Federal Court Rules Employers Cannot Pool Tips to Share With Support Staff

 Posted on April 20,2016 in Fair Labor Standards Act

A decision in the Ninth U.S. Circuit Court of Appeals extended an existing U.S. Department of Labor rule regarding tip-pooling to establishments in which tipped employees already make minimum wage. How employers handle tips intended for bartenders and waitstaff has long been a source of contention, as gratuities often represent a significant portion of such employees’ income. While Illinois is not technically under the jurisdiction of the Ninth Circuit, the ruling will still likely have implications as case law precedent.

FLSA Regulations on Tip Credits

The Fair Labor Standards Act (FLSA) permits employers to count tips to certain employees as a portion of those employees’ wages, helping to fulfill the employers’ obligations of paying minimum wage. The FLSA still requires an employer to pay tipped employees at $2.13 per hour, with the expectation that tips will comprise at least $5.12 per hour in addition. In Illinois, employers must pay tipped employees $4.95 per hour, and tips must bring the employees’ compensation to at least $8.50 per hour, the state minimum wage.

According to the FLSA, any tips given belong the employee and not the employer, and forced pooling of tips is only permitted if the tips are shared exclusively with other employees who customarily receive tips. Therefore, required tip-pooling to benefit cooks, dishwashers, and other support staff is not permitted.

The Decision

The case before the appellate court involved an Oregon restaurant association, a Portland restaurant, and one its tipped employees. A previous ruling had permitted employers who did not take a tip-credit—meaning that they paid all of their employees at least full minimum wage—to pool tips and share them with support staff. The original decision in 2010 was based on language in the FLSA that limited the tip-pool restriction to employers claiming the tip credit. Since that ruling was issued, the Department of Labor released a new formal rule extending the restriction to all employers, regardless of their tip credit status. In a 2-1 decision this past February, the Court of Appeals reversed the earlier ruling, reinforcing that tips do not belong to the employer but to the employees that actually receive them.

Critics of the ruling say that decision will only hurt back-of-the-house and other support staff. Attorneys for the restaurant association say they are considering their options at this point, and further appeals may be forthcoming.

Help With FLSA Compliance

If you have questions about claiming a tip credit and are concerned about remaining in compliance with FLSA regulations, contact an experienced employment law attorney in Schaumburg. We will work with you to ensure you understand your obligations and help you develop a pay structure that fully protects your business. Call 847-995-1205 for a confidential consultation today.

Sources:

http://www.chicagotribune.com/business/ct-tip-sharing-ruling-20160223-story.html

http://www.restaurant.org/News-Research/News/U-S-court-of-appeals-for-the-ninth-circuit-overtur

http://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf

http://www.dol.gov/whd/regs/compliance/whdfs15.htm

https://cdn.ca9.uscourts.gov/datastore/opinions/2016/02/23/13-35765.pdf