Department of Labor’s Proposed Changes to the FLSA’s Tip Regulations Are Limited to Restaurants That Use the Tip Credit

In recent weeks, much has been written about the Notice of Proposed Rulemaking issued by the U.S. Department of Labor’s Wage and Hour Division on December 5, 2017. A copy of the Notice, as published in the Federal Register, can be found by clicking HERE.

When I read the Notice, I was relieved to see that the proposed rule will have limited reach. Here’s why:

Many restaurants require that customer tips be contributed to a “tip pool,” which is then distributed to the servers and other restaurant employees. The general rule provides that tip pool proceeds can only be shared with restaurant employees who spend at least some time interacting with restaurant customers. See, e.g., Montano v. Montrose Restaurant Associates, Inc., 800 F.3d 186, 193 (5th Cir. 2015); Ford v. Lehigh Valley Restaurant Group, Inc., 2014 U.S. Dist. LEXIS 92801, *10 (M.D. Pa. July 9, 2014); Pedigo v. Austin Rumba, Inc., 722 F. Supp. 2d 714, 730 (N.D. Tx. 2010). Such employees include bussers, food runners, and hosts/hostesses.

Crucially, the DOL’s proposed rulemaking does not purport to alter the above rule for restaurants that utilize a “tip credit” in satisfying their minimum wage obligations to servers. That is a big relief, since, outside of a few Western states, most restaurants (i) utilize the tip credit and (ii) are unlikely to stop utilizing the tip credit any time soon.

The proposed rulemaking will eliminate restrictions on tip pool distributions for restaurants that do not utilize the tip credit in paying the servers. Thus, if a restaurant pays servers the full minimum wage without relying on the tip credit, then it can allow back-of-the-house kitchen workers to share in tip pool proceeds.

I am not suggesting that the proposed rulemaking constitutes good public policy or protects workers. Clearly it does neither. But it could be worse.

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