On Friday, Congress passed and President
Trumped signed a $1.3T omnibus budget bill. To reach this compromise, a number of
substantive legal provisions were enacted, including a resolution of the
tip-credit debate that has been raging since at least when I began practicing
law. This debate involves whether
employees who receive tips (but are paid at least minimum wage and overtime
without the benefit of a tip credit) must share (or “pool”) their tips with back-of-the-house employees (like
hostesses, dish washers, bus boys, cooks, hair-washers, etc.) and whether those
back-of-the-house employees may include supervisors (who can be required to
work 80 hours per week without overtime and receive little more than $23K per
year in annual salary) and managers. The
Obama DOL had issued regulations in 2011 answering both questions in the
negative, but those regulations were challenged in litigation that is currently
pending before the Supreme Court (for arguably being inconsistent with the
FLSA), were suspended in July 2017 for 18 months by the Trump Administration
and were the subject of new APA rulemaking announced in December 2017 to formally
rescind and replace them. Some states
responded by eliminating the tip credit altogether. The new
amendments to the Fair Labor Standards Act in Title
XII of the Omnibus Bill clarify that employers may never require employees
to share tips with managers and supervisors and create explicit new penalties
to enforce this. The former Obama Era
regulations are also formally repealed (to the extent that they regulate tip
pooling). While the Trump DOL has
announced that this will permit sharing of tips with the remaining
back-of-the-house employees, the statutory language may create an argument for
wait staff who object to sharing any of their tips with any other employees. Of course, most restaurant employees likely
work for “fast food” restaurants these days and never get tips, so this statute
really only affects hotel, resort, and sit-down restaurant and diner employees
and other tipped employees, like hair dressers.
(2) (ii) an additional
amount on account of the tips received by such employee which amount is equal
to the difference between the wage
specified in paragraph (1) clause (i) and the wage
in effect under section 206(a)(1) of this title. The
additional amount on account of tips may not exceed the value of the tips
actually received by an employee. The preceding 2 sentences shall not apply
with respect to any tipped employee unless such employee has been informed
by the employer of the provisions of this subsection, and all tips received by
such employee have been retained by the employee, except that this subsection
shall not be construed to prohibit the pooling of tips among employees who
customarily and regularly receive tips.
The DOL has lauded this
compromise as permitting back-of-the-house employees (“cooks, bussers,
dishwashers”) to share in tips in certain circumstances (i.e., when the
employer is not relying on the tip credit to satisfy its minimum wage
obligations), while excluding employers from keeping any portion of the tip for
itself. Let’s face it, the amount of the tips often
reflects more than the quality of the wait staff’s service; it also reflects
the cost and quality of the food and ambient surroundings (i.e., cleanliness
and décor).
Nonetheless, the language of
the amendment is less than clear about resolving this issue. While it seems clear that rescinding the
Obama era rule forbidding all tip pooling means that tip pooling is permissible
in certain circumstances, the language in the statue provides:
An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to
keep any portion of employees’ tips, regardless of whether or not the employer
takes a tip credit. (italics added for emphasis).
By prohibiting “keeping” of tips for “any” purpose, “including”
but not limited to distributing to managers and supervisors, this will likely
lead to litigation about whether requiring the sharing of tips with cooks and
other back-of-the-house employees is “keeping” of tips and is prohibiting as an
“any” purpose that is clearly not limited to just sharing with supervisors and
managers. I do not think that this is
what was intended, but decades of litigation about whether tip pooling is legal
was based on less than this. To further
confuse the matter, the repeal language only repeals those tip-pooling regulations
that are not addressed by this new amendment (because the clearly inconsistent
language has just been superseded by statute) and leaves it to the DOL to fill
in the rest because those 2011 regulations “shall have no further force or
effect until any future action taken by the Administrator of the Wage and Hour
Division of the Department of Labor.” As
I mentioned earlier, this debate has been waging for decades, so it seems that
this may just be kicking the can a little farther down the road. But, maybe I am just being a little too
cynical . . . How many employers are going to risk getting
sued to find out?
