On July 20, 2017, the U.S. Department of Labor (“DOL”) announced that in August it plans to propose rescinding current restrictions on tip-pooling by employers who pay tipped employees the full minimum wage directly. Under the current rule, tips are considered employee property and cannot be distributed to other workers or retained by the employer, even if the employer pays tipped employees their full minimum wage without any reduction for tip credit. Although this latest announcement does not change or reverse the current rule, it signals that a change is on the way.
The DOL’s recent announcement follows a circuit split on whether the current tip-pooling rule is invalid. In February of 2016, the Ninth Circuit Court of Appeals held that employers cannot require tipped employees to share their tips with untipped employees, thus upholding the current rule. But in an opinion issued in June of 2017, the Tenth Circuit ruled that the regulation is invalid, and that the restrictions on tip pooling do not apply to employers who pay employees at least $7.25 (the current federal minimum wage).
Prior to the DOL’s July 20th announcement, it appeared likely that this circuit split would be resolved by the U.S. Supreme Court, which is currently reviewing a request from the National Restaurant Association to hear an appeal of the Ninth Circuit decision. Should the DOL ultimately rescind the current restrictions on tip pooling, the Supreme Court could deny the request for appeal as moot. Nonetheless, employers should proceed cautiously regarding any tip pooling policy at this time. Unless and until the DOL takes formal action to rescind it, the current restriction on tip pooling remains in effect in all U.S. jurisdictions other than states within the Tenth Circuit (Oklahoma, Kansas, New Mexico, Colorado, Wyoming and Utah); the Fourth Circuit (Maryland, Virginia, West Virginia, North Carolina and South Carolina); and the Eleventh Circuit (Alabama, Florida and Georgia). Depending on location, more restrictive state and local tipping regulations may apply.
As always, HR Legalist urges all readers to consult with their legal counsel for advice on navigating tip-pooling rules in their respective jurisdictions. HR Legalist will continue to report on the latest developments regarding tip-pooling.
Matthew A. Green is a partner in Obermayer’s Labor Relations and Employment Law Department practicing in the area of employment and labor litigation. He is also co-managing partner of Obermayer’s Cherry Hill, New Jersey office, and can be reached at 856-857-1413 or firstname.lastname@example.org