Everyone Into the (Tip) Pool!

By SHLC on April 24, 2018 in Uncategorized
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Everyone Into the (Tip) Pool!
Congress recently rolled back a 2011 U.S. Department of Labor (“DOL”) regulation that restricted the scope of employer-required tip pools. The 2011 regulation limited tip pools to employees who “customarily and regularly receive tips” for the work they perform. Under the regulation, waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders could participate in a tip pool, but employees who do not customarily and regularly receive tips, such as dishwashers, cooks, chefs, and janitors could not. This tended to exclude “back of the house” employees from tip pool participation. Recently, the DOL sought to roll back the 2011 regulation so back of the house employees could once again be included in tip pools. The new regulation had not been finalized when Congress stepped in.
In general, tip pooling is permitted under the federal Fair Labor Standards Act (“FLSA”) and both California and Nevada state law. Although taking a tip credit (to pay tipped employees below the minimum wage) is allowed under the FLSA, tip credits are not allowed in California or Nevada. The 2010 decision Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010) from the Ninth Circuit Court of Appeals, which covers both California and Nevada, held that the FLSA permits tip pools that include both front of the house and back of the house employees when no tip credit is taken. The now-defunct 2011 regulation changed this, but with Congress’ move, the pre-2011 landscape is back in effect.
So, which employees can be required to participate in a tip pool? The rules differ between California and Nevada, but there are some similar aspects. The California Court of Appeal decision in Etheridge v. Reins International California, Inc., 172 Cal.App.4th 908 (2nd Dist. 2009) and the Nevada Supreme Court decision in Wynn Las Vegas, LLC v. Baldonado, 129 Nev. 734 (2013) both declare that each state’s law prohibits an employer from taking and keeping his or her employees’ tips, meaning sharing employees’ tips with management and other supervisory employees is not permitted.
In California, tip pooling is permitted for employees “in the chain of service” in the restaurant industry. Case law describes “chain of service” employees as not only employees performing “direct table service” (servers, bussers, etc.) but anyone who contributes to a patron’s service. Reins International approved a tip pooling plan that included kitchen staff, bartenders, and dishwashers. Under this rule, some back of the house employees may share in tips collected by front of the house employees. There are no hard and fast contribution percentages or proportions that must be imposed on a tip pool, so long as the tips are divided reasonably. Courts acknowledge industry custom as a factor in what is considered reasonable for contributions to a tip pool.
Nevada law does not expressly prohibit tip pooling with back of the house employees, but it does not expressly permit it either. Wynn Las Vegas approved a program where tips are gathered and divided among the dealers, boxpersons, and casino service team leads. Wynn Las Vegas also supported a prior case that approved tip pooling among dealers, boxpersons, casino cashiers, and floormen. The case does not directly address tip pooling with back of the house employees. The Nevada Labor Commissioner has taken a generally favorable view of tip pooling, but has not specifically addressed which employees may participate, other than management employees who are expressly excluded from tip pools. However, due to the recent changes in federal law, including back of the house employees in a tip pool arrangement is once again permitted by the FLSA.
Congress’ action to repeal the 2011 regulation means that state law in California and Nevada will set the limits of tip pooling programs. Employers – in the restaurant industry and beyond – are encouraged to consult with legal counsel to ensure tip pooling programs comply with the laws of the states in which they operate. Keep in mind this is a changing area of the law, and always involves some ambiguities for employers, so all employers with tipped employees should remain current on this topic.
Tip pools and other wage and hour legal topics will be addressed at two SHLC webinars on wage and hour law later this year. For employers with workers in California, the webinar will take place on September 19, 2018. For employers with workers in Nevada, the webinar will take place on September 20, 2018. For more information or to register, call any SHLC office or register online at www.suttonhague.com/events.