Congress Addresses Who Can Share Tips

March 30, 2018 - Denny P. Major

The 2018 federal appropriations bill signed into law on March 23rd includes an addition to the Fair Labor Standards Act (FLSA) stating that “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”

The amendment also nullifies certain regulations issued by the Department of Labor in 2011, including regulations which prohibited an employer from using an employee’s tips as part of an invalid tip pool even where the employer was paying the employees the full minimum wage without utilizing a tip credit.

It appears the effect of nullifying the 2011 regulations is to allow non-tipped employees to share in an otherwise valid tip pool if the employer is paying full minimum wage without using the tip credit to satisfy that obligation. If the employer utilizes the tip credit to satisfy minimum wage, then only employees “who customarily and regularly receive tips” can participate in a tip pool. The law has not changed in that respect. However, under the new law, the employer, including managers and supervisors, cannot keep any portion of an employee’s tips regardless of whether the employer is utilizing the tip credit. The terms “managers” and “supervisors” are undefined in the statute, leaving new questions. Of course, the Department of Labor likely will issue regulations regarding the meaning of these terms.

Finally, the new amendment adds new penalties for employers who keep tips. Specifically an employer is subject to a civil penalty of up to $1,100 per violation. It also will be liable in the amount of any tips taken from the employee, any tip credit taken by the employer, and is subject to pay double this amount in liquidated damages.

The historical context of this amendment is worth noting. Pursuant to the FLSA tip credit provision, employers can apply up to $5.12 per hour in tips toward satisfying the FLSA’s minimum wage requirement for tipped employees, but to take advantage of this provision, the FLSA requires that employees be allowed to keep all tips. However, that requirement does not apply to prohibit the pooling of tips “among employees who customarily and regularly receive tips.” In Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010), the Ninth Circuit Court of Appeals decided that an employer could redistribute the tips to any and all employees because it was paying its employees full minimum wage without using the tip credit. The Court reasoned that the tip pooling provision was tied to the tip credit, so if no tip credit was taken, the provision regarding who could share in the tip pool did not apply. In response to that opinion, the Department of Labor issued the 2011 regulations noted above. The validity of the 2011 regulations has been challenged in the courts, and different courts have reached different decisions as to whether those regulations are valid. The new amendment appears to settle that issue by nullifying those regulations.

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