The $1.3 trillion, 2, 232-page spending bill (H.R. 1625) Congress released late Wednesday might be more notable for what it omits than for what it includes. Hundreds of riders to the must-past omnibus package were left on the cutting room floor. A provision that would have clarified joint employment under the National Labor Relations Act dropped from the final legislation, as did language, known as the "Denham Amendment," that would have clarified that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) preempts state meal and rest break requirements. Nor did the package include provisions to reauthorize the Deferred Action for Childhood Arrivals (DACA) program. The most notable employment provision that was added, however, is a section beginning on page 2,025 addressing tipped employees under the Fair Labor Standards Act.

Tip Pooling Provisions

In December 2017, the Department of Labor issued a proposed rule to rescind its position that employers must comply with tip-pooling requirements even when paying the full minimum wage. This proposal would reverse the Department’s regulations promulgated in 2011, and allow employers who pay their customarily and regularly tipped employees at least the full minimum wage without applying a tip credit, to compel these customarily and regularly tipped employees to share tips with employees who are not otherwise customarily tipped, such as cooks, dishwashers, porters and maintenance staff, even if those tipped employees were paid at or above minimum wage. The proposal ignited strong feelings on both sides, spurring the introduction of a bill, the Tip Income Protection (TIP) Act of 2018 (HR 5180), providing that all tips are the property of the employees. Meanwhile, a lawsuit to invalidate the prior administration's rule is still pending.

The omnibus bill attempts to address this controversy, although several key questions remain. Touted as a "compromise" measure, the bill amends the FLSA by, among other things, adding the following:

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.

The remedy for violating this provision includes the loss of the tip credit and disgorgement of improperly kept tips, a remedy already provided by several states’ wage and hour laws for violations of tipping statutes and regulations, but an open issue regarding interpretation of the FLSA that continues to confound the courts and practitioners. The section may also impact existing tip credit regulations promulgated in 2011.

This tipped employee section's language is not a model of clarity. It does not answer:

  • Who is considered a manager or supervisor?
  • How does this impact the offset of credit card processing fees by employers from tips left by credit card, which has been previously approved by both the DOL and courts applying the FLSA, and many states?
  • How does this section impact employers that manage tip pools and distribute tips on a less-than-daily basis, such as on bi-weekly payroll?
  • How does this apply to low-level supervisors who participate in tip pools because they serve both a tipped and supervisor role, particularly in light of courts that have previously approved of such an arrangement?
  • How will this impact an employer’s retention of tips (in a non-tip credit situation) for purposes of supplementing income of non-tipped employees, such as cooks and dishwashers, and does the language of the amendment really make it clear that employers are permitted to retain tips, and distribute in any way they want to non-tipped employees?
  • How does the purported reversion back to pre-2011 regulations on 29 CFR 531.52, 531.54 and 531.59 impact (a) the specific notice requirements or (b) the “no maximum contribution” language, both of which were included in those sections with the 2011 regulatory changes?
  • Which portions of the DOL’s 2011 final rule on tips, tip pooling, and tip credits are considered “addressed” by the FLSA’s statutory text (29 U.S.C. § 203(m)) and will remain in effect?
  • Must these provisions be expressly or impliedly addressed by the statutory text?
  • Does the Wage & Hour Administrator make the determination independently or must the DOL provide notice of, and allow public comment concerning, which provisions remain valid?
  • Does the congressional directive concerning these “in effect” provisions override federal district and/or appellate court decisions that may have held them invalid or not entitled to deference?

Assuming the omnibus bill is enacted in its current form, the answers to these questions will likely need to be resolved through additional rulemaking.

What Else Made it Through?

A few other provisions arguably impact certain employers. Section 538 of the measure stipulates that the Department of Justice cannot use any funds available under the omnibus package to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

The bill also exempts minor league baseball teams from the FLSA's minimum wage, overtime, and recordkeeping requirements.

In addition, the DOL as a whole receives a bump in funding, much of which is allotted to worker retraining, veteran job placement, and apprenticeship programs.

Will it Pass?

The bill now heads back to both legislative chambers, where lawmakers will may put aside their issues with it and send it to the president's desk. The biggest incentive for rubber-stamping the omnibus package is that the government runs out of funds on Friday, threatening yet another shutdown. In addition, Congress is set to recess for a couple of weeks, so efforts to extend negotiations that would jeopardize this scheduled break are unlikely. That said, nothing is certain. We will continue to monitor this bill and report on any significant developments.