The U.S. Department of Labor (DOL) published a notice of proposed rulemaking (NPRM) in the December 5, 2017 edition of the Federal Register, with a proposal to rescind its 2011 regulations on tip pooling. The NPRM appears to be, at least in part, a response to efforts by the hospitality industry – particularly the restaurant industry – to press for change to the strict rules on tip sharing.
Articles Discussing Wage And Hour Issues In Particular Industries.
There’s been plenty of press this week regarding the U.S. Department of Labor’s proposed rules governing employer treatment of tips. Commentators are debating whether the proposed changes are a sensible return to the four corners of the Fair Labor Standards Act or a cash-grab for the restaurant industry at the expense of workers. We’ll leave the economic and political analysis to others, but we do think that it’s important for employers to understand exactly what the proposal is, and is not.
Executive Summary: On December 5, 2017, the U.S. Department of Labor (DOL) published its Notice of Proposed Rulemaking (NPRM) to reverse the Obama Administration’s tip rule prohibiting the distribution of tips to anyone other than the tipped-employees who earned them (available here). The Obama-era rule has been lauded by employee-advocates as a needed protection from employer abuse, while criticized by employers for stifling their ability to share tips with other non-tipped employees. It has also created legal uncertainty throughout the country, and caused a split among federal courts. Although the DOL’s newly proposed rule will provide increased short-term certainty for employers, legal challenges on this issue are likely to continue.
The U.S. Department of Labor (DOL) has issued a proposed rule to rescind the Department’s position that employers must comply with tip-pooling requirements even when paying the full minimum wage. This proposal, if finalized, would allow employers that pay employees at least the full federal minimum wage to require employees to share tips with employees who are not otherwise customarily tipped, such as cooks, dishwashers, porters and maintenance staff. This rule would not affect employers that apply a tip credit towards employees’ wages.
In recent years, one significant issue that has plagued industries employing tipped employees is whether the employers must ensure that tipped employees retain all of their tips even if the company is not using the employee’s tips to satisfy part of the minimum wage pursuant to the FLSA’s “tip credit” provision, 29 U.S.C. § 203(m). The provisions of Section 203(m) of the FLSA require, among other things, that tipped employees paid a tip credit rate retain all of their tips except for permissible tip pools.
After effectively “punting” on the issue last year, the U.S. Supreme Court has again granted certiorari to resolve a circuit split regarding whether “service advisors” at automobile dealerships are exempt from receiving overtime under an exemption for “salesmen, partsmen, and mechanics” under the FLSA. Encino Motorcars, LLC v. Navarro, No. 16-1362 (U.S. Sep. 28, 2017).
On September 28, 2017, the U.S. Supreme Court agreed to hear a case in which the Court will be asked to decide whether the FLSA’s overtime exemption covering “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The case is Encino Motorcars v. Navarro, No. 16-1362.
When a customer leaves a tip for a server, who receives the full amount of the tip at the end of the day? According to a 2011 Department of Labor (DOL) regulation, the tip always belongs to the server, even if the employer pays the server minimum wage. However, a recent DOL announcement in late July has put this issue back on the table and may resolve a conflict between courts across the country as to tip practices within the hospitality industry. The 2011 regulation states that tips are the property of the employee regardless of whether the employer pays the employee minimum wage and claims a tip credit. Now, DOL is rescinding this regulation, which will allow employers more flexibility in their tip pooling practices.
On September 6, 2017, the Ninth Circuit Court of Appeals declined to accord deference to the U.S. Department of Labor’s (DOL) interpretation of its “dual jobs” regulation. The court reasoned that the interpretation, as articulated in the DOL’s Field Operations Handbook (FOH), was inconsistent with the dual jobs regulation and attempted to create a de facto new regulation. The appellate court rejected the FOH’s requirement that employers evaluate employee work on a duty-by-duty and minute-by-minute basis to determine whether an employer may take a tip credit for specific time worked. The court favored the DOL’s earlier guidance on the regulation, which instructed employers to look for a “clear dividing line” to distinguish between when an employee is engaged in a customarily tipped occupation versus a second and separate non-tipped occupation.
Finding it wholly inconsistent with the statute and the regulation it purports to interpret, the Ninth Circuit has held invalid the United States Department of Labor’s “80/20” tip credit rule, or “20% Rule,” which limits the availability of the tip credit when tipped employees spend more than 20% of their time performing allegedly non-tip generating duties.
Executive Summary: On September 6, in Marsh v. J. Alexander’s LLC, the Ninth Circuit Court of Appeals refused to give deference to the U.S. Department of Labor’s (“DOL”) tip-credit guidance under the Fair Labor Standards Act (“FLSA”). The guidance—commonly known as the “80/20 rule”—provides that employers may not take a “tip credit” for time spent performing duties “related” to tip-producing activities (e.g., cleaning tables or rolling silverware) if these duties constitute more than 20 percent of the tipped employee’s time in a given week. In holding that the 80/20 rule is inconsistent with the FLSA because it improperly analyzes an employee’s duties rather than the performance of distinct jobs, the Ninth Circuit created a circuit split on this issue, and potentially paved the way for a U.S. Supreme Court decision with national impact.
Quite a bit of effort goes into making an enjoyable restaurant experience, such as good food, prompt service and, of course, cleanliness. Want to reward the dishwashers for providing you with spotless silverware, expediters for bringing out your food while it is still hot or the chef for cooking the perfect meal by leaving a generous tip? Not so fast. Cooks, expediters and other back-of-the house employees historically have not been able to legally share in the tips that are pooled and distributed among the servers, hosts and others in the front of the house.
Today the Trump Administration, through the Office of Management and Budget’s Office of Information and Regulatory Affairs, released the federal government’s semi-annual Unified Agenda of Regulatory and Deregulatory Actions.
Executive Summary: On June 30, 2017, the U.S. Court of Appeals for the Tenth Circuit ruled in Marlow v. The New Food Guy, Inc. d/b/a Relish Catering (Relish) that neither the Fair Labor Standards Act (FLSA) nor a Department of Labor (DOL) regulation requires an employer to share customers’ tips with employees so long as the employees are paid more than minimum wage.
In 2011, the U.S. DOL published a regulation mandating that restaurants who count tips toward the minimum wage as permitted under the Fair Labor Standards Act have to notify employees that they are taking the credit. (See U.S. DOL Fact Sheet #15 for more information on the current requirement.) Last week, a federal district court in Pennsylvania ruled that a former bartender at Cadillac Ranch All American Bar & Grill could move forward with a hybrid state law / FLSA class/collective action, alleging that the restaurant chain violated the DOL’s notice regulation by failing to tell tipped workers that their wages would be calculated using the tip credit.