Trump targets Obama rule on workers’ tips

The Trump administration is planning to quash an Obama-era rule that prevents employers from pooling workers’ tips.

The change could allow restaurants to share tips waiters receive, for example, with untipped employees such as kitchen cooks.

The Department of Labor (DOL) announced its plan to change the Fair Labor Standards Act (FLSA) regulation in its semi-annual Unified Regulatory Agenda in July.

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The agency said the change would only apply to employers that pay tipped employees the full minimum wage directly. It would not apply to employees who make less than the minimum wage and earn tips to supplement their pay, also known as tip credit.

The move to change the rule is welcome news for service industry employers, who have been fighting it in courts across the country for years.

The National Restaurant Association claims the rule creates a pay disparity in restaurants between the front and back of the house.

Angelo Amador, executive director at the Restaurant Law Center, said when cooks or dishwashers in the kitchen are only making $10 an hour but servers are making $30 an hour after tips it hurts employee harmony and the customer experience.

“It is an issue of having better cohesiveness,” he said. “It’s why some restaurants are getting rid of tips.”

But labor rights advocates say tips are the property of the employee who earns them and it should stay that way regardless of whether they make minimum wage.

Raj Nayak, director of research at the National Employment Law Project (NELP), said workers rely on their tips to get by and that when customers tip, they believe that money is actually going to the worker.

When you tip at the car wash, he said, you expect that money to go to the person who just washed your car.

“If you take this rule away, employers can do whatever they want … even take a percentage of the tip,” he said. “Or all of it.”

Nayak, who served as deputy chief of staff to former Labor Secretary Tom Perez, said the rule was finalized under former President Barack Obama in 2011 following a ruling in a 9th Circuit Court of Appeals case, Cumbie v. Woody Woo Inc.

Misty Cumbie, who worked as a server at a cafe owned by Woody Woo in Oregon, sued, arguing that the company’s tip pool was not fair because it included employees who are not “customarily and regularly tipped.” The DOL filed a friend of the court brief on her behalf.

The San Francisco-based federal appeals court, however, sided with Woody Woo. