since a physical document

would, if the notice is adequate, permit employers to document that they have met the

requirements[.]”) It is clear from the record presented to the Court that DOL reviewed and

considered the diverse comments it received and that the final rule was based on the comments

submitted to the agency.

       Plaintiffs contend in their papers that the rule is arbitrary and capricious because it is

contrary to prevailing federal court decisions. Pls.’ Mem./Opp. at 20-21, citing Kilgore, 160

F.3d at 298; Martin, 969 F.2d at 1322–23; Reich, 28 F.3d at 403. But plaintiffs have failed to

point to any authority that would suggest that a federal agency is bound to promulgate rules that

are consistent with decisions issued by particular federal appellate courts. Even if plaintiffs were

correct that Kilgore represents the prevailing interpretation of section 3(m), see Pls.’ Reply at 5,

DOL was under no obligation to adopt the holding if, in its reasonable judgment, it determined

that a different approach was more appropriate. More important, the final rule was based

directly on the statute, which is what is supposed to govern agency action.

       And, in any event, the final rule did not vary from Kilgore. The theory plaintiffs

advanced when briefing the matter was that Kilgore held that employers are not required to

“explain” the tip credit; the statute simply requires them to “inform” employees about the law.

Pls.’ Mem./Opp. at 20. But the final rule does no more than that, and indeed, plaintiffs conceded




                                                24
that point at oral argument. Tr. at 29 (“THE COURT: Where does the reg[ulation] itself stray

beyond information into explanation? . . . [COUNSEL FOR PLAINTIFFS]: It does not.”). 12

        Given the express terms of the statute, DOL’s thorough consideration of the comments

submitted in this case, and the deferential standard of review that applies here, the Court

concludes that the final rule promulgated by DOL was not arbitrary and capricious.

        C. DOL did not violate the APA by certifying that the rule will not have a
           significant economic impact on small entities.

        Plaintiffs argue that defendants violated the APA by failing to conduct a regulatory

flexibility analysis in connection with the final rule. Pls.’ Mem./Opp. at 22–26. Under the

Regulatory Flexibility Act (“RFA”), when an agency proposes or promulgates a new rule, it is

required to conduct a “regulatory flexibility analysis . . . describ[ing] the impact of the . . . rule

on small entities.” 5 U.S.C. § 603(a), 604. However, the statute plainly states that no such

analysis is required “if the head of the agency certifies that the rule will not . . . have a significant

economic impact on a substantial number of small entities.” Id. § 605(b).

        In announcing the final rule, DOL made the requisite certification:

        [B]ecause the final rule will not impose any measurable costs on employers, both
        large and small entities, the Department has determined that it would not have a
        significant economic impact on a substantial number of small entities within the
        meaning of the Regulatory Flexibility Act . . . . The Department certified to the
        Chief Counsel for Advocacy to this effect at the time the NPRM was published.
        The Department received no contrary comments that questioned the Department’s


12      Along the same lines, plaintiffs initially contended that the rule was arbitrary and
capricious because there was a “complete lack of support” for a regulation that would require
employers to “explain” the tip credit. Pls.’ Mem./Opp. at 21. Plaintiffs complained that the only
support for a final rule calling for an explanation was a “snippet” from FLSA’s legislative
history. Id. at 20. But plaintiffs’ concession that the final rule “informs” but does not “explain”
marks the end of this argument. And the final rule was not merely based on one sentence in the
legislative history: there is no question that the final rule is directly derived from the language of
the statute itself, and it was supported by a number of the comments submitted to DOL during
the notice and comment period.


                                                   25
        analysis or conclusions in this regard. Consequently, the Department certifies
        once again pursuant to 5 U.S.C. [§] 604 that the revisions being implemented in
        connection with promulgating this final rule will not have a significant economic
        impact on a substantial number of small entities. Accordingly, the Department
        need not prepare a regulatory flexibility analysis.

Final Rule, 76 Fed. Reg. at 18853. Plaintiffs contend that this certification was arbitrary and

capricious because it was made without the benefit of comments about the compliance costs

associated with the new rule.       Pls.’ Mem./Opp. at 25 (noting that there is nothing in the

administrative record indicating that DOL “considered the substantial costs to small businesses

of providing the required notice or the costs of additional recordkeeping” or that DOL

“contemplated the potential economic exposure to many small businesses to regulatory

violations and enforcement actions.”) Plaintiffs submit that if they had had proper notice of the

rule prior to its promulgation, they would have “overwhelmed the agency with information about

the cost behind this proposal.” Tr. at 20.

        But the original rule would have required employers to inform employees of their

intention to take the tip credit, so it is difficult to understand why the final rule’s requirement that

employers inform employees of the additional requirements of section 3(m) would impose a

significant financial burden. After all, employers are given the opportunity to choose whether to

inform employees by distributing a written policy, as was done in Kilgore, or whether to advise

them orally. In response to the Court’s questions on this point at the hearing, plaintiffs explained

that the final rule is particularly burdensome because it requires employers to inform employees

whenever the tip credit changes, so a poster or one-time written information sheet will not do.

Tr. at 37 (contending that “our clients and really all restaurant employers have been deprived of

the opportunity to explain to the Department and show the Department the cost associated with

[the proposed] rule . . . “). But the regulations in existence prior to the promulgation of the final



                                                  26
rule already required successive communications with employees when the tip credit changed.

29 C.F.R § 516.28(a)(3) (2011) (requiring employers to inform employees in writing when the

amount per hour that the employer takes as a tip credit changes). Employers did not call for this

requirement to be changed in their comments, so plaintiffs’ argument has little force here.

         Furthermore, the D.C. Circuit has held that the requirements of the RFA are “purely

procedural.” Nat’l Tel. Coop. Ass’n v. FCC, 563 F.3d 536, 540 (D.C. Cir. 2009), citing U.S.

Cellular Corp. v. FCC, 254 F.3d 78, 88 (D.C. Cir. 2001). The court reasoned that although the

RFA “directs agencies to state, summarize, and describe, the Act in and of itself imposes no

substantive constraint on agency decision-making.” Id. Here, DOL complied with the

requirements of the RFA when it concluded that no regulatory flexibility analysis was necessary

because the rule would not have an impact on a substantial number of small entities. Final Rule,

76 Fed. Reg. at 18853.

   IV.      CONCLUSION

         For the reasons set forth above, the Court will deny plaintiffs’ cross motion for summary

judgment [Dkt. # 24] and will grant defendants’ motion to dismiss, or, in the alternative for

summary judgment [Dkt. # 15]. Accordingly, judgment will be entered for defendant on Counts

I, II, and IV. Count III will be dismissed as conceded. A separate order will issue.




                                              AMY BERMAN JACKSON
                                              United States District Judge

DATE: May 29, 2012



                                                27
