Tip pooling is a pretty controversial practice in the hospitality industry. Unbeknownst to many, it’s also illegal—at least, for a little while. Buried in the Trump administration’s recent pile of agenda filings are a few key sentences detailing the Department of Labor (DOL)’s plans to reverse an Obama era prohibition on tip pooling (as first reported by the National Law Review.)
“In this Notice of Proposed Rulemaking, the Department will propose to rescind the current restrictions on tip pooling by employers that pay tipped employees the full minimum wage directly,” declares the October 24th filing from the Office of Management and Budget.. No additional details were disclosed and the U.S. Department of Labor did not respond to a request for comment.
Translated out of legalese, this will allow employers to change the way that gratuities are handled. Currently, (according to federal, not state law,) employers must pay tipped employees $2.13 hourly. Any tips collected on top of that are the property of the employee; if tips plus wages equal less than the federal minimum wage of $7.50 hourly, then the employer must make up the difference.
However, if the DOL’s proposed change goes through, employers that pay their employees a base of the federally mandated minimum wage of $7.25 hourly will be able to mandate that all tips are placed into a “pool.” The employer can then redistribute these tips in any way they see fit including cutting non-tipped employees like cooks and dishwashers into the pool.
The pool system is the topic of frequent attack from employe activists. At a core level, many servers and bartenders believe that they should be entitled to any cash they earn and that the decision to tip out co-workers should be their own. Critics also contend that ownership can leverage the pool to pay a portion of back-of-house wages from tips instead of their own pockets. Others point out numerous cases of ownership and management both using shared gratuities as an opportunity to pay themselves, if not outright skim off-the-top.
“It is critical that tips are solely the property of workers in the eyes of the law, and that there are severe penalties for tip stealing of any kind. Only with such protections in place, and One Fair Wage established, should tips be shared between front and back-of-the-house workers,” declared a statement from hospitality employee advocacy group Restaurant Opportunities Center United (ROC-United) in a previous statement. “Furthermore, tip sharing arrangements should be collectively decided upon by all hourly workers with no involvement from management, as [currently] required by federal law. Employers cannot mandate tip sharing agreements.”
On the other side of the argument is the powerhouse industry trade group, the National Restaurant Association (often referred to as “the Other NRA.”) The Other NRA has pushed hard for tip pooling for years, co-financing and co-litigating several lawsuits on the topic along with archconservative think tank, The Cato Institute. In a previous statement, Angelo Amador, Executive Director of the NRA’s Restaurant Law Center said that regulations on tip pooling are “unfairly discriminating against restaurant employees who work in the back-of-the-house.” The Cato Institute focused on alleged constitutional issues in banning the practice, accusing then-POTUS Obama of “executive mischief” and a violation of separation of powers.
Although still commonly practiced in the industry, tip-pooling has been illegal since 2011. That is when the Obama administration pushed through a series of pivotal amendments to the Fair Labor Standards Act. At the core, the changes established that employees, not the company, owned their own tips. Consequently, pooling tips was no longer kosher (even if base pay exceeded the $7.25minimum wage) as employees owned their own tips.
However, changing federal regulations is not easy in these times and the new rules were met with a slew of legal challenges. In February 2016, the Ninth Circuit Court of Appeals upheld the law (Oregon Restaurant and Lodging, et al v. Thomas Perez, et al,) but in a different challenge, the Tenth Circuit Court of Appeals ruled against it in June 2017. The conflicting decisions logically seemed to be en route to the SCOTUS for a final decision to resolve the conflict. However, DOL’s newest moves may render the issue moot.