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Tip pooling gets an OK from DOL

Restaurants would be permitted to pool servers’ tips and share the money with back-of-house employees under new rules proposed today by the U.S. Department of Labor.

The suggested change would reverse the DOL’s decision in 2011 to prohibit restaurants from forming and running tip pools, where gratuities are combined and then reallocated to all staffers instead of being pocketed immediately by servers. The department said at the time that tipping was an interaction between guests and servers and that employers had no right to interfere by forming restaurantwide pools. Waiters and waitresses were free to share their gratuities with kitchen workers, bartenders or hosts, or “tip out,” but at their discretion.  

In many states, tip pooling remained legal, but the funds could only be split among employees who were customarily tipped—essentially the servers. The money could not be shared under federal law with dishwashers, busboys or other nontipped co-workers. 

In some tip-out situations, employers insisted the practice was voluntarily undertaken. Lawsuits brought by a number of waiters and waitresses contended the convention was required, a de facto tip pooling arrangement.

Other suits accused employers of dipping into the pools for their own gain.

The DOL itself was also repeatedly sued, with plaintiffs contending that the agency did not have the right to set the 2011 regulations for tip pooling.

Meanwhile, a compensation disparity between tipped employees and nontipped kitchen workers continued to grow, making recruitment for back-of-house positions a steep challenge. The difficulty of finding kitchen hires willing to work for entry-level pay led some restaurants to drop tipping, add a service charge and pay everyone a wage based on the contribution to sales.

Under the DOL’s proposal, tip pooling would be permitted in restaurants that do not take a tip credit, or regard servers’ tips as a portion of their income.

In keeping with federal rule-making processes, the DOL’s proposed rule change will be subject to public comments for 30 days. The department then will issue final rules, reflecting the input it receives.

“We applaud the Department of Labor’s review of tip regulations," Angelo Amador, executive director of the Restaurant Law Center, said in a statement. The Center was formed to protect and preserve the restaurant industry's interests through the courts system.

"We look forward to submitting comments from the restaurant industry on the new rule making," he said.

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