US Department of Labor Proposes Rule Rolling Back Limitations on “Tip Pooling”

The United States Department of Labor today published a proposed rule expanding employers’ ability to share tips among a larger group of employees.  This is a hot topic in the restaurant industry where, under the Fair Labor Standards Act, employers may pay workers such as wait staff and bar staff a reduced minimum wage and apply tips toward up to 50% of wages to reach the federal minimum wage (known as a “tip credit”).  DOL regulations promulgated in 2011 barred employers from including customarily non-tipped workers in tip pools, whether or not the employer used the tip credit in calculating compliance with the federal minimum wage for tipped workers.

Restaurant trade associations and employers of large numbers of traditionally-tipped services workers, such as casino mogul Steve Wynn’s Wynn Las Vegas, have argued that the 2011 regulations limited restaurant and other service industry employers from providing “back of the house” workers credit in the form of tips for their service contributions.  Workers and their advocates argue that tipped employees earn their tips directly, and are often paid at lower rates than other restaurant and service workers.  Therefore, traditionally-tipped workers assert that they should not be forced to share their wages with other workers who may receive higher standard wages.

The proposed rule would rescind the heavily-litigated Obama-era 2011 regulations that prohibit tip sharing arrangements in establishments where the employers pay full federal minimum wage and do not take a tip credit against their minimum wage obligations.  Thus, if a restaurant pays its tipped employees the federal minimum wage, without using tips in its calculation of such a regular rate of pay, then the restaurant would be free to expand the tip pool to benefit traditionally non-tipped “back of the house” employees, such as dishwashers and cooks.  The DOL noted that it expects that other employers of tipped workers may also enjoy the expansion of tip-pooling under the new rule.

Given the current business-favoring political climate, the DOL seems compelled to issue the proposed rule in response to a recent decision by the United States Court of Appeals for the 9th Circuit.  Last year, the 9th Circuit in a consolidated appeal reversed district court cases in Oregon and Nevada which had found that the DOL had exceeded its regulatory authority by attempting to legislate tip-pooling.  Oregon Rest. & Lodging Ass’n (“ORLA”) v. Perez, 816 F.3d 1080, 1090 (9th Cir. 2016).  The 9th Circuit disagreed with the lower courts, finding in a split decision that the DOL is entitled to deference to clarify and expand regulations, citing 1984 and 2000 U.S. Supreme Court precedent.  Both the National Restaurant Association and Wynn Las Vegas (among others) have petitioned for certiorari with the Supreme Court, with both petitions still pending.

The DOL also noted recent state laws that require employees to pay tipped employees at least the federal minimum wage, thus nullifying the option for employers in those states to apply the tip credit.

The DOL will be accepting public comments for 30 days.

Posted: December 5, 2017 in: Restaurants & Hospitality, Wage & Hour