U.S. Department of Labor Will No Longer Enforce Obama-Era Tip-Pool Regulation

The United States Department of Labor (“DOL”) will no longer enforce an Obama-era regulation concerning when and how employers may use tip-pools (i.e., pools of tips collected by restaurants and other service industry employers, and redistributed among employees).[1] The 2011 regulation[2] prohibited employers who did not take a “tip credit”—that is, employers who paid their employees the full minimum wage[3]—from requiring their tipped employees, such as servers and bartenders, to share tips with non-tipped employees, such as dishwashers, cooks, hosts, and floor supervisors.[4] Previously, courts had held that prohibitions on tip pooling could apply only to employers who took a tip credit.[5]

The DOL’s decision to stop enforcing the 2011 tip-pool restrictions comes on the heels of a Tenth Circuit Court of Appeals decision finding the regulation invalid.[6] Previously, the Ninth Circuit Court of Appeals reached the same decision.[7]

Practical Takeaways

The DOL’s decision gives service industry employers who pay their employees at least a full minimum wage more flexibility in implementing tip pool arrangements. Employers are advised to confer with employment attorneys about tip-pools and service charge to ensure such arrangements otherwise comply with federal and state law.   

[1] See https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201704&RIN=1235-AA21.

[2] 29 C.F.R. § 531.52 (2011). Previously, the DOL did not enforce the tip-pool regulation in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

[3] Section 3(m) of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 203(m), provides as follows:

In determining the wage of a tipped employee, the amount paid such employee by his employer shall be deemed to be increased on account of tips by an amount determined by the employer, but not by an amount in excess of . . . 50 percent of the applicable minimum wage rate after March 31, 1991, except that the amount of the increase on account of tips determined by the employer may not exceed the value of tips actually received by the employee. The previous sentence shall not apply with respect to any tipped employee unless (1) such employee has been informed by the employer of the provisions of this subsection, and (2) 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.

[4] See Ben Penn, DOL Halts Enforcement of Tip-Pool Rule Nationwide, Blomberg BNA, Daily Labor Report, Jul. 21, 2017, http://news.bna.com/dlln/display/batch_print_display.adp?searchid=30262085.

[5] Cumbie v. Woody Woo, Inc., 596 F.3d 577, 582 (9th Cir. 2010) (“The FLSA does not restrict tip pooling when no tip credit is taken”); Platek v. Duquesne Club, 961 F. Supp. 831, 834 (W.D. Pa.) (The FLSA’s tip credit provision “plainly does not apply unless the employer seeks to claim the tip credit”), aff’d without opinion, 107 F.3d 863 (3d Cir. 1997).

[6] Marlow v. New Food Guy, Inc., 861 F.3d 1157 (10th Cir. 2017). The Tenth Circuit hears appeals from federal courts in Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming.

[7] See Oregon Rest. & Lodging Ass’n v. Perez, 843 F.3d 355, 359 (9th Cir. 2016) (The FLSA “unambiguously establishes that, so far as the FLSA is concerned, employers who forgo the tip credit must be left free to institute tip pools comprising servers and line cooks”). The Ninth Circuit hears appeals from federal courts in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.


 

 

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