UPDATE December 12, 2017: The Department of Labor today announced a 30-day extension to submit comments on the rule; you now have until February 5, 2018 to submit comments. On December 4, DOL announced a Notice of Proposed Rulemaking (NPRM) regarding the tip regulations under the Fair Labor Standards Act (FLSA). Under the proposed rule, tip pooling would be permitted in businesses that do not take a tip credit, or regard servers’ tips as a portion of their income. This reversal of the 2011 prohibition would help decrease wage disparities between front-of-house and back-of- house employees. After the public comment period has closed, the department will issue final rules, reflecting the input it receives.
October 25, 2017: DOL has submitted a proposal to roll back an Obama-era rule restricting the use of tip pools to the White House’s Office of Management and Budget for review, however, the rule making notice does not provide detail on the proposal.
August 2, 2017: The National Restaurant Association filed a supplemental brief reinforcing the Tenth Circuit Court’s decision invalidating barring employers from including non-tipped workers in tip pools. The Tenth Circuit’s ruling explicitly rebuked the earlier decision out of the Ninth Circuit, with the Tenth Circuit panel saying that the US Department of Labor exceeded its authority by issuing the rule and that restaurants didn’t owe workers tips that never belonged to them. The NRA and the other groups said the Tenth Circuit’s ruling “conflicts directly” with the Ninth Circuit decision at issue and underscores the need for the US Supreme Court to intervene, review and issue a final ruling. Our hope is that the Supreme Court will still hear the case in order to prevent any future administration from reissuing such a rule and to address concerns regarding retroactive liability for our members from private lawsuits for the period the rule was purportedly in place.
On July 20, 2017 it was announced that the U.S. Department of Labor intended to issue a Notice of Proposed Rulemaking in August to rescind the current restrictions on tip pooling by employers. "The announcement this week by the DOL is an absolute game changer," said Jason Brandt, President & CEO of ORLA. “This is a welcome relief to Oregon employers in the hospitality industry who have been handcuffed by a 2016 appellate court decision barring them from utilizing tip pools.”
On June 30, 2017 the U.S. Court of Appeals for the Tenth Circuit ruled tips belong to the employer, who can presumably either keep them or distribute them in whole or part to employees as it sees fit. This directly conflicts with the Ninth Circuit’s decision last year in Oregon Restaurant and Lodging Ass’n v. Perez, (9th Cir. 2016), pet for cert. filed, (Jan. 19, 2017) and likely sets up a showdown this fall in the U.S. Supreme Court.
On January 19, 2017, the NRA's Restaurant Law Center filed a Cert Petition asking the U.S. Supreme Court to hear a case, National Restaurant Association, et al. v. U.S. Department of Labor, brought by the National Restaurant Association (NRA), the Oregon Restaurant & Lodging Association (ORLA), the Alaska Cabaret, Hotel, Restaurant and Retailers Association, and the Washington Hospitality Association. The case challenges the Department of Labor’s anti tip pooling stance that prevents cooks and dishwashers from receiving tips.
Bottom line, continued caution with respect to tip pooling policies is advised until a final ruling is decided. Read more from Fisher Phillips.
Tip Pooling Options to Consider (download pdf):
Tipped employees are those who customarily and regularly receive more than $30 per month in tips. Tips are the property of the employee; only tips actually received by the employee may be counted in determining whether the employee is a tipped employee. The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips. Learn more in the Fair Labor Standards Act (FLSA).
Given the current uncertainty regarding a final decision from the Court on tip pooling in Oregon, ORLA recommends consideration of the following options.
1. Eliminate tip pooling with BOH employees immediately.
By immediately reverting to tip pools that only include “customarily and regularly tipped employees” restaurateurs are choosing to avoid any additional liability that could be brought forward by a private lawsuit.
UPSIDE: Protecting yourself from any private claims instigated by employees against your restaurant who feel their tips are now being pooled unlawfully. Only you can determine the real risk being avoided here.
DOWNSIDE: If the case is heard by the Supreme Court and ruled in our favor, tip pooling with BOH employees would remain legal. If that happens and you have already changed your policy to eliminate BOH tip pooling, then it may be more difficult to change the policy yet again to the original policy you had in place before the most recent ruling.
2. Keep tip pooling in place with BOH employees until ORLA hears from the U.S. Supreme Court.
Because the Ninth Circuit Court denied our rehearing and a motion for a stay was granted, you have until at least December 5 to comply with the Department of Labor rules regarding tip pooling. Our stay remains in effect until we hear from the Supreme Court. This means you have until the mandate is lifted to fully comply with the rules and eliminate BOH involvement.
UPSIDE: You have time to inform, educate and put into practice a new tip pooling system that does not include BOH employees.
DOWNSIDE: A private claim could be instigated by employees against your restaurant who feel their tips are now being pooled unlawfully. Only you can determine the extent of that risk.
3. Eliminate tips altogether.
UPSIDE: Tipping continues to invite litigation in the court system. Replacing tipping with service charges and/or menu price increases and moving to more standardized wages across the entire restaurant operation provides a compensation model less likely to draw challenges from lawyers or organized labor.
ORLA members, download our Service Charge Implementation Guide in the Resource Library.
DOWNSIDE: Oregonians are accustomed to tipping and may be displeased with mandatory service charges. In addition, front-of-the-house workers could feel demoralized and frustrated by this different approach that results in less pay overall.
4. Consider alternative ways to share tips.
Examples include adding a kitchen gratuity line to checks or using a tip jar (if the jar stipulates that the tips are for all employees - or shared amongst all employees).
UPSIDE: Restaurateurs can give their customers a choice about whether the tip that they provide goes only to the server, or if they want the tip (or a portion of) to go to the kitchen staff.
DOWNSIDE: Customers are not accustomed to seeing more than one tip line on a check and may feel obligated to add more than they are comfortable with.
Q: What if my servers decide they want to voluntarily tip-out to the BOH employees? Is that allowed?
A: Yes, voluntary tipping-out is allowed. To protect your restaurant however, ORLA recommends servers be asked to provide management with a signed note or letter created by the server stating they are voluntarily tipping out to BOH employees. As a side note, voluntary tip pools are frequently under scrutiny and challenged as not being truly voluntary. A signed document alone will not ensure that someone cannot still challenge that type of tip-out as involuntary.
For additional questions, contact Greg Astley, Director of Government Affairs, at 503.682.4422.
July 20, 2017 - DOL intends to issue a Notice of Proposed Rulemaking to rescind the current restrictions on tip pooling by employers. SCOTUS granted DOL an extension through September 8, 2017.
May 3, 2017 - SCOTUS issued an Order, further extending DOL's timeline through July 10, 2017.
Mar. 2017 - SCOTUS granted DOL an extension through May 11, 2017.
Jan. 2017 - We submitted a petition for rehearing to the U.S. Supreme Court.
Sept. 2016 - The 9th Circuit denied our petition for a rehearing, however, 10 judges issued a blistering dissent.
Feb. 2016 - The 9th Circuit reversed their position and ruled in favor of the DOL, ignoring their own precedent in the Woody Woo case.
2013 - We won again in federal district court.
2010 - We won a decisive victory on this issue in Cumbie v. Woody Woo Inc., before the 9th Circuit Court of Appeals.