- U.S. Labor Dept. (DOL) regulations limiting tip pools are invalid, the 10th U.S. Circuit Court of Appeals ruled June 30 (Marlow v. The New Food Guy, Inc., No. 16-1134).
- The rules prohibit employers from setting up arrangements that redistribute gratuities to nontipped employees such as dishwashers and janitors.
- The 10th Circuit’s ruling conflicts with at least one other federal appeals court, leaving the issue unresolved nationally.
DOL issued regulations in 2011 prohibiting businesses from maintaining tip pools that include nontipped employees. Employers, however, have spent the last few years fighting back, arguing that the Fair Labor Standards Act (FLSA) doesn’t empower DOL to impose such limits.
When it issued the regulations, DOL said that the change was necessary to close a loophole in wage and hour law. The FLSA allows employers to take a tip credit against the federal minimum wage (some states also allow this, but others specifically prohibit it). This means that, under limited circumstances, an employer can pay an employee as little as $2.13 per hour if tips bring his or her pay rate up to $7.25 per hour. A related provision allows employers to require that workers pool their tips. Tip pools must be “valid” (meaning they must meet specific DOL requirements) for employers to take a tip credit against those workers’ wages.
Some employers understood that to mean that if they didn’t take a tip credit and instead paid workers at least minimum wage and overtime, they could operate any tip pool they wanted, including one that redistributed tips to nontipped employees.
DOL’s 2011 regulations put an end to that practice, explicitly forbidding employers from including nontipped individuals in tip pools, regardless of whether they also took advantage of the tip credit. Businesses, however, have filed several lawsuits, asking courts to rule that the department overstepped its authority.
To date, at least the 4th and 10th Circuits have sided with employers. The 9th Circuit disagrees but the National Restaurant Association has asked the U.S. Supreme Court to review that case. DOL has not yet filed its response to that petition and has received four extensions to do so. Most recently, the High Court gave DOL until Sept. 8 to weigh in.