Late on Wednesday (3.22) night, Congress passed a measure to prohibit employers from keeping employers tips for themselves. Tucked inside an 11th hour spending bill, the bipartisan provision was intended to defang a recent Department of Labor (de)regulation legalizing tip pooling. (Yes, tip pooling was illegal). However, the legislation still leaves many aspects of the controversial DOL proviso in place.
Critics of the December 2017 DOL filing noted that the language employed to legalize tip sharing also allowed ownership to redistribute employees’ tips to management or even ownership themselves. In response, Sen. Patty Murray (D-Wash.) and Labor Secretary Alexander Acosta negotiated a compromise eliminating the loophole.
“An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit,” declares the new bill.
In short, tips may be pooled and shared only among base level front of house and back of house staff, not management or above. In addition, the bill specifies penalties for violators including repayment of the pilfered gratuities as well as a penalty equal in sum.
Longstanding critics of the DOL stance, like service industry workers advocates, ROC-United, hailed the new regulation as a win. “The National Restaurant Association wanted to steal workers’ tips, but the workers said no — and they won,” said ROC United president Saru Jayaraman in a statement. “The fact that hundreds of thousands of workers stood up and said no to employers taking their tips, and that congressional leadership listened and acted, is a testament to the power of workers standing up together.”
Yet, not everyone is happy. The key elements of the tip-sharing deregulation remain. Tips from front-of-house workers can still be used to supplement pay for kitchen staff and other non-tipped employees.
“It does prevent outright wage theft, but it still undermines the basic principle that tips are the property of the worker who earns them,” a spokesman for Democratic Rep. Mark Takano (Calif.) told HuffPo.
The root debate over tip pooling will almost certainly continue, likely ending in the courts. Although commonly practiced in the industry, tip-pooling was illegal from 2011 until 2018. Seven years ago, 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. Tipped employees must be paid $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. Consequently, pooling tips was no longer kosher (even if base pay exceeded the $7.25minimum wage) as these gratuities were not the property of ownership.
However, Trump and Accosta changed this all late last year. The new rules state that employers who pay their staff a base of the federally mandated minimum wage of $7.25 hourly are able to demand that all tips are placed into a “pool.” The employer can then redistribute these tips in any way they see fit including as supplement to other employees’ wages.
Still, 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 Obama 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. That case was rendered moot after the new Trump rules, but a new set of suits started brewing. Industry observers told NP that this week’s compromise is unlikely to slow that down.