DOL Goes to Bat for Tipped Workers

Posted September 9, 2013 in Labor and Employment by

Waitress picking up tip from table


A federal judge in Oregon has ruled that the Department of Labor cannot keep employers from forcing waitstaff to share tips with other restaurant workers in what is known as tip-pooling, but the DOL is appealing the ruling.


Limits on Pooling Found Too Broad

Under the Fair Labor Standards Act, while employers must pay workers a minimum wage, when a worker is a tipped employee, the employer can credit part of the tips against the minimum wage and pay the employee less than minimum wage. That practice is known as taking a tip credit.

Under federal law, minimum wage is $7.25 per hour, but employers who take the tip credit can pay as little as $2.13 per hour, unless the state they operate in requires a higher tipped minimum wage, explains Shannon Liss-Riordan, an employment lawyer with Lichten & Liss-Riordan, P.C. in Boston.

Employers commonly require waitstaff to pool tips with “back of the house” workers, such as cooks and dishwasher, who make minimum wage.

The DOL issued a rule in April 2011 saying the FLSA tip-sharing rules only apply when the employer is taking a tip credit and paying less than the full minimum wage. The rule thus prohibited employers from contracting with waitstaff to include non-tipped employees in the tip pool.

But an earlier case in the 9th Circuit, which includes Oregon, had held that an employer can require tip-pooling even if the employees who share in tips are paid the full minimum wage and the employer does not take the tip credit against minimum wage. That would mean that waitstaff who aren’t making minimum wage would have to share tips with employees who are already making more money than they are.


Ruling for Employers Appealed

Restaurant employer groups sued the DOL, alleging that its rule unlawfully prohibited back-of-the-house workers from sharing in tips left by restaurant customers when the employer does not take the tip credit. The plaintiffs claimed the regulations exceeded the DOL’s authority 

Shannon Liss-Riordan

“The plaintiffs in this case are saying that nothing in the FLSA prohibits an employer from creating any kind of tip sharing rules it wants where the employer is not taking a tip credit against the minimum wage,” explains Liss-Riordan, who has represented many employees in tip-sharing cases, such as the recent one involving Starbucks baristas and managers.

The district court judge agreed, saying that while the FLSA does put conditions on employers’ use of tip credits, Congress didn’t intend to give the DOL the right to make those conditions so sweeping.

The court on June 25 finalized its earlier judgment, enjoining the DOL from enforcing its rule. But on Aug. 21, the DOL announced that it is appealing to the 9th U.S. Circuit Court of Appeals.

“The DOL is arguing that the FLSA is silent on this issue and so there is nothing stopping the DOL from enacting this type of rule,” Liss-Riordan says. It’s also saying that because of its mandate to enforce wage laws, courts should defer to its expertise in the area.


Who Will Pay the Cooks?

“If the plaintiffs win this appeal, then . . . Congress would need to step in to amend the FLSA to make clear that the tip-sharing rules should apply regardless of whether or not the employer takes the tip credit against the minimum wage,” she adds. “There are a number of states that have such rules, and the [alleged] lack of one in the FLSA . . . is an anomaly that could be corrected by Congress.

Liss-Riordan says that while it’s unclear how the 9th Circuit will rule, “this is an important issue because the purpose behind the tip-sharing rules is significant for tipped employees, regardless of what base wage the employer pays the employees.”

“Tipped workers – who are among the lowest paid workers in our society – rely on tips for their livelihood, to pay their rent, to feed themselves and their families, and to pay for other necessities,” she points out.  

“Allowing employers to require that tips be shared with non-tipped workers is simply a way to allow employers to offset more of their costs onto their employees,” Liss-Riordan concludes. “The question in this case is who should be paying the wages of back-of-the-house workers – the employer, or the tipped employees?”

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