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National Restaurant Association sues to protect tip credit

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The litigation arm of the National Restaurant Association has sued the U.S. Department of Labor to overturn a requirement that restaurants forgo the tip credit when paying front-of-house employees who’ve spent more than 20% of their time on side work or other nontipped activities.

The suit alleges that the regulation was formulated through a change in the DOL’s internal handbook for enforcing wage and hour laws, and not through the usual rule-making process. It asks the U.S. District Court for the Western District of Texas to scuttle the stipulation, which “has spawned a nationwide wave of collective and class actions against the restaurant industry,” the association’s Law Center states in the filing. 

It contests the DOL’s views that servers and bartenders essentially fulfill two jobs: (1) waiting on customers, when they earn tips that can count toward the minimum wage to which they’re entitled, and (2) doing get-ready chores, such as rolling silverware in napkins or refilling salt shakers, for which they are not tipped directly. DOL’s perspective has been that restaurant employers can take a tip credit toward paying front-of-house staffers for the first job, but not the second.

The Law Center argues in part that the employees in question have just one job, and side work is a routine part of it. It contends that tips figure into the compensation for that whole job.

It asserts that the two-job interpretation was incorporated into the DOL’s handbook for regulators and enforcement agents as part of an edit, not as a rule change made in the usual fashion. Typically, a proposed adjustment is aired to the public, with an invitation for any interested party to provide income. That step was skipped completely in this instance, according to the Law Center.

The process was a violation of the Administrative Procedure Act, which governs such actions, the Law Center says. 

The lawsuit is the latest reflection of the struggle between government and restaurants over tipping. The industry maintains that many places would be forced to close if they couldn’t count gratuities toward the pay servers and bartenders are due. But lawmakers and enforcement agents have been sympathetic to labor’s argument that gratuities are a gift from guests and should not count toward a front-of-house staffer’s pay. They note that servers elsewhere in the world are paid a wage like virtually all other hourly workers, and that the custom of tipping is an anachronism stemming from the Reconstruction period that followed the Civil War.

Washington, D.C., where the Law Center is based, recently voted to disallow a tip credit for servers. The change will require full-service restaurants to directly pay tipped employees at least $15 an hour by 2026. 

New York is considering a discontinuation of the credit.

Seven states already prohibit employers from factoring tips into servers’ wages.  

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