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Restaurant Owners and Managers Cannot Keep Servers’ Tips, Per New Budget Bill

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The Department of Labor’s proposed tip-pooling regulations have been overruled

Servers’ Tips Cannot Be Kept by Restaurant Managers

• The government has passed its new budget proposal, which includes protections for tipped workers. President Trump signed it into law hours after threatening to veto it.

• The bill expressly prohibits employers, managers, or supervisors from collecting or retaining tips made by employees — one of the biggest concerns opponents had against the Department of Labor’s most recent, and widely hated, proposal. The bill nullifies that previous proposal.

• The new law allows tip sharing between tipped and non-tipped employees — for example, between servers and cooks — if a restaurant pays the full minimum wage to all employees. The is a departure from Obama-era rules, which did not allow such sharing of tips.

At the end of Congress’s new, meandering 2,232-page budget spending bill, which was released earlier this week and passed late last night, is a provision that protects restaurant workers. It dictates that restaurant owners and managers are not allowed to collect or retain tips earned by workers. This upholds Obama-era rules, and goes against the current administration’s most recent proposal. But — in a departure from Obama-era labor regulations — if workers are paid the full minimum wage, the bill makes it legal for tipped employees (for example, servers and bartenders) to share their tips with other not-traditionally tipped employees (for example, cooks or dishwashers).

Restaurant workers and advocates garnered bipartisan support from members of Congress and the administration to include the provision in the omnibus budget bill. As written, it amends the Fair Labor Standards Act (FLSA) to, for the first time, expressly codify protections for tipped restaurant workers, and institute specific consequences for employers, supervisors, and managers that break the law.

The bill states: “An employer may not keep tips received by its employees for any purposes, including allowing managers, or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” Further, ‘‘Any person who violates section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for each such violation... in addition to being liable to the employee or employees affected for all tips unlawfully kept.”

“This amendment to the FLSA makes it clear that tips belong to workers and no one else,” says Patricia Smith, senior counsel at the National Employment Law Project (NELP) and former Obama administration solicitor of labor. “Employers — including managers and supervisors — can never keep tips. If a tip credit is taken, the current Obama-era rule applies, which means tips are property of front of the house employees only.”

Saru Jayaraman, co-founder and president of Restaurant Opportunities Centers (ROC) United, echos this understanding of the bill’s wording, which, unlike the Obama-era rules, allows all hourly staffers to share in a restaurant’s tip pool.

“The big win for the restaurant industry is this: restaurants who pay One Fair Wage — the full minimum wage, not the tipped minimum — will be able to share tips with the back of the house employees, with a provision that clearly precludes anyone in a supervisory or managerial role from sharing in that tip pool.”

NELP’s Christine Owens credited the work of Reps. Rosa DeLauro (CT) and Katherine Clark (MA), whose tough questioning of Labor Secretary Alex Acosta during an appropriations hearing revealed an opening for a possible bipartisan agreement. They quickly followed up by introducing legislation that would amend the Fair Labor Standards Act, and effectively kill Trump’s Department of Labor’s intention to roll back Obama-era regulations that prohibited tip-pooling, or the distribution of tips to anyone other than the front-of-house staff who earned them.

Under the Department of Labor’s December 2017 proposal, employers that pay all of their employees the full minimum wage (not the tipped minimum) would have been considered “owners” of any tips made by their staff. They could have shared or redistributed tips between servers and back-of-house employees like cooks and dishwashers; kept the tips for themselves; distributed them among management; or kept them for their business.

That proposal sparked a massive public outcry. While supporters, including the National Restaurant Association, argued that it could go a long way towards erasing the growing income inequality between cooks and servers, opponents were vocal in their opposition, arguing that it made tips the property of owners and would allow for tip-pocketing by management.

Jayaraman explains that the new bill also adds extra protection for workers in the case of tip theft. Workers will be entitled to get those tips back plus damages and if they were getting paid the sub-minimum (tipped wage); they will also be entitled to get the difference between the sub-minimum wage and the regular minimum wage for every hour they worked for at least three years. Jayaraman says this higher penalty has been adopted to set up “strong and unequivocal protections for workers.”

It’s not clear whether sharing tips among non-tipped employees is the solution to income equality in the restaurant industry. Employers may be happier with the flexibility they have under this new provision, but it does little to address the systemic racism, sexism, and harassment that the culture of tipping promotes. Still, preventing restaurant owners and managers from dipping into the tip pool, and encouraging employers to pay the full minimum wage to all hourly workers are steps in the right direction.

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