U.S. Sup. Ct.: Tip-pooling challenges dropped

The Supreme Court has denied the petitions for certiorari filed by Wynn Las Vegas and the National Restaurant Association (and others) in consolidated cases that challenged a controversial Obama-era tip pooling rule that has since been rescinded and replaced by new provisions.
The tip pooling rule took a series of twists and turns that went beyond the Obama-era rule. A fresh controversy erupted when the Department of Labor (DOL) proposed a new tip rule that was said to permit employers to pocket tips, but that firestorm was squelched when Congress took action to address the concerns about the proposed rule in the Consolidated Appropriation Act, 2018 (CAA) (H.R. 1625 (P.L. 115-141).

2011 rule upheld

A divided Ninth Circuit reversed a federal district court order invalidating the 2011 revisions to the DOL’s tip-pool regulation, holding that the agency acted within its authority when it promulgated the rule change. As revised, the tip pool regulation prohibited an employer from including non-tipped staff in tip pools even when it does not take the tip credit, but instead pays the full statutory minimum wage. The FLSA’s “clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule,” the majority concluded, rejecting the notion that the appeals court itself had foreclosed the agency’s ability to do so by virtue of its 2010 decision in Cumbie v. Woody Woo.
The petitioners argued at the time they filed their cert petitions that the Ninth Circuit ruling created a split with the Fourth Circuit, and later in supplemental briefs, pointed to subsequent splits with the Tenth and Eleventh Circuits.

One controversy resolved, another erupts

The Trump Administration’s Labor Department moved to remedy the controversy over the 2011 rule by rescinding it, but in December 2017 also prompted a fresh controversy by publishing a new proposed rule under which employers would be permitted to utilize mandatory tip-pools that include employees who do not traditionally receive direct tips. The proposal would apply only to employers that paid full minimum wage and did not take a tip credit. The proposed rule would not have changed the rules as applied to employers that did take the tip credit. If a tip credit was taken, then the sharing of tips between tipped and non-tipped employees would still prohibited.
The new proposal, however, contained what was benignly considered a “loophole,” under which employers would be able to pocket perhaps billions of dollars in employee tips annually. A less benign storyline surfaced when Bloomberg Law reported that the DOL, perhaps intentionally, omitted key data from its new rulemaking on tip pools-data supporting the notion that under its current proposal, employers would indeed pocket tips instead of distributing them to other workers.

Big fix

After persistent pressure by Democratic lawmakers, the National Restaurant Association, and other stakeholders, a deal was reached to amend the FLSA via the CAA to address these concerns, under which employers would be barred from pocketing tips and be held liable for doing so.
On April 6, 2018, the DOL’s Wage and Hour Division issued a Field Assistance Bulletin to address the WHD’s enforcement of tip credit rules under the FLSA. FAB 2018-3 explains the requirements of the FLSA as modified by the CAA (H.R. 1625). The WHD has also released a fact sheet that explains the same requirements. Workplaces may now establish tip pooling arrangements between “front of the house” and “back of the house” staff, such as cooks and dishwashers. The CAA also vacated the WHD’s 2011 regulations that barred tip pooling when employers pay tipped employees at least the full federal minimum wage.
Congress also for the first time gave the DOL authority to prevent employers from taking employees’ tips in all circumstances. The FAB confirmed that the WHD would immediately begin using new enforcement tools to protect American workers’ tips-including by recovering all tips unlawfully kept by employers, and imposing liquidated damages and civil monetary penalties as appropriate.

Cert. denials

In a June 25 order, the Supreme Court, without comment, denied the petitions for certiorari filed by Wynn Las Vegas and the National Restaurant’s Association> (and others). (Wynn Las Vegas and National Restaurant’s Association, Nos. 16-163 and 16-920, cert. den. June 25, 2018.)

Visit our News Library to read more news stories.