I am including a edited version of the amendments as well as the
actual language of the Omnibus bill. These are how the amendments will look
(without the strike-outs, red letters or bolding) in Chapter 29 of the
U.S. Code:
§203 (m) (1)“Wage”
paid to any employee includes the reasonable cost, as determined by the
Administrator, to the employer of furnishing such employee with board, lodging, or
other facilities, if such board, lodging or other facilities are customarily
furnished by such employer to his employees: Provided, That the cost of
board, lodging, or other facilities shall not be included as a part of the
wage paid to any employee to the extent it is excluded therefrom
under the terms of a bona fide collective-bargaining agreement applicable to
the particular employee: Provided further, That the Secretary is authorized to determine the fair value of such
board, lodging, or other facilities for defined classes of employees and in
defined areas, based on average cost to the employer or to groups of employers
similarly situated, or average value to groups of employees, or other
appropriate measures of fair value. Such evaluations, where applicable and
pertinent, shall be used in lieu of actual measure of cost in determining the
wage paid to any employee.
(2)(A) In
determining the wage an employer is required to pay a tipped employee, the amount paid such employee
by the employee’s employer shall be an amount equal to— (1)
(i) the cash wage
paid such employee which for purposes of such determination shall be not less
than the cash wage
required to be paid such an employee on August
20, 1996; and
(B)
An employer may not keep tips received by its employees for any purposes,
including allowing managers or supervisors to keep any portion of employees’
tips, regardless of whether or not the employer takes a tip credit.
Any employer who violates the provisions of section 206 or section 207 of
this title shall be liable to the employee or employees affected in
the amount of their unpaid minimum wages, or their unpaid overtime
compensation, as the case may be, and in an additional equal amount as
liquidated damages. Any
employer who violates section 3(m)(2)(B) shall be liable to the employee or
employees affected in the amount of the sum of any tip credit taken by the
employer and all such tips unlawfully kept by the employer, and in an additional
equal amount as liquidated damages. Any employer who violates the provisions of section 215(a)(3) of this title shall be
liable for such legal or equitable relief as may be appropriate to effectuate
the purposes of section 215(a)(3) of this title, including
without limitation employment, reinstatement, promotion, and the payment of
wages lost and an additional equal amount as liquidated damages. An action to
recover the liability prescribed in either of the preceding sentences
may be maintained against any employer (including a public agency) in any
Federal or State court of competent jurisdiction by any one or more employees
for and in behalf of himself or themselves and other employees similarly
situated. No employee shall be a party plaintiff to any such action unless he
gives his consent in writing to become such a party and such consent is filed
in the court in which such action is brought. The court in such action shall,
in addition to any judgment awarded to the plaintiff or plaintiffs, allow a
reasonable attorney’s fee to be paid by the defendant, and costs of the action.
The right provided by this subsection to bring an action by or on behalf of any
employee, and the right of any employee to become a party plaintiff to any such
action, shall terminate upon the filing of a complaint by the Secretary of
Labor in an action under section 217 of this title in which (1)
restraint is sought of any further delay in the payment of unpaid minimum
wages, or the amount of unpaid overtime compensation, as the case may be, owing
to such employee under section 206 or section 207 of
this title by an employer liable therefor under the provisions of
this subsection or (2) legal or equitable relief is sought as a result of
alleged violations of section 215(a)(3) of this title.
§216 (c) Payment of wages and compensation; waiver of claims; actions
by the Secretary; limitation of actions
The Secretary
is authorized to supervise the payment of the unpaid minimum wages or the
unpaid overtime compensation owing to any employee or employees under section
206 or section 207 of this title,
and the agreement of any employee to accept such payment shall upon payment in
full constitute a waiver by such employee of any right he may have under
subsection (b) of this section to such unpaid minimum wages or unpaid overtime
compensation and an additional equal amount as liquidated damages. The
Secretary may bring an action in any court of competent jurisdiction to recover
the amount of unpaid minimum wages or overtime compensation and an equal amount
as liquidated damages. The right provided by subsection (b) to bring an action
by or on behalf of any employee to recover the liability specified in the first
sentence of such subsection and of any employee to become a party plaintiff to
any such action shall terminate upon the filing of a complaint by the Secretary
in an action under this subsection in which a recovery is sought of unpaid
minimum wages or unpaid overtime compensation under sections 206 and 207 of this title or liquidated or other damages
provided by this subsection owing to such employee by an employer liable under
the provisions of subsection (b), unless such action is dismissed without
prejudice on motion of the Secretary. Any sums thus recovered by the Secretary
of Labor on behalf of an employee pursuant to this subsection shall be held in
a special deposit account and shall be paid, on order of the Secretary of
Labor, directly to the employee or employees affected. Any such sums not paid
to an employee because of inability to do so within a period of three years
shall be covered into the Treasury of the United States as miscellaneous
receipts. In determining when an action is commenced by the Secretary of Labor
under this subsection for the purposes of the statutes of limitations provided
in section 6(a) of the Portal-to-Portal Act of 1947 [29 U.S.C. 255(a)], it shall be
considered to be commenced in the case of any individual claimant on the date
when the complaint is filed if he is specifically named as a party plaintiff in
the complaint, or if his name did not so appear, on the subsequent date on
which his name is added as a party plaintiff in such action. The authority and requirements described
in this subsection shall apply with respect to a violation of section
3(m)(2)(B), as appropriate, and the employer shall be liable for the amount of the
sum of any tip credit taken by the employer and all such tips unlawfully kept
by the employer, and an additional equal amount as liquidated damages.
