DOL Announces Proposed Rule to Expand FLSA Tip Sharing

Back-of-the-house workers, such as cooks, would be able to share in tip pools

December 5, 2017
DOL Announces Proposed Rule to Expand FLSA Tip Sharing

The U.S Department of Labor (DOL) announced on Dec. 4 a notice of proposed rulemaking that would allow more hospitality and restaurant workers—including cooks and dishwashers—to share in gratuities under the Fair Labor Standards Act (FLSA).

"The proposal would help decrease wage disparities between tipped and nontipped workers," according to the announcement.

Currently, restaurateurs can require "front-of-the-house" staff who customarily receive tips—such as servers, bartenders and bussers—to pool their tips. But whether those gratuities can be shared with "back-of-the-house" staff—such as cooks and dishwashers—has been the source of heated litigation.

The proposed rule would make it clear that tipped workers can share tips with employees who don't traditionally receive gratuities.

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"Restaurants and other food service providers should welcome these proposed changes," said Kathleen Anderson, an attorney with Barnes & Thornburg in Fort Wayne, Ind., and Columbus, Ohio. "Think about it. The restaurant experience is created by the combined efforts of the front and back of the house. Tip sharing allows those in the back of the house to be rewarded for good service."

The DOL hasn't issued a new rule yet, noted Eli Freedberg, an attorney with Littler in New York City. The department is first soliciting comments from interested parties about potentially changing its stance on tip sharing. Employers and other affected groups should determine whether they want their voices heard about how the proposed rule would affect their workplace.

The notice of proposed rulemaking will be published Dec. 5 in the Federal Register and will be available for public comment for 30 days.

Although the rule could be modified or withdrawn during the public comment period, it is likely that the rule will be adopted sometime in early 2018, said Aaron Warshaw, an attorney with Ogletree Deakins in New York City.

"I believe this proposed rule will become a final rule," noted Jeffrey Brecher, an attorney with Jackson Lewis in Long Island, N.Y. "There is a relatively short comment period, so my guess is that a final rule will be issued quickly."

The new rule wouldn't apply to employers who take a "tip credit" or in states that have laws prohibiting tip-pool arrangements that include back-of-the-house workers.

Employer Tip Credit

Under the FLSA, employers may pay tipped employees a cash wage of as little as $2.13 per hour—which is less than the current federal $7.25 minimum wage—as long as workers make up the $5.12 difference in gratuities.

Employers may take this so-called tip credit as long as certain conditions are met. For one thing, the employer can't keep any of the tips. All gratuities must be retained by the employee unless there is a valid pool that is limited to tipped workers.

Restaurant servers and other employees who customarily receive more than $30 per month in gratuities are considered "tipped employees" under the FLSA.

But what rules apply if the employer doesn't take the tip credit and pays the full minimum wage instead? Can an employer then require tipped workers to share their gratuities with back-of-the-house staff? The answer isn't clear.

In Cumbie v. Woody Woo Inc. (596 F.3d 577 (2010)), the 9th U.S. Circuit Court of Appeals upheld an Oregon restaurant's tip pool that included kitchen workers. The court reasoned that everyone who participated was paid at least the minimum wage. 

In 2011, however, the DOL adopted regulations that made pooling tips with back-of-the-house employees unlawful, regardless of whether the employer took a tip credit or paid workers the standard minimum wage.

Since then, federal courts have disagreed as to whether the DOL's regulations are valid. Some federal appellate courts have said the DOL exceeded its authority in the 2011 regulations. The 9th Circuit, however, changed its view based on the DOL regulations and held in 2016 that back-of-the-house workers can't share in tip pools—even if all participants earn the full minimum wage.

Another point of contention is whether hostesses and certain other front-of-the-house workers are considered employees who "customarily receive tips" and can share in the tip pool.

The DOL's new proposed rule would undo the 2011 rule and would permit tip pools to once again be shared with employees who don't customarily receive tips—provided that employers pay at least minimum wage and do not take a tip credit, Warshaw said.

The U.S. Supreme Court has been asked to weigh in on this issue, but the new rule would presumably moot the case before it reaches the high court, he added. The rule would obviate the circuit split over whether the DOL exceeded its authority.

Effect on Workplace

It's important to note that many states have their own laws about tip pooling, Freedberg said. So even if the proposed regulation goes through, multistate employers and businesses in California, New York and other states with tip laws will have to be aware of any conflict. "The more employee-friendly law tends to prevail," Freedberg added.

The DOL's proposed rule would be good news for the employers who can take advantage of it, Brecher said. Many back-of-the-house workers—like cooks—directly affect the customer experience. The proposed rule could create wage parity, particularly in high-end restaurants where servers receive large tips that aren't currently shared with customer-focused nontipped workers, he added. 

Employee advocates disagree. "Tips belong to the workers who have earned them—period," said Christine Owens, executive director at the National Employment Law Project in Washington, D.C. "If companies have trouble retaining nontipped workers because their pay is so low, the solution is for the companies to raise the wages of those workers."


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