FLSA Tip Regulations Facing Repeal By DOL

Kollman & Saucier
Kollman & Saucier

Prior to and during my college years, I supported myself by working as a server in restaurants.  It was fast-paced, hard work with very long hours most of the time.  Dealing with hungry and demanding diners also had its mentally exhausting moments.  My restaurant job history is near and dear to my heart.  So when I learned about the Department of Justice’s proposal to remove Obama-era regulations prohibiting certain employers from requiring certain employees to share their tips, I decided to dive in a bit.

As most readers are probably aware, the FLSA requires a minimum wage be paid to all employees.  29 U.S.C. 206(a)(1).  Under section 3(m), employers may pay a lower wage to tipped employees and put a portion of the employees’ tips against the minimum wage requirement to make up the difference.  29 U.S.C. 203(m).  In other words, the employer can use some of the money an employee earns in tips (in certain instances) to meet its minimum wage requirements.  This is known as the tip credit and is, for example, why restaurant servers commonly earn an hourly wage below the general minimum wage.  (In my own tenure as a server, my hourly wage was roughly $2.38 per hour).

The tip credit provision imposes certain conditions on employers who want to take advantage of the tip credit.  In 2011, the Department of Labor (DOL) (then under President Obama) issued a regulation recognizing its “longstanding” position that tips are the property of the employee who earns them, regardless of whether that person’s employer takes the tip credit.  The regulation explicitly prohibits employers from using an employee’s tips for any reason other than (1) to take the tip credit against its minimum wage obligations or (2) in furtherance of a valid tip pool.  29 C.F.R. § 531.52.

Not surprisingly, this rule is now under attack by the current DOL under President Trump.  On December 4, 2017, the DOL released a Notice of Proposed Rulemaking (NPRM) to remove portions of the regulations that restrict employers who pay the full federal minimum wage and do not claim a tip credit.  The DOL identified several issues with the regulations, including:

  • Wage disparities exist between tipped and non-tipped workers (such as cooks and dishwashers);
  • These “back of the house” employees contribute to customers’ overall experience but may receive less compensation than tipped coworkers;
  • Since 2011, a “significant amount” of litigation has arisen (1) involving tip-pooling establishments that pay the federal minimum wage and do not take the tip credit and (2) challenging the department’s ability to promulgate the regulation in the first place; and
  • Fewer employers are able to take the tip credit because of several states that have passed laws requiring tipped employees to be paid at least the federal minimum wage.

On December 5, the Notice was published in the Federal Register for public comment.  On December 15, the comment period was extended to February 5, 2018.  The issue is also currently under consideration by the Supreme Court.

Critics of the rollback assert that removing the regulations will permit employers to pocket the tips that employees earn, cause more unfairness in pay to a large population of restaurant workers, and negatively affect women in particular.  Whether these anticipated consequences will be realized remains to be seen.

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