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DOL issues proposed rule re tip-pooling

In a November 2019 opinion letter the DOL reversed position on tip-pooling. As explained there, the DOL lifted the Obama-era DOL’s 80-20 rule, making it easier for employers (like restaurants) to pool tips among tipped employees, including even those who perform some non-tipped work during their day (like waiters who vacuum, set up and clean up the restaurant as well as work tables). In this proposed rule the DOL is proposing to codify its new approach into a formal regulation. Codification of this approach into a regulation — rather than simply setting it forth in an opinion letter — will have at least two effects: It will generally require courts to defer to this interpretation and make it more difficult for future administrations to deviate.

Reminder, Colorado employers must now provide notice if tip-sharing

Colorado employers are reminded to post a notice, if tip-sharing, for example on menus, at tables, or on receipts, to patrons that “gratuities are shared by employees.” This new posting requirement, Colorado HB 19-1254, took effect August 2, 2019.

DOL confirms that employers may claim tip credit even for time tipped employees spend on non-tipped work

Confirming an approach announced in a recent opinion letter, the DOL has amended its Field Handbook, the manual for its enforcement personnel, that employers (like restaurants) may claim a tip credit for time that tipped employees spend on non-tipped work (such as a waiter who may vacuum) if performed contemporaneously (or nearly so) with tipped customer duties.

An employer may take a tip credit for any amount of time that an employee spends on related, non-tipped duties performed contemporaneously with the tipped duties—or for a reasonable time immediately before or after performing the tipped duties—regardless whether those duties involve direct customer service.

As explained in two recent blog posts, this lifts the DOL’s Obama-era 80-20 rule for tipped employees.

Source: DOL Field Assistance Bulletin 2019-2 (2/15/19).

Colorado minimum wage increase effective 1/1/18 to $10.20/$7.18

Effective 1/1/18, Colorado increased its minimum wage to $10.20 or, for tipped employees, $7.18.

Source: Colorado Department of Labor Minimum Wage web page.

DOL proposes reversing course on Obama-era tip-pooling rule

The U.S. Department of Labor has issued a proposed rule that would reverse an Obama-era tip-pooling rule, which has proven controversial since its issuance. As previously reported in this blog, the courts have split over whether — and the Tenth Circuit has joined the majority that hold that — employers need not comply with the tip-pooling rule if they otherwise meet the Fair Labor Standards Act’s minimum wage requirements. These courts hold that the tip-pooling rule is merely a condition of claiming the credit for tips against the minimum wage; if an employer does not claim the tip credit — if the employer pays at or above the minimum wage — then the tip-pooling rule does not apply. One part of the tip-pooling rule prohibits employers from sharing tips with any worker in a position that is not customarily and regularly tipped, such as dishwashers, cooks, etc. Thus, by paying tipped employees (e.g., waiters) at or above the minimum wage, without claiming the tip credit, employers are free to require a tip pool that is shared with other employees, even dishwashers, cooks, etc. This proposed rule would confirm this view in the formal FLSA regulations, in other words, that the tip-pooling rule only applies as a condition of claiming the tip credit. The proposed rule would codify the approach already taken by the Tenth Circuit.

Employer may share in tips if it does not claim a tip credit, at least in Tenth Circuit

The Fair Labor Standards Act (FLSA) is the country’s leading wage-hour law. Among other things, FLSA imposes a federal minimum wage. The federal minimum wage is a baseline; states and local governments are free to adopt higher minimum wages. Employers can, even under federal law, pay tipped employees a lower minimum wage if certain conditions are met. One condition is that the employer not share in the tips. To put it (overly) simply), tips can be pooled among other tipped employees, but not with the company or management.

What if the employer decides it wants the tips and doesn’t care about claiming the tip credit? In other words, can a company take some or all of the tips so long as it pays the full applicable minimum wage? The Tenth Circuit read the law and held, yes, in Marlow v. The New Food Guy, Inc., 861 F.3d 1157 (10th cir. 2017) (Employer that does not claim tip credit may take share of tips; FLSA’s prohibition against same is merely a condition for claiming a tip credit). The U.S. Department of Labor and Ninth Circuit say otherwise. See Oregon Restaurant & Lodging Assoc. v. Perez, 816 F.3d 1080 (9th Cir. 2016) (Employer may not whether or not a tip credit is claimed).

While the Tenth Circuit’s opinion is clear, well reasoned and based on the language of FLSA, employers outside the Tenth Circuit should be aware of the distinction in the event they wish to share in tips.