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The recently passed Consolidated Appropriations Act (“CAA”)
put an end to an ongoing controversy over the status of a proposed Department
of Labor (“DOL”) tip rule and the underlying dispute over whether employers who
do not claim the tip credit against the federal minimum wage may be prohibited from
including non-tipped employees in mandatory tip pools. In 2017, the DOL moved
to roll back an Obama-era regulation extending this restriction to employers that
pay their tipped employees the full minimum wage.
Following the passage of the CAA, the DOL issued a Fact
Sheet and Field Assistance Bulletin that outline the changes to Fair Labor
Standards Act (“FLSA”) tipping rules. See U.S. Department of Labor, Wage
and Hour Division, Fact Sheet #15, revised April 2018; U.S. Department
of Labor, Wage and Hour Division, FAB No. 2018-3, April 6, 2018. The CAA amended the FLSA to vacate the DOL’s
2011 regulations that barred tip pooling when employers do not claim a tip
credit under the FLSA. Additionally, the
CAA’s changes provide that an employer may not keep employees’ tips for any
purpose, regardless of whether it takes a tip credit. A tip is the sole property of the tipped
employee, so even if a tipped employee receives at least $7.25 per hour in
wages from the employer, the employee may not be required to turn over his or
her tips to the employer.
This requirement does not preclude a valid tip pooling
arrangement among employees who customarily and regularly receive tips. Employers that pay tipped employees at least
minimum wage can now include back of house workers, such as cooks and
dishwashers, along with front of house workers, such as servers, in a tip pool.
The CAA does prohibit managers and
supervisors from participating in the tip pool.
The employer must notify tipped employees of any required tip pool
contribution amount, may only take a tip credit for the amount of tips each
tipped employee ultimately receives, and may not retain any of the employees’
tips for any other purpose.
The DOL will begin using new enforcement tools to recover
tips unlawfully kept by employers, such as by recovering tips in addition to an
equal amount of liquidated damages and civil and monetary penalties as
appropriate. The changes to FLSA tipping
rules will be enforced by the DOL in new investigations on or before March 23,
2018. Employers should review their tip
policies to ensure they are in compliance with any changes that apply.