Labor officials propose new rule to expand tip pool access
Restaurant operators could be allowed to expand tip pools to include more back-of-the-house workers under a new rule proposed by the U.S. Department of Labor on Monday.
To be published Tuesday in the Federal Register and subject to a 30-day public comment period, the proposed rule would clarify the Fair Labor Standards Act, or FLSA, to allow tip pools in some cases to include back-of-the-house workers that have long been prohibited from sharing in tips, including line cooks and dishwashers.
The proposed rule, however, would only apply to employers who pay a full minimum wage and do not take a tip credit. A number of states in the West do not allow a tip credit, for example, including California, Oregon, Washington and Nevada.
The goal is to help decrease the wage disparities between tipped and non-tipped workers, the labor department said.
When servers are paid the full minimum wage plus tips, they can earn dramatically more than kitchen workers who are not allowed to share in tips, even though — the labor department argues — non-tipped workers like line cooks and dishwashers arguably contribute to the overall guest experience.
Worker advocates, however, argue that employers should address that disparity by paying back-of-the-house workers more, not by relying on servers to subsidize a lower-wage model by sharing gratuities.
“Today the Trump Administration once again sided with businesses and corporations over workers, proposing a rule that constitutes a wholesale attack on restaurant workers and the meager federal protections they have for their pay,” said Christine Owens, executive director of the National Employment Law Project, in a statement on the proposed rule change Monday.
“Tips belong to the workers who have earned them — period. But today the Trump labor department has proposed a pathway for employers to keep tips for themselves.”
Owens added that the public cannot make informed comments on the proposed rule without a legally required economic analysis that will provide an estimate on how much it will cost restaurant workers and how much it will benefit restaurant chains.
At the heart of the issue, however, is an ongoing debate about whether employers can control or divert tips when the tip credit is not used.
Courts have had conflicting opinions on the issue resulting in much confusion for employers — along with costly litigation.
In recent years, tip credit lawsuits led to settlements and verdicts ranging from $5 million to $19.1 million, according to attorneys with Fisher Phillips.
In the past, federal law said employers could not use the tip credit unless all tips were retained by the tipped employee. An exception, however, allowed employers to divert tips to a valid tip pool. But it didn’t make clear how that exception applied to employers that don’t use the tip credit.
In 2011, the labor department under the Obama administration promulgated a new regulation saying employers could not control or divert tips, regardless of whether they used the tip credit.
That rule essentially limited tip pools to workers who “customarily and regularly” receive tips. As a result, those who fall outside the traditional path of service were not allowed to participate in tip pools.
This year, however, the Tenth and Eleventh Circuit Courts came to different conclusions about employer control of tips, saying employers can control tips if they don’t take the tip credit.
But because the ruling differed from earlier court opinions, the National Restaurant Association’s Restaurant Law Center earlier this year asked the U.S. Supreme Court to take up the issue. It’s too early to say whether that may be judged unnecessary if the labor department changes the rule.
Angelo Amador, the Restaurant Law Center’s executive director, applauded the labor department’s decision to revisit tip regulations.
“We look forward to submitting comments from the restaurant industry on the new rulemaking,” he said in a statement Monday.
Meanwhile, worker advocacy group Restaurants Opportunities Centers, or ROC, said chapters across the country would be delivering letters to the U.S. labor department in opposition to the proposed rule.
“This rule, backed by the National Restaurant Association, is just another attempt to keep workers’ wages low and let customer tips make up the difference,” said Saru Jayaraman, ROC president.
“The real barrier to fair wages and working conditions is the subminimum wage system, in which tipped restaurant workers make as little as $2.13 [an hour] at the federal level. Establishing One Fair Wage for all workers, tipped or untipped, should be the priority for America’s 12 million restaurant workers.”
Attorney Ted Boehm of Fisher Phillips in Atlanta said the new rules, if made final, could be good for employers.
“The 2011 regulation has caused a lot of litigation, so resolving this difference between various circuit courts will be a good thing,” he said.
Contact Lisa Jennings at [email protected]
Follow her on Twitter: @livetodineout
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