Just when it seemed that service charges were all the rage, tip pooling has reemerged to grab the headlines. Making the rounds from courts to agencies, and now Congress, the issue appears to have been settled by Congress that employers can impose mandatory tip pooling to include certain non-tipped employees.
Can Non-Tipped Employees Participate in the Mandatory Tip Pool?
Under the Fair Labor Standards Act (the “FLSA”), employees who are customarily and regularly tipped can be required to participate in a mandatory tip pool. Under a tip pooling approach, the employer directs tipped employees to combine their tips, and the employer determines a structure for redistributing the tips among the employees in the tip pool. As we have reviewed previously in this blog, employees in tipped positions have challenged mandatory tip pools that include non-tipped employees, such as dishwashers and cooks, asserting that they violate the FLSA. Because those employees are not customarily and regularly tipped, the argument was not without merit as the law has always made clear that tips are the property of the employees to whom customers given them. However, the law also provided that tip pools may be imposed by employers. The FLSA further allowed that employers may claim a tip credit against the federal minimum wage.
Both the courts and the National Labor Relations Board (NLRB) seem to keep changing the definitions of joint employment. It is no wonder this has left employers scratching their head about the situation. The cause for this itch is the analysis differs depending on the law at issue. For example, the Fair Labor Standards Act (FLSA), various state employment laws defining “employees,” common law (guided by the National Labor Relations Act), the Family and Medical Leave Act (FMLA), and workers’ compensation laws all have joint employer doctrines and associated tests that are slightly different from the others.
To demonstrate these differences, we will look at two of the most recent cases that modify the joint employer analysis under both the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (the FLSA). Both these cases define a test – but it is not the same test. Unfortunately, the lesson is that an employer or putative employer will not know whether a person is an employee for the purposes of a particular law without determining first what test should be applied for that law.
If you had asked me one month ago to predict the winner of the presidential election, I would have been wrong. Therefore, rather than make my own [ill-fated] predictions of the changes that await employers when PEOTUS takes office, I consulted my trusty Magic 8 Ball. Here’s what it predicted:
Will the overtime rule ever become law?
MY SOURCES SAY NO.
We all have heard by now that the Department of Labor (DOL) rules extending eligibility for time-and-a-half overtime pay to some 4.2 million additional workers (including many employees in the hospitality industry) are on hold thanks to an injunction by a federal court judge in Texas. So what now? The DOL under the Obama administration was expected to appeal the ruling to the US Court of Appeals for the 5th Circuit, but the Trump administration has different priorities and may decide not to pursue an appeal after all.
When we last visited this topic, the proposed regulations revising the overtime exemptions were still very new. The regulations are due to go into effect on December 1 of this year. There has been legislation introduced to stop them from being implemented and court cases are pending. This article will remind you of the obligations, answer some additional questions that keep coming up and will bring you up to date on the efforts to stop the regulations from going into effect.
The good news is the long awaited rule on overtime has arrived – finally. The proposed rule goes into effect on December 1, 2016. The quick summary is the changes aren’t quite as bad as everyone feared. The long summary is below. We have broken out the rules into specific talking points to try and make them easier to digest. This does not erase the entire prospect of heartburn, however. The Department of Labor has also developed a page of Questions and Answers on the new rule, which includes a comparison between the old rule and the new rule.
In the latest of a series of twists and turns regarding the legality of certain tip pools in Western states, on February 23, 2016, a divided three judge panel of the Ninth Circuit Court of Appeals validated regulations by the Department of Labor (“DOL”) that significantly limit employers’ ability to have tip pools that include more than “customarily and regularly tipped” employees. This development means that employers operating in states or territories in the Ninth Circuit (covering Washington, Oregon, Alaska, Idaho, Montana, Nevada, California, Arizona, Hawaii, Guam, and the Northern Mariana Islands) cannot include in their tip pools “back of the house” employees (such as cooks or dishwashers) or other employees who are not customarily tipped. We examine the impact of and history behind this decision below.
In a recent blog post, we highlighted the trend amongst hoteliers and restaurateurs toward adopting service charge models to meet the rise in state and local minimum wage requirements. Although “no-tip” and “service charge” policies are receiving their fair share of attention in the news, employers with improperly designed tip pools are garnering their own headlines—and lawsuits. For example, Red Robin recently agreed to a $1.3 million settlement in response to class action claims against the company that it impermissibly included back of house kitchen staff in the servers’ tip pool. If your company requires employees to pool their tips, or is considering doing so, it will want to avoid some common and costly pitfalls that have beleaguered others. For starters:
This blog post discusses how the recent Supreme Court ruling, Integrity Staffing Solutions v. Busk, may impact potential employee wage and hour claims for hourly employees in the future. – Greg
To Pay or Not to Pay?
As the school year begins again, it is a great time for hoteliers to think about their unpaid internship programs. Unpaid internships can be great symbiotic relationships. College students or individuals trying out new fields are willing to work for free in exchange for real-life work experience and something to add to their resumes. However before accepting free labor, employers must be aware of the potential consequences of this relationship and take steps to ensure their internship program complies with the law.
Those of you following the challenge to the Department of Labor (“DOL”) tip pooling regulations interpreting the Fair Labor Standards Act (“FLSA”) may recall the events below. You may also want to view our past updates and insights on the tip pooling topic in the following articles: DOL Restrictions, Tip Pooling Remains a Hot Topic, Tip Pooling - Update, Tip Pooling in Oregon and Washington.
- In 2010, in a case called Cumbie v. Woody Woo 596 F.3d 577 (9th Cir. 2010), the Ninth Circuit (with jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington) ruled that the FLSA did not prohibit employer-mandated tip-pooling arrangements if the employer did not take a tip credit. This meant it was lawful for employers in the Ninth Circuit to require that their tipped employees share tips with non-tipped employees (bussers, dishwashers and cooks, for example), just so long as all employees got paid minimum wage and the restaurant did not take a tip credit. (Seven states – Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington – do not allow a tip credit.)
- The DOL then issued regulations in April 2011 addressing ownership of employee tips, in conflict with the ruling of Cumbie v. Woody Woo. The regulations created legal uncertainty for any employers who were engaging in mandatory tip-pooling with back-of-the-house employees.
- In February 2012, the DOL issued a field assistance bulletin to its staff, declaring ”the employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit …” and the DOL would “enforce nationwide the 2011 final rule explaining that a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit[.]” The field assistance made clear on no uncertain terms that that the DOL considered it a violation of the FLSA for an employer to institute a tip pool that required sharing tips with back-of-the-house employees, even if the employer did not take a tip credit.
- In July 2012, restaurant industry associations and others filed a lawsuit in Oregon federal court, contending that the DOL regulations unlawfully prohibit back-of-the-house kitchen workers from sharing in tips left by customers when the employer does not take a tip credit against minimum wage. See Oregon Restaurant and Lodging Association v. Solis et al., Case No. 3:12-cv-01261 (D. Or.).
About the Editor
Greg Duff founded and chairs Foster Garvey’s national Hospitality, Travel & Tourism group. His practice largely focuses on operations-oriented matters faced by hospitality industry members, including sales and marketing, distribution and e-commerce, procurement and technology. Greg also serves as counsel and legal advisor to many of the hospitality industry’s associations and trade groups, including AH&LA, HFTP and HSMAI.