Once again, tip pool cases are getting attention in the federal courts. Most recently, several former employees of two taverns in Baltimore sued under the Fair Labor Standards Act (“FLSA”) and Maryland state laws alleging unlawful wage and hour practices. Gionfriddo vs Zink.pdf, 2011 WL 855799 (D.Md. March 11, 2011). Specifically, they claimed the owner of the two taverns where they worked, Jason Zink, was improperly receiving money from the collective tip pool.

Mr. Zink did operate the taverns and supervise the employees; however, he also often served as a bartender. It was for his role as a bartender, where he served drinks and talked with patrons, that he received a portion of tips from the tip pool. The tip pool was distributed to the bartenders based on the number of hours worked by each bartender. Mr. Zink did not take any salary from either tavern. “At the crux of Plaintiff’s case is their contention that, although Mr. Zink frequently worked along side the bartender Plaintiffs and contributed to the collective tip pool, he was prohibited from retaining any of these tips as a result of his status as the owner of the taverns.”

The bartenders were tipped employees, earning a subminimum wage. The FLSA permits employers to pay employees who regularly and customarily receive at least $30/month in tips a direct wage of $2.13/hr and then take a tip credit to satisfy the $7.25/hr minimum wage requirement. If, however, tipped employees are required to participate in a tip pool with other employees who do not customarily receive tips, then the tip pool is invalid, and the employer cannot take the tip credit. It was undisputed by both sides in this case that bartending is typically a tipped occupation.

In an issue of first impression in both the Maryland District Court and the Fourth Circuit, the question to be answered was whether an employer, like Mr. Zink, may simultaneously be a “tipped employee” under the FLSA. In what was deemed as “not a close case,” the Court concluded, like many other courts that have considered the issue, that the FLSA expressly prohibits employers from participating in employee tip pools. Here, the Court determined, Mr. Zink, as the sole owner of the taverns, was the sole beneficiary of the tip credit provision, and to allow him to participate in the tip pool “would broaden the FLSA’s tip credit provisions to a point where they would become meaningless.” Accordingly, the Court granted partial summary judgment on this issue to the Plaintiff bartenders.

The Bottom Line: Carefully analyze existing tip pools to ensure those participating are properly “tipped employees” because the failure to do so may result in invalidating the tip pool.