- The Trump Administration's Department of Labor wants to allow restaurateurs to collect tips earned by front-of-house staff and redistribute them as they see fit.
- This could help shore up the growing pay inequality between cooks and servers.
- This could also mean employers could keep tips for themselves or the business.
- Update: The public has until February 5, 2018 to comment on the rule, which was officially proposed today, before it goes into effect.
Here’s everything you need to know:
If just-announced changes to Department of Labor regulations go past the proposal stage, employers will be able to pool tips earned by servers, allowing them to share the tips with untipped employees like cooks, dishwashers, and others in the back of house — if they share them at all.
The proposed changes, first announced in July, roll back the Obama administration’s 2011 regulations that expressly prohibited the distribution of tips to anyone other than the front-of-house staff who earned them. Backers argue it’s a regulation that could go a long way towards erasing income inequality between back and front of the house. Others say it’s a recipe for a host of evils, ranging from tip-pocketing by management to unsustainably high labor costs. All optimists and skeptics can seem to agree on is this: It’s complicated.
What’s the old law this is replacing?
Any examination of how restaurant workers are paid begins with the Fair Labor Standards Act (FLSA), the federal law which governs things like minimum wage (currently $7.25 an hour, though states like New York set it higher), and overtime (defined as working more than 40 hours per week). The wrinkle with so-called “service-facing” or “chain of service” workers like servers and bartenders is that they get tips. For tipped employees, employers may take what is called a “tip credit,” meaning they can pay tipped employees less than the minimum wage (the federal tipped minimum wage $2.13) as long as the tips will bring that wage up to $7.25 an hour.
Under the Obama administration’s 2011 regulations, tips are considered the property of the service-facing employee (waiters, bussers, bartenders), and therefore employers cannot require them to share their tips. “The waiter’s position has always been, tips are our property, and under Obama, that was the case,” says Marc Zimmerman, a hospitality labor and employment lawyer for the past 20 years and a partner at Michelman & Robinson.
How tips became problematic:
The result has meant a stark income disparity between waiters and cooks. As restaurateur Danny Meyer argued in his 2010 book Setting the Table, tipped employees are making about 300 percent of what they were 31 years ago. During that same period, everyone in the kitchen — the dishwasher, non-tip-eligible employees — has seen their hourly income go up about 20 percent.
The inequity between front and back of the house has caused some operators, notably Meyer, to abandon tipping altogether. The practice has been the subject of much heated discussion in the industry. Some clever operators are sending cooks out into the dining room to run and serve food so that they can be considered “service-facing” and share in the tip pool. Others suggest the better fix for restaurant workers would be to instead split tips between back of house and front.
Courts, too, have been divided on this issue. The 9th Circuit (California, Alaska, Idaho, Montana, Nevada, Arizona, Hawaii, Oregon) has sided with waiters, holding that tip sharing between waiters and cooks is prohibited, even if an employer pays full minimum wage, while others — the 4th Circuit (Maryland, West Virginia, North Carolina, South Carolina, and Virginia), the 10th Circuit (Kansas, Oklahoma, Utah, Wyoming, Colorado, and New Mexico), and the 11th Circuit (Florida, Georgia, and Alabama), have rejected the regulations, saying an employer can require tip sharing as long as it pays full minimum wage. This split in the courts set the issue up nicely for a Supreme Court decision. But since the Trump administration’s new regulations have effectively repealed Obama’s prohibition against tip-sharing, that won’t be necessary.
Why are worker advocates worried?
A big problem with the new regulations is that employers may now legally pocket tips. Under the traditional paradigm, an employer takes the tip credit, pays all of their “service-facing” employees $2.13 an hour plus tips, and pays cooks and dishwashers $7.25 an hour, no tips (the numbers would be different according to minimum wage laws state to state, but this is the general idea).
But if they decide to follow the DOL’s new rule, and they don’t take the tip credit, and instead pay minimum wage of $7.25 an hour to all their employees, then tips are no longer considered the property of the employee; they become property of the employer. That employer could split those tips between back and front of the house. Then again, the employer could also keep them all.
The National Restaurant Association, which has come out strongly in support of the Trump Administration’s proposed change, acknowledges this loophole, but has not asked the DOL to add a provision that would bar an employer from keeping an employee’s tips.
That possibility is of grave concern to worker advocates like Patricia Smith, senior counsel at the National Employment Law Project and former Obama administration solicitor of labor, who argues that these new regulations put the employer in charge of the tip jar. “I am sensitive to the disparity between back and front of house workers, but this proposed regulation allows an owner to pocket all the tips, or redistribute them,” she says. “What if he or she chooses to pocket all of them and then no one gets the tips?”
Indeed, wage theft, which includes suits for failure to pay overtime, improperly counting hours, and misappropriating tips, is a huge issue in the restaurant industry and the subject of many lawsuits. As some immigration advocates note, undocumented and immigrant workers are particularly vulnerable to wage theft, as they might not feel empowered to file complaints against their employers; the issue is rampant enough that one organization has developed an app that helps workers report incidences of theft.
