The Truth about DOL’s Tip Pooling Proposal

Tammy McCutchen

A storm is brewing against a regulation proposed by the U.S. Department of Labor that could result in higher earnings for dishwashers, line cooks and other “back of house” restaurant employees by making them eligible for a share of the tips that they helped generate.

Who could object? Oddly, it’s the “employee advocates” – but one wonders why they are advocating for front-of-the-house employees at the expense of back-of-the house workers.

The issue is DOL’s proposed regulations on tip pooling, which some are calling the “tip theft” regulations, and accusing DOL of “suppressing” a draft economic analysis, which cannot be more than speculation given the lack of available data.

It is time to debunk the myths about DOL’s proposal:

First, the proposal will have absolutely no impact on employees earning less than minimum wage under the FLSA “tip credit” provision, which allows employers to pay only $2.13 per hour and then use tips to make up the difference. This rule applies only to employees making at or above the minimum wage.

Second, neither the law nor fairness compels a conclusion that tips are “owned” by the waiter who served the table. Under the law, there are cases on both sides of the issue, and a cert petitionpending before the Supreme Court that could resolve it. More importantly, as a matter of fairness, why should the government force such a result? The answer to that question is another:Why do we leave tips at a restaurant? Yes, good table service is a factor, but so is the cleanliness of the restaurant and the quality of the food. The owner of the restaurant and every employee working there contributes to a tip-worthy dining experience. The nicer the restaurant, the better the food, the higher the price of that bottle of wine recommended by the sommelier – the higher the tip. Is it fair that the server alone should keep the entire tip? A line cook might call that unjust enrichment.

Third, employers in tipped industries have no secret plan to steal all the tips. On an SBA Advocacy call in December about the DOL proposal, small businesses spoke with a single voice: supporting a rule that will allow tips to be shared with the back of the house.None stated that they would keep even some of the tips for themselves. Why would they? Would the best employees choose to work at a restaurant where they do not get to keep any of the tips?

Fourth, DOL is not hiding anything. They chose not to publish an economic analysis that can only be very flawed. This is not new or shocking. Federal agencies often go through multiple drafts of the required economic analysis before it is ready for publication. I remember hearing in 2015, for example, that OMB had sent DOL back to the drawing board on the economic analysis for the now-enjoined overtime regulations. No brouhaha then. No demands to see the drafts then. Although I have not seen the analysis, more likely than not, it is based on the invalid assumption that servers “own” 100 percent of their tips, and complete guesswork on what will happen to the tips if the regulation goes final. Even if I am wrong about that, any economic analysis on the impact of this rule is impossible without good data on how many employers would choose to continue their current tip-pooling practices versus keeping all tips or adopting new agreements to share the tips with back-of-the-house workers. If tips are shared with other employees, the “transfer” is not from employee to employer, but from front-of-house employees to back-of-house. In its proposal, DOL requested the public to submit data that would allow an economic analysis that is not just idle speculation.

To loosely paraphrase Secretary Acosta’s remarks at a recent Federalist Society speech, when deciding whether to regulate, federal agencies should not just consider a cost-benefit analysis, but also consider whether the regulations will increase or decrease liberty. Restrictions on tip pooling make sense when employers are using an FLSA exception that allows them to pay tipped employees only $2.13 per hour. But, there is no reason to restrict the freedom of employers and employees to reach agreement regarding distribution of tips when the employer is paying the full minimum wage in complete compliance with the FLSA. Liberty, by itself, is sufficient justification to form the basis for rescinding the Obama Administration’s 2011 regulations which eliminated this freedom.

Tammy McCutchen

Principal

Littler Mendelson P.C.


Labor & Employment

Get RTP content in your inbox!

Sign up now to stay up-to-date on all RTP content and events.

  • This field is for validation purposes and should be left unchanged.