Duff on Hospitality Law

Just when it seemed that service charges were all the rage, tip pooling has reemerged to grab the headlines. Making the rounds from courts to agencies, and now Congress, the issue appears to have been settled by Congress that employers can impose mandatory tip pooling to include certain non-tipped employees.

Can Non-Tipped Employees Participate in the Mandatory Tip Pool?

Under the Fair Labor Standards Act (the “FLSA”), employees who are customarily and regularly tipped can be required to participate in a mandatory tip pool. Under a tip pooling approach, the employer directs tipped employees to combine their tips, and the employer determines a structure for redistributing the tips among the employees in the tip pool. As we have reviewed previously in this blog, employees in tipped positions have challenged mandatory tip pools that include non-tipped employees, such as dishwashers and cooks, asserting that they violate the FLSA. Because those employees are not customarily and regularly tipped, the argument was not without merit as the law has always made clear that tips are the property of the employees to whom customers given them. However, the law also provided that tip pools may be imposed by employers. The FLSA further allowed that employers may claim a tip credit against the federal minimum wage.

In the latest of a series of twists and turns regarding the legality of certain tip pools in Western states, on February 23, 2016, a divided three judge panel of the Ninth Circuit Court of Appeals validated regulations by the Department of Labor (“DOL”) that significantly limit employers’ ability to have tip pools that include more than “customarily and regularly tipped” employees. This development means that employers operating in states or territories in the Ninth Circuit (covering Washington, Oregon, Alaska, Idaho, Montana, Nevada, California, Arizona, Hawaii, Guam, and the Northern Mariana Islands) cannot include in their tip pools “back of the house” employees (such as cooks or dishwashers) or other employees who are not customarily tipped. We examine the impact of and history behind this decision below.

As many of you will recall, I dedicated two posts earlier this year to tip pooling and Oregon and Washington restaurant owners' ability to share tips with traditionally non-tipped employees - Tip Pooling in Oregon and Washington, Tip Pooling - UPDATE. With the amount of attention that tip pooling continues to receive, I thought it time to enlist my Portland, Oregon partner, Eric A. Lindenauer, the lawyer who actually represented the Portland restaurant owner in the seminal Cumbie v. Woody Woo, Inc. decision, to provide a brief summary of the Woody Woo decision and recent developments in the ongoing tip pooling saga.

Thank you Eric for updating all of us.

The extent to which an employer can require employees to share tips with non-tipped employees remains a hot topic, especially in the federal Ninth Circuit, which encompasses Alaska, Washington, Montana, Idaho, Oregon, Nevada, California, Arizona and Hawaii.

Under the Fair Labor Standards Act (“FLSA”) where an employer claims “tip credit” toward the federal minimum wage, the employer may only require that employees pool tips with other employees who “customarily and regularly receive tips.” Assuming an employee is informed of the intent to take tip credit and other requirements are met, an employer can use an employee’s tips to offset all but $2.13 of the federal minimum wage.