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No Tips for You

 On March 27, 2018, Congress’s $1.3 trillion, 2,232-page omnibus budget bill, the Consolidated Appropriations Act (CAA) of 2018, was signed into law.  Notably, on page 2,025, Congress amended the Fair Labor Standards Act (FLSA) by addressing rules affecting tipped employees and tip ownership and putting to rest a controversial proposed rule from the Trump Department of Labor (DOL) that would have allowed employers to take some or all of the tips earned by their employees.

 The custom of tipping did not gain momentum in the United States until after the Civil War, when employers wanted to save money by hiring newly freed slaves to work for tips alone.[1] Aside from a brief union-led movement that produced bans on tipping in several states — all of which were repealed by 1926 — U.S. labor laws have largely left tipped workers to fend for themselves.

Indeed, when Congress passed the FLSA in 1938, establishing a federal minimum wage and 40-hour workweek for employees, it did not address the issue of tipped workers. It was not until the 1966 amendments to the FLSA that Congress did speak to tipping, passing legislation that required tipped employees to earn at least 50% of the federal minimum wage. The 1966 amendments further allowed employers to count a worker’s tips toward the other 50% needed to ensure the receipt of a minimum wage. This is what is known as a “tip credit.” On days when workers do not make sufficient tips to earn the federal minimum wage, the employers are required (but do not always) pay the difference.

In 1996, the pro-restaurant lobbyist organization, National Restaurant Association dealt tipped workers a blow when it helped convince Congress to set the tipped minimum wage as $2.13 an hour, detaching it from the federal minimum. Since then, Congress has raised the federal minimum, but the tipped minimum remains stagnant at $2.13 per hour.

In 2011 the Obama DOL issued its tip-sharing regulations in response to litigation surrounding employer use of tips in instances where the employer paid wages at least equal to minimum wage (and, hence, did not take a tip credit). These regulations prohibited any mandatory tip sharing with anyone who was not a tipped-employee, including back-of-house employees and supervisors, managers and owners.

In late 2017, the Trump DOL published a notice that it intended to rescind the tip-pooling restriction contained in the 2011 regulations. According to the notice, employers that pay cash compensation to all of their employees equal to the full FLSA minimum wage would be considered the “owners” of all tips generated by their employees, giving them the right to do as they wish with the tips. Supporters of this proposed regulation argued that it would allow employers to equalize front-of-house and back-of-house wages, while opponents argued that customers would tip less if they believed the tip would not go to the server.

The proposal, with only a brief, 30-day comment period, elicited a mass response from restaurant workers and labor activists. More than 375,000 commenters voiced their opinion on the regulations, most of them servers, bartenders, restaurant owners and customers. For example, a server from Oregon wrote:

WHAT?????? Honestly????? I am a server/waitress!!! I work hard, I go the extra mile, I build a rapport with my customers!! I have customers who tell me I’m their “favorite” server. If this law/rule goes through, I will have NO incentive to be personable to my customers JUST so that my employer can make even MORE $$$$ Just so happens that my employers are millionaires (I know not all restaurant owners are). They own a private jet - seriously!! The restaurant where I work is not their only business ... They are good, honest, caring employers. But PLEASE explain to me why THEY need MY tips?????

Additionally, attorneys general from 16 states[2] and the District of Columbia expressed opposition to the proposal, and parties on both sides testified on Capitol Hill or joined demonstrations in front of DOL buildings around the country. The restaurant labor advocate group, Restaurant Opportunities Center United (ROC United), was also heavily involved in the resistance to the proposed regulation.

In response to the mass outrage, Senator Patty Murray, D-Wash., negotiated a deal to include a rider in the CAA to amend the FLSA to prohibit employers, managers or supervisors from taking gratuities earned by workers, regardless of whether an employer takes a tip credit. Language in the bill gives workers the right to sue to recover any stolen tips and an equal amount in liquidated damages and gives the Secretary of Labor the ability to impose civil penalties on employers of up to $1,100 per violation. However, because the amendment does not define the terms “managers” and “supervisors,” there is ambiguity as to whether employees with any supervisory authority are prohibited from sharing in tips, even if they are in a position that would normally do so.

Worker advocate organizations like ROC United were particularly happy with the outcome, as the law protects servers’ tips from management and owners. They also support tip-sharing with back-of-house employees as long as front-of-house employees are paid the federal minimum wage. Moreover, advocates hope that the new regulations will help combat wage disparity between white and nonwhite restaurant workers as nonwhite restaurant workers earn 56 percent less than their white colleagues. Additionally, proponents anticipate that the tip sharing provisions will help owners retain back-of-the-house employees and balance the income disparities between line cooks and dishwashers and servers and bartenders.

Additionally, the FLSA amendment from the 2018 CAA potentially paves the way for the DOL to expand upon regulations that define which employees may participate in tip sharing. In a Field Bulletin issued on April 6, 2018, the DOL clarified that the FLSA amendment nullifies Obama-era DOL regulations that prohibit tip sharing with non-tipped employees even when an employer did not take a tip credit. (29 C.F.R.§§ 531.52, 531.54 and 531.59), thus restoring federal law to what existed prior to the 2011 regulation. In other words, employers are permitted under federal law to share tips between tipped and non-tipped workers if the employer does not take a “tip credit” for any of its employees.

[1] Maddie Oatman, The Racist, Twisted History of Tipping, Mother Jones (May/June 2016)

[2] California, Illinois, Pennsylvania, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, and Washington

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