ORLA in the News with U.S. Department of Labor Final Rule on Tip Pooling
A final rule on tip pooling in the United States was recently released on December 22, 2020 and will go into effect across the country on February 20, 2021. The final rule further establishes the legality of overseeing and managing a tip pool that includes staff who do not customarily and regularly receive tips by directly interfacing with a customer. Managers and supervisors are still prohibited from participating in tip pools. The final rule does define further, explaining as follows:
“...the final rule defines a manager or supervisor for purposes of section 3(m)(2)(B) as any employee (1) whose primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise; (2) who customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and (3) who has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing are given particular weight. The definition also includes as managers or supervisors any individuals who own at least a bona fide 20 percent equity interest in the enterprise in which they are employed and who are actively engaged in its management.”
The one exception to this rule is “a manager or supervisor may keep tips that he or she receives directly from customers based on the service that he or she directly provides.”
In summary, the final rule simply codifies our collective win advocating for the importance of tip pools. Pages 11 and 12 of the Rule states:
“In 2016, a divided Ninth Circuit panel upheld the validity of the 2011 regulations. See Oregon Rest. & Lodging Ass’n (ORLA) v. Perez, 816 F.3d 1080, 1090 (9th Cir. 2016). Although the Ninth Circuit declined en banc review of the decision, ten judges dissented on the ground that the FLSA authorized the Department to address tip pooling and tip retention only when an employer takes a tip credit. The dissent noted that the Ninth Circuit itself had decided in Cumbie that the FLSA ‘clearly and unambiguously permits employers who forgo a tip credit to arrange their tip-pooling affairs however they see fit.’ … In its 2018 response to the petition for a writ of certiorari in the ORLA case, the government explained that the Department had reconsidered its defense of the 2011 regulations in light of the Ninth Circuit’s ten-judge dissent from denial of rehearing in ORLA and the Tenth Circuit’s decision in Marlow … the Department published in December 2017 an NPRM that proposed to rescind the challenged portions of the regulations.”
The actual regulation and a summary of the final rule can be found here: https://www.dol.gov/agencies/whd/flsa/tips.
Restaurant Employee Compensation Tools
With tip pooling being legal with back of the house employees, employers may have questions about what their options are. ORLA launched a Restaurant Compensation Solutions Workgroup to review tools being implemented in restaurant operations across the state, including mandatory service charges, tip pooling policies based on sales that assist in compensating kitchen staff, and dual tip lines notating tip options for both servers and kitchen staff.
Tip pooling policies should be carefully reviewed with counsel before implementation to ensure compliance with all applicable requirements. For more on this subject, click the links below.
Update: December 2019
A federal spending bill passed in 2018 abolished a 2011 regulation prohibiting tip pooling; managers can now require that servers share tips with kitchen staff in states where employers do not take a tip credit. This change allows tip sharing among both customarily and non-customarily tipped employees in Oregon, including dishwashers and cooks. Managers, supervisors, and owners cannot participate in the tip sharing. A proposed rule to implement the change has been released as of October 7, 2019; comments were due by December 9, 2019.
One thing this proposed rule seeks to address is that the words “supervisor” and “manager” were not defined in the 2018 spending bill. This is especially important to our industry since many have hybrid approaches to their service positions. Supervisors and managers in some of Oregon’s smallest restaurant operations commonly serve guests and have participated in front-of-the-house tip pools as a part of a team approach to foodservice.
Employers are to use the “duties test” to determine who qualifies as a supervisor or manager, and establish tip pool eligibility. Essentially, if an employee’s primary or regular duty is not management or supervising, they are still allowed to participate in a tip pool. For details on the standard of the “duties test,” read the U.S. Department of Labor (DOL) Field Assistance Bulletin.
Prior to this change, the decision to participate in a tip pool was left to employees. For more context on the issue, check out Tipping the Scales (Oregon Business, April 2018). The Bureau of Labor and Industries (BOLI) FAQ may answer any additional questions regarding tips at Oregon.gov/BOLI.
For additional questions, contact Greg Astley, Director of Government Affairs, at 503.682.4422.
This is for general informational purposes only. The information is not, and should not be relied upon or regarded as, legal advice. Please consult with your legal advisors.