Recent Ruling on Tip Credits, Tip Pooling and Tipped Employees
by cjleclaire
 Stephen Hans Blog
Feb 24, 2017 | 33123 views | 1 1 comments | 561 561 recommendations | email to a friend | print | permalink

The Ninth Circuit Court decision in a recent case was a landmark ruling that favored tipped employees in the debate of tip pooling. It clarifies whether an employer who is not taking a tip credit can do tip pooling, which divides tips among tipped and non-tipped employees.

The Issue with Tip Pooling with Non-Tipped Employees

The National Law Review  discussed the case of Oregon Rest & Lodging Ass’n v. Perez, which was appealed to the Ninth Circuit Court.

The crucial question was whether employers have the right to share the tips of waitresses, bartenders and casino dealers, etc. (tipped employees) with non-tipped employees like busboys, hostesses and floor managers. When a tipped employee works hard to deliver great customer service and as a result of such efforts receives a large tip, then having to turn it over to other non-tipped employees seems rather unfair.

What Does the FLSA Say?

The Fair Labor Standards Act (FLSA) makes it clear that when employers take a tip credit and pay non-tipped employees less than minimum wage, the tipped employees must receive their tips. However, when the employer does not take a tip credit and tipped employees receive minimum wage or higher, are the tips fair game for pooling among employees?

DOL Rule About Tip Pooling

The Department of Labor (DOL) established its own rule in 2011 because the FLSA wasn’t clear on this point. The DOL decided tipped employees still deserved their tips and pooling was unfair.

Recent Case Conclusion

The Ninth Circuit reviewed at the issue from different angles and various precedent setting cases. It also considered the intent of the law. A Senate Committee report stated, “Tipped employees should have stronger protection” and “tip is … distinguished from payment of charge … [and the customer] has the right to determine who shall be the recipient of the gratuity.” The court majority decided that the DOL rule was fair and that tips are the property of the tipped employee whether the employer claims a tip credit or not.

Stephen Hans & Associates represents business in disputes and provides legal advice to help them deal with employment and labor issues.

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Shirley Davis
August 17, 2017