What’s most troubling, says Smith, is the lack of transparency. That’s because many states, like New York and California, have laws that prohibit tips from being shared between back- and front-of-house employees, and that also explicitly prohibit management from sharing in the pot. Other states, however, do not have these protections in place. How is a diner supposed to know what restaurants are sharing tips and which are not?
The industry has a poor track record: Even with the current FLSA prohibitions against tip dipping in place, restaurants still bend the rules when it comes to tip-sharing practices. In recent months, restaurants like Zahav, Blue Hill at Stone Barns, and Meyer’s Gramercy Tavern have settled lawsuits from servers who argued their tip-sharing practices violated the 2011 Fair Labor Standards Act. Chain restaurants also regularly commit wage violations: According to Department of Labor data, restaurant groups like DineEquity (parent company of IHOP and Applebee’s) and Darden Restaurants (parent company of the Olive Garden) have paid numerous fines for wage theft, and wage and hour violations.
Corey Gammon, who has been a server at Olive Garden in Kenesaw, Georgia, for the past six years, is uneasy about the new law. “I would hope that you could trust the restaurant manager to share tips without having to worry about theft, but I would be concerned,” he says. “Leaving it up to management would cause so much suspicion with servers. I would feel very uneasy about that.”
Restaurant Opportunities Center United, a worker advocacy group, also opposes the new regulations, not only because it believes tips should always be considered property of the employee, but because of what it sees as an increased threat of sexual harassment in the workplace. According to a recently published ROC report, “women who rely on customers’ tips for the bulk of their income are twice as likely to be harassed” due to their interactions with customers and uniform requirements. If tips are the property of the employer, they argue, workers may be pressured to tolerate inappropriate behavior to receive their fair share of those tips.
ROC also argues that this new ruling would “allow Donald Trump, the owner of multiple businesses that employ tipped workers, to keep and profit from his employees’ tips in all of his various businesses.”
Why do some advocates and operators think it’s a step in the right direction?
The rationale in favor of Trump’s tip-sharing regulation rests on a big-picture concept of service. “Service comes from the entire restaurant,” says Dan Rafalin, managing partner at Avroko Hospitality Group, which owns and runs restaurants like Saxon and Parole and Genuine Roadside in New York City. “We believe that the cooks are part of the service experience and customer experience. We all come to work and we are in it together.”
Sara Jenkins, the chef and owner of Porsena restaurant in the East Village, says she would love to see New York adopt similar regulations to those proposed by the Trump DOL. (And this is not a woman who comes out in favor of Trump.) “I don’t think it’s fair that waiters take home such significantly huge salaries that the kitchen does not,” she says. “If I could share tips between front and back of house, even if I had to pay full minimum wage, I would do it.”
The Golden Gate Restaurant Association has long advocated for tip sharing between the front and back of the house, with a prohibition against owner’s pocketing tips. “It’s funny that the person who actually cooked your food is not considered part of the chain of service and can’t share in tips,” says Gwyneth Borden, executive director of the association. “We believe that tip sharing is one way to help support better wages across the restaurant, while still allowing service staff to still be well compensated by tips.”
Borden acknowledges that the change in federal regulations will not have an immediate effect on California’s state labor laws, but she hopes “that this decision would open up the opportunity to inspire change to the state law.”
Is this option even feasible for independent restaurateurs?
Others are unsure of how paying everyone minimum wage, plus tips, would make financial sense for a restaurant. “If I can’t take that tip credit, it makes it very difficult to run a restaurant because our margins are so slim,” says Rafalin, who saw the NYC tipped minimum wage go from $5.00 to $7.50 in late 2016. When that increase occurred, he asked his staff at Saxon and Parole to reduce the number of hours worked in the last six weeks of 2015. The group ended up cutting 570 hours from its books, but the increase still cost the restaurants $5,621 more than the previous year for that time period.
“To pay everyone full minimum wage without taking the tip credit would be nearly impossible,” Rafalin says. In fact, those tight margins could incentivize a restaurateur to keep a portion of their employee’s tips for the house, to make ends meet.
For the 30 days the DOL will accept public comments on the proposed regulation. (See here for full brief.) “This allows for a virtual town hall open forum, for voices on both sides to argue their case,” explains Zimmerman. “Some proposed regulations get tweaked a bit after public comment and others go through as is." The rule was initially scheduled to go into effect on January 4, 2018, but the DOL issued an extension of the public comment period, which now lasts until February 5, 2018.
In this case, Zimmerman expects the regulation to make it unscathed. “It’s fairly black and white. The Trump administration understands the counter-arguments raised by worker advocates, and disagrees, which is the point of their proposed new rule.” But there is some gray area: If the rule were tweaked to permit tip sharing between front and back of the house workers while explicitly prohibiting the house from sharing in the tip pool, it would certainly gain a broader base of support and eliminate the fear of increased wage theft.
For those deeply entrenched on both sides of this issue, equity seems to be the magic word. “Possibly the most important thought is that we are eliminating wage disparity between different classes of employees,” says Zimmerman. “We give everyone a share by making tips belong to all restaurant employees. The end result under the new regulations is that we are all in this together providing excellent food and service.”
Smith isn’t so sure. “Changing cultures is always rocky, I get that,” she says. “But I am not sure that changing laws to give an employer free reign is the way to go.”