Representatives of the restaurant industry have filed suit in federal court in an attempt to stop the Labor Department from enforcing its tip pooling regulations, arguing that the regulations were issued improperly and conflict with an appellate court decision.
The complaint was filed by: the Oregon Restaurant and Lodging Association; the Washington Restaurant Association; the Alaska Cabaret, Hotel, Restaurant and Retailers Association; the National Restaurant Association; the Davis Street Tavern; and waitress Susan Ponton. “To ensure basic fairness among restaurant workers, including among kitchen staff who often receive substantially less in total earnings than front-of-the-house workers such as servers or bartenders, plaintiffs are asking the federal court in Portland to declare that DOL's 2011 regulations are invalid and contrary to law, that the Ninth Circuit's interpretation of the FLSA is the correct interpretation, and that back-of-the-house employees may participate in tip pools when all employees receive at least minimum wage,” attorney Paul DeCamp of Reston, Va., told BNA July 17. DOL did not respond to BNA's messages seeking a comment on the lawsuit.
Tip-Pooling Not Restricted
Tip-pooling is the practice by which restaurant employees share their tips. The tip credit allows an employer to pay tipped employees a wage less than the minimum wage as long as the combination of that amount and the employee's tips equals the minimum wage.
In Woody Woo,, the Ninth Circuit held that an Oregon restaurant did not violate the FLSA by requiring its food servers to pool and share their tips with kitchen employees who are not customarily tipped by customers because it paid all its employees the statutory minimum wage in addition to their share of the pooled tips. The court concluded that the FLSA does not restrict tip pooling when the employer does not take a tip credit (36 DLR A-7, 2/25/10).
Oregon, Washington state, California, Montana, Idaho, Nevada, Arizona, and Alaska are in the Ninth Circuit.
In 2011, DOL issued a final rule updating FLSA regulations (64 DLR A-14, 4/4/11). In the final rule, DOL noted its disagreement with Woody Woo and declared that tips are the employee's property regardless of whether the employer has taken a tip credit, the plaintiffs said. The National Restaurant Association asked DOL to reconsider this position and to clarify that employers in the Ninth Circuit may implement tip pools if they pay their employees the full minimum wage and do not take a tip credit, but DOL nonetheless confirmed its intent to enforce the 2011 regulations.
According to the complaint, Ponton, a server at Davis Street Tavern in Portland, Ore. that has a mandatory tip-pooling arrangement, asked the tavern to include the back-of-house employees in the mandatory tip pool. She pointed out that the front-of-house employees “made approximately twice as much per hour as the back-of-house employees” and the back-of-house employees' performance “also directly impacts customer service, and, as a result, customer tips.” Since the restaurant included back-of-house employees in the tip pool, their earnings have increased an average of $1.25 per hour, and customer service and employee morale have improved, the complaint said.
The 2011 regulations amended 20 C.F.R. Sections 531.52, 531.54, and 521.59. The new regulations explicitly state that “tips are the property of the employee whether or not the employer has taken a tip credit” and that valid tip pools may include only those employees who customarily and regularly receive tips.
Back-of-House Employees Not in Pool
“An underlying issue” is DOL's position that a tip pool may include only “front-of-house” employees, such as servers, hosts, bartenders, and bussers, and that “back-of-house” employees, such as cooks and dishwashers, may not participate in a tip pool, the complaint said. The plaintiffs maintained that the 2011 regulations distinguish between the two types of employees even though “under Woody Woo, this distinction should not apply when an employer pays its employees at least full minimum wage and does not take a tip credit.” The plaintiffs contended that restaurants would incur significant costs by changing their current tip pooling policies. They argued that DOL's authority under the FLSA is limited to enforcement and does not extend to interpreting the tip credit provision of 29 U.S.C. Section 203(m).
They also asserted that DOL's 2008 notice of proposed rulemaking did not “put the public on notice that DOL was going to declare an absolute property right in tips” but instead put the public on notice only that DOL “intended to update the relevant regulations to clarify that employers could not use employees' tips to pay an employee's minimum wage in excess of the federal tip credit limit.”
According to the complaint, “This is far different from asserting an absolute property right in tips, or from stating that federal tip pool laws apply even when an employer pays its employees full minimum wage and does not take a tip credit.” It stated that “DOL therefore was required to provide new notice to the public of its intent to rule on these issues, to give the public the opportunity to meaningfully comment on them.”
In addition, the plaintiffs alleged that the 2011 regulations are arbitrary, capricious, and an abuse of DOL's discretion. They said the rulemaking did not merely update the regulations to reflect current law but in fact was completely “at odds with the law in effect at that time (and still in effect), as set forth by the Woody Woo decision.”
They also charged that DOL failed to take into account the rulemaking's effect on restaurants' compliance costs and its negative impact on restaurants that are small businesses. “These costs include lower morale and turnover by individuals removed from the tip pool [and] having to increase the wages of the employees who are taken out of the tip pool,” the complaint explained.