DOL Plans to Permit Tip Pooling with ‘Back-of-the-House’ Employees

Regulatory change would result in more teamwork, some say

Allen Smith, J.D. By Allen Smith, J.D. August 11, 2017
DOL Plans to Permit Tip Pooling with ‘Back-of-the-House’ Employees

​Restaurateurs should be able to require "front-of-the-house" employees, such as waitstaff, to share their tips with "back-of-the-house" workers, such as chefs and dishwashers, according to the Department of Labor (DOL).

Right now, businesses cannot do so because of a 2011 regulation. But the DOL plans to issue a proposed rule to make such tip pooling lawful, as long as the restaurateur pays waitstaff at least the federal minimum wage ($7.25) and does not claim the "tip credit."

Employers that claim the tip credit must pay at least $2.13 per hour and, if the employee does not earn the federal minimum wage in tips, pay any difference between the minimum wage and the amount the waitstaff received.

[HR Q&A: Must a company pay tipped employees minimum wage for all hours taken as vacation time or is it permissible to pay only the tip credit wage?]

Restaurateurs are trying new ways to compete for top kitchen talent, said Leni Battaglia, an attorney with Morgan Lewis in New York City. But the DOL's regulation has prevented them from allowing back-of-the-house staff to share in tips to lure that talent.

Litigation over 2011 Regulations

The 9th U.S. Circuit Court of Appeals in Cumbie v. Woody Woo Inc. (596 F.3d 577 (2010)) upheld an Oregon restaurateur's right to run a tip pool that included kitchen employees, as long as the business paid employees who shared in tips at least the minimum wage.

The DOL responded in 2011 by adopting regulations that made pooling tips with back-of-the-house employees unlawful, even when the restaurateur paid the minimum wage. The rule was issued to protect what the DOL considered to be the property of the waitstaff.

Under the Fair Labor Standards Act, employers that pay the minimum wage may require tip pooling among employees who customarily receive tips, such as waiters, waitresses, bellhops, counter personnel who serve customers, bussers and bartenders that make drinks for the servers. But according to the 2011 DOL rule, a valid tip pool may not include employees who do not customarily receive tips, such as dishwashers, cooks and janitors.

There has been litigation over whether hostesses and other front-of-the-house employees may be treated as those who regularly receive tips, noted Todd Aidman, an attorney with FordHarrison in Tampa, Fla.

"District court after district court said the DOL regulations were wrong," said Ellen Kearns, an attorney with Constangy, Brooks, Smith & Prophete in Boston.

The 9th Circuit upheld the regulations—it had previously ruled tip pooling was allowed when there was no regulation on the matter in place—but the 4th, 10th and 11th circuits ruled that the regulations are invalid, noted Randi Kochman, an attorney with Cole Schotz in Hackensack, N.J. She said the National Restaurant Association has asked the U.S. Supreme Court to resolve the split.

Even if the DOL revises the regulation to permit more tip pooling, as it announced July 20 that it intends to do, the DOL under future administrations might go back and forth on the rule, she said.

Reasons for Tip Pooling

"Some feel that menu prices have risen over time, causing tips to rise, but wages for back-of-the-house employees have not risen proportionally," so restaurateurs would like to be able to distribute tips among all," said Susan Schaecher, an attorney with Fisher Phillips in Denver. "Some restaurants have tried eliminating tipping to get at this same issue but are finding varying levels of customer acceptance."

The federal minimum wage has not been raised for years. Many restaurateurs want front-of-the-house employees to share tips with back-of-the-house employees—not 50-50, but with the back-of-the-house employees receiving, for example, 15 percent or 20 percent of the tips, Kearns said.

However, if the DOL makes tip pooling available for back-of-the-house employees, it is unclear how states with rules analogous to the 2011 regulation will interpret their laws going forward, Battaglia observed.

That said, tip pooling sends the message that "we're all in this together," Kearns noted. "It encourages teamwork" and signals to the waitstaff that they did not make the customer experience first-rate on their own.

Steven Suflas, a former restaurant employee, can attest to the benefits of tip pooling. "Based on my years bussing tables in my father's restaurant, those in the hospitality industry who utilize tip pooling find that by equalizing tips among all servers, there are no arguments over preferred station assignments, customer flow and shift schedules," said Suflas, now an attorney with Ballard Spahr in Cherry Hill, N.J., and Denver. "By extending tip pooling to back-of-the-house employees, employers believe that teamwork is encouraged, as cooks will push food out quicker to assist servers and generate larger tips from satisfied customers."

The proposed rule "could be the tip of the iceberg for changing many of the Obama administration's wage and hour regulations," Kearns said. "It could be the beginning of withdrawing many regulations by the Obama administration."

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