The Trump administration’s plan to legalize tip pooling (yes, tip pooling is currently not legal) is pretty controversial. However, the debate just got turned up to 11 after Bloomberg Law reported that the Department of Labor altered the proposal, deleting a study that showed billions of dollars in losses to employees if the changes go through.
The proposal would remove Obama era mandates that guaranteed a tipped employee full ownership of their gratuities and consequently banned tip pooling. The Bloomberg article asserts that the paperwork involved with the change initially contained a detailed “transfer analysis” predicting billions in lost revenues for employees. However, senior officials in the DOL then ordered the analysts to change their methodology and draw up a new analysis demonstrating less harm to employees. The scoop then continues on with this gem.
Although later calculations showed progressively reduced tip losses, Labor Secretary Alexander Acosta and his team are said to have still been uncomfortable with including the data in the proposal. The officials disagreed with assumptions in the analysis that employers would retain their employees’ gratuities, rather than redistribute the money to other hourly workers. They wound up receiving approval from the White House to publish a proposal Dec. 5 that removed the economic transfer data altogether, the sources said.
The omission of this “transfer analysis” from a proposal is highly unusual. Critics decry the move as an attack on transparency. Although administration officials note that there opportunity for revision after a public comment period (which will end on February 5th).
The final filing from the administration declared,”The Department of Labor (Department) is proposing to rescind portions of its tip regulations issued pursuant to the Fair Labor Standards Act that impose restrictions on employers that pay a direct cash wage of at least the full federal minimum wage and do not seek to use a portion of tips as a credit toward their minimum wage obligations.”
Translated out of legalese, the proposed rule 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.
The new (de)regulations 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 absent analysis has been embraced by critics of the pool system as validation. 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.
The left-leaning Economic Policy Institute (EPI) labeled the proposal “tip stealing”. In their own study, they estimate that tipped employees stand to lose almost $5.8billion. “DOL has masked the fact that this rule would be a windfall to restaurant owners and other employers—out of the pockets of tipped workers—by making it sound as if this rule is about tip pooling,” posited EPI’s Heidi Shierholz, David Cooper, Julia Wolfe, and Ben Zipperer. “The proposed rule does not require employers to distribute the tips, so employers would be no more likely to share tips with back-of-the-house workers than they would be to make any other choice about what to do with a business windfall, including using the money to make capital improvements to their establishments, to increase executive pay, or to line their own pockets.”
Powerhouse industry trade group, the National Restaurant Association (often referred to as “the Other NRA.”) has been pushing 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.”
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 that issue moot… until the opposition files a new set of lawsuits.