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What’s Next for Restaurant Tip-Pooling Laws?

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The opposition and possible effects of the Department of Labor’s proposed regulations, explained

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We’re about to reach a tipping point on tipping: In December, the Trump administration’s Department of Labor announced it would roll back regulations that prohibited tip-pooling, or the distribution of tips to anyone other than the front-of-house staff who earned them. (These regulations were enacted under the Obama administration in 2011).

Under proposed — and currently pending — new regulations, employers that pay all of their employees the full minimum wage (not the tipped minimum) would be considered “owners” of any tips made by their staff. They could then: Share or redistribute tips between servers and back-of-house employees like cooks and dishwashers; keep the tips for themselves; distribute among management; or keep for their business.

Supporters of the change argue that it could go a long way towards erasing the growing income inequality between cooks and servers. But opponents fear it allows tip-pocketing by management, and creates a lack of transparency that could mean a decrease in tips in an industry heavily reliant on tips to support wages.

The DOL has been accepting public comments on the proposed regulation for the past two months. (See here for full brief.) The comment period was initially scheduled to end on January 4, 2018, but the DOL issued an extension of the public comment period, which now lasts until February 5, 2018.

There are now over 100,000 comments in opposition of the regulation, including:

“I understand that rolling back the current regulation would allow front and back of restaurant employees to share in the tips, but I feel it is vitally important to fully protect those workers, and add a provision that prevents the restaurant from just pocketing all the tips together and not sharing any of them with the workers. That should not be permitted.”

“I oppose the proposed rule (RIN: 1235-AA21). It would go against decades of federal and state law and precedent safeguarding tips as the property of the workers who receive them, by allowing employers to take control of their employees tips.”

“If adopted, this regulation would force a vulnerable workforce further into poverty, economic instability, and vulnerability to harassment and assault. I urge the Department of Labor to withdraw this proposed rule.”

What happens next?

Once the comment period is closed, “the government has at least 60 days” (and can take longer) to respond to and “address the major points” brought up in the comments, explains Patricia Smith, senior counsel at the National Employment Law Project and former Obama administration solicitor of labor.

The department doesn’t have to respond to each comment individually but must address the major points in each one, Smith explains. Once that’s complete, the government could say:

a) given these comments we will rethink this rule, rework and revise it (the DOL might decide, for instance, to put in a provision that expressly forbids management from sharing in the tip pool, or that provides for transparency)

b) given all of this opposition we rescind the proposed rule all together

c) despite the opposition, we are going forward with this rule as is

No matter what, the government must provide a well-reasoned explanation of its response to the comments in with its decision.

How long will that take?

There are conflicting opinions on the timing. “Don’t expect the government’s response for at least 6 months, maybe even more,” says Smith, who points to the heated arguments over proposed changes to the overtime laws under the Obama administration, which took nearly a year.

But Katherine Fechte, a St. Louis-based employment attorney at Greensfelder, Hemker & Gale, P.C., thinks the DOL will come back quite quickly. That’s because the bulk of the comments in opposition to the rule are identical, which doesn’t make a strong case for revision or repeal of the proposed regulation.

“The comments have to be substantive and many of these just are identical, copied and pasted, without any substantive arguments,” says Fechte.

Fechte predicts the DOL will come back in just a few months and say the regulation is moving forward as is, allowing them to share, redistribute, or keep tips as they see fit, provided they pay employees the full minimum wage and do not take a tip credit.

If the government goes ahead with the rule, can their decision be overruled?

Maybe. If the government decides to rescind the Obama-era rule and allow for tip sharing despite widespread opposition, that decision could be challenged under the so-called “arbitrary and capricious” rule.

Under the Administrative Procedures Act, an agency’s response can be overturned if its rationale is considered “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Smith says this is a high standard to overcome, and unlikely in this case.

If the rule goes forward, what does that mean for restaurants and their staff?

If the rule goes into effect later this year, restaurants that pay the full minimum wage and do not take the tip credit can pool tips, share them as they wish, and keep them for the business as they see fit.

According to Drew N. Herrmann, attorney at Herrmann Law, PLLC, states may enact laws overruling or amending the law. “The FLSA is a base-line federal law,” Herrmann says. “If a state enacts a law that is more restrictive — more favorable to the employee, for example — then the state law applies, overriding the FLSA.”

This is the case except in states like New York, Oregon, and California that have specific legislation that prohibits tip sharing between front and back of the house. In D.C., tip-sharing is allowed only among employees who customarily receive tips; salaried managers and owners many not share in the tip pool. In these states, the regulations will have no impact; there will be no change in the tipping laws.

What’s happening in the courts?

The issue of whether tip pooling is permitted is a divisive one. 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 the full minimum wage.

The split means that the Supreme Court could resolve the conflict. Two petitions for certiorari (these “cert” petitions are formal requests that the Supreme Court hear a case) are now before the Supreme Court: Oregon Restaurant and Lodging vs. Perez, and Cesarz v. Wynn Las Vegas, both 9th Circuit cases in which the employer was prohibited from sharing tips between front and back of the house. SCOTUS has not yet agreed to hear either case.

Who has the final say, the DOL or the Supreme Court?

If the Supreme Court decides to hear the cases and reverses the 9th Circuit decision, then (except in states where state law prohibits tip sharing) tips may be shared when an employer does not take a tip credit, as the Trump DOL regulations set forth.

But if the Court upholds the 9th Circuit cases, then employers are prohibited from taking possession of tips under all circumstances (even when they are not taking the tip credit). That Supreme Court decision would be the last word, surpassing even state law. In other words, the Court’s decision would “trump” the DOL regulations passed by the Trump administration.

Andrea Strong, founder of the pioneering food blog the Strong Buzz, has been writing about restaurants and food for the past 18 years.
Editor: Daniela Galarza.