In a landmark decision upholding the validity of the employer’s mandatory tip pool, on February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit issued its opinion in Misty Cumbie v. Woody Woo, Inc. No. 08-35718. The court held that where the employer paid a direct wage of at least minimum wage to restaurant wait staff, requiring them to participate in a tip-pooling arrangement with other restaurant employees does not violate the Fair Labor Standards Act. (“FLSA”)..

The Oregon restaurant took no tip credit, rather paid its wait staff a direct hourly wage in excess of the applicable minimum wage requirement. In addition to their hourly wage, the servers received a portion of the daily tips, distributed to employees through a tip pool. The restaurant required the wait staff to participate in its tip pool that included all restaurant employees, except managers. The largest portion of the pool went to the kitchen staff, employees not customarily tipped in the restaurant industry.

A server filed a class action lawsuit against the restaurant alleging that the tip-pooling arrangement violated the minimum wage, and tip provisions of the FLSA. In granting the restaurant’s motion to dismiss the case, the District Court found that there is nothing in the text of the FLSA that restricts employee tip pooling arrangements when no tip credit is taken, thus the restaurant’s tip pooling arrangement was valid. In a well reasoned opinion specially refuting the Secretary of Labor’s arguments submitted in an amicus brief, the Ninth Circuit affirmed citing the Supreme Court’s adage that an agreement is per se valid, “unless subject to statutory interference”.

The Cumbie Court held when an employer does not take a tip credit, it may lawfully require servers to participate in a tip pool with employees who are not customarily tipped.

Although the court’s ruling appears reasonable and persuasive, it is not clear what the Department of Labor’s enforcement policy will be, or whether this court’s ruling will be adopted in other circuits. As this issue develops we will update this blog.