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How a game-changing ruling impacts tip pooling

tip jar

Question:

I read your article with great interest as a restaurant owner in California. Have you read the US court of appeals 9th district February 23, 2016 ruling? It discusses specifically tip pooling with BOH. Can you help me understand?

– Elliot, Restaurant Owner, California

Answer:

To give you a sense of how dynamic the situation is, between filing “Advice Guy” last Tuesday and the Restaurant Business Daily newsletter on Thursday, the US Ninth Circuit Court of Appeals issued a game-changing opinion reversing a 2010 decision that employers who do not take a tip credit (meaning by law or by choice, all employees receive full minimum wage or higher) can include back-of-house employees in the tip pool in the states covered by the Ninth Circuit. Those states are Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.

From the Washington Restaurant Association: “In an unexpected decision, the U.S. Court of Appeals for the Ninth Circuit, on Tuesday, February 23, ruled that the Department of Labor has the authority to regulate the tip-pooling practices of employers who do not take a tip credit, including prohibiting these employers from instituting tip pooling programs that include back-of-the-house staff, management, and other workers who are not customarily tipped.”

The key question was whether employers who do not take the tip credit are still subject to the guidance of the federal Fair Labor Standard Act, which specifies, “The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. A valid tip pool may not include employees who do not customarily and regularly receive tips, such as dishwashers, cooks, chefs, and janitors” (emphasis mine). The opinion is subject to further debate so restaurants do not necessarily have a clear and easy path for compliance.

The cases and opinions are complicated (I encourage operators to read the full decision) and still have potential for further revision or appeal, so here’s where we are for now, in broad strokes:

  • Affected restaurants should not include BOH employees or other ineligible employees in tip pools.
  • Restaurants currently including BOH employees or other ineligible employees in tip pools should consult with their counsel and restaurant association to plan and make appropriate changes as necessary.
  • Other operators—whether or not your state allows the tip credit—would be best served by sticking to the federal Fair Labor Standard Act guidelines for tip pooling.

As always, local regulations vary and the rules change so always consult with your attorney and restaurant association. More on this week’s developments in tipping here.

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