§216 (e) Civil penalties for child labor violations
(2) Any person who repeatedly or willfully violates section 206
or 207 of this title, relating to wages, shall be
subject to a civil penalty not to exceed $1,100 for each such violation. Any person who violates section 3(m)(2)(B)
shall be subject to a civil penalty not to exceed $1,100 for each such
violation, as the Secretary determines appropriate, in addition to being liable
to the employee or employees affected for all tips unlawfully kept, and an
additional equal amount as liquidated damages, as described in subsection (b).
The Omnibus Act uses the following language:
Title
XII – TIPPED EMPLOYEES
11 SEC.
1201. TIPPED EMPLOYEES. 12 (a) PROHIBITION ON KEEPING TIPS.—Section
3(m) 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 14 203(m)) is
amended—
(1)
by redesignating paragraphs (1) and (2) as clauses (i) and (ii), respectively;
(2)
by inserting ‘‘(1)’’ after ‘‘(m)’’;
(3)
by striking ‘‘any employee. In determining’’ and inserting the following: ‘‘any
employee. ‘‘(2)(A) In determining’’;
(4)
in clause (ii) of paragraph (2)(A) (as so re-designated), by striking
‘‘paragraph (1)’’ and inserting ‘‘clause (i)’’; and
(5)
by adding at the end the following:
(B) An employer may not keep tips
received by its employees for any purposes, including allowing managers or
supervisors to keep any portion of employees’ tips, regardless of whether or
not the employer takes a tip credit.’’.
(b)
PENALTIES.—Section 16 of the Fair Labor 6 Standards Act of 1938 (29 U.S.C. 216)
is amended—
(1)
in subsection (b)—
(A)
by inserting after the second sentence the following: ‘‘Any employer who
violates section 3(m)(2)(B) shall be liable to the employee or employees
affected in the amount of the sum of any tip credit taken by the employer and
all such tips unlawfully kept by the employer, and in an additional equal
amount as liquidated damages.’’; and
(B)
by striking ‘‘either of’’;
(2)
in subsection (c), by adding at the end the following: ‘‘The authority and
requirements described in this subsection shall apply with respect to a
violation of section 3(m)(2)(B), as appropriate, and the employer shall be
liable for the amount of the sum of any tip credit taken by the employer and all
such tips unlawfully kept by the employer, and an additional equal amount as
liquidated damages.’’; and
(3)
in subsection (e)(2), by adding at the end the following: ‘‘Any person who violates
section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for
each such violation, as the Secretary determines appropriate, in addition to
being liable to the employee or employees affected for all tips unlawfully
kept, and an additional equal amount as liquidated damages, as described in
subsection 10 (b).’’
(c) EFFECT ON
REGULATIONS.—The portions of the final rule promulgated by the Department of
Labor entitled ‘‘Updating Regulations Issued Under the Fair Labor Standards
Act’’ (76 Fed. Reg. 18832 (April 5, 2011)) that revised sections 531.52,
531.54, and 531.59 of title 29, Code of
Federal Regulations (76 Fed. Reg. 18854–18856) and that are not addressed by
section 3(m) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)) (as such
section was in effect on April 5, 2011), shall have no further force or effect
until any future action taken by the Administrator of the Wage and Hour
Division of the Department of Labor.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
