On December 5th, 2017, the U.S. Department of Labor, Wage and Hour Division will publish a Notice of Proposed Rulemaking (“NPRM”) and a request for comments on tipping regulations issued pursuant to the Fair Labor Standards Act (“FLSA”). The NPRM will propose that the tip pooling regulations issued by the DOL in 2011, which placed restrictions on employers’ ability to implement tip pooling arrangements, should be rescinded. This move strongly signals that the DOL may start strategically backing away from some of its prior regulatory initiatives. Employers in the restaurant and hospitality industry, as well as employers in any other industry where tips constitute a significant portion of employee compensation, should carefully monitor this proposal as it progresses through the rule making process.

Under the FLSA, employers may choose to pay certain employees a specified lower minimum wage, and then, in effect, make up the difference between the lower wage and minimum wage with “credits” from tips. At the same time, tip sharing (or tip pooling) arrangements are common in certain industries. These arrangements allow employers to institute policies which provide for employees to share tips. In 2011, regulations were issued that restrict the ability of employers who do not take the tip credit to allow tip pooling or tip sharing among employees. The NPRM notes that “since 2011, there has been a significant amount of private litigation involving the tip pooling and tip retention practices of employers that pay a direct cash wage of at least the Federal minimum wage and do not take a tip credit.”

This litigation has resulted in conflicting authority from the federal appellate courts. Compare Oregon Rest. & Lodging Ass’n v. Perez, 816 F.3d 1080, 1082–83 (9th Cir. 2016) with Marlow v. New Food Guy, Inc., 861 F.3d 1157, 1164 (10th Cir. 2017). In early 2017, the National Restaurant Association asked the Supreme Court to step in to the fray. Petition for Writ of Cert. at i, Nat’l Rest. Ass’n, et al. v. U.S. Department of Labor, et al., No. 16-920, 2017 WL 360483 (U.S.). DOL’s response to the Petition has been delayed several times, and, if adopted, the proposed regulations would likely render such a response moot.

For employers who pay all employees at least the statutory minimum wage, the proposed regulations would allow tip sharing among groups of employees who are customarily tipped, like front-of-the-house wait staff, and those who are not customarily tipped, like dishwashers and cooks. The proposed rule would likely provide some welcome flexibility for employers in the restaurant and hospitality industry who may want to experiment with new methods of compensating their tipped employees.

Key Takeaways

  • The NPRM is seeking the rescission of regulations that place restrictions on employers’ ability to enter into tip pooling arrangements with tipped employees.
  • The NPRM will be officially published in the federal register on December 5, 2017. The 30-day comment period will end on January 4, 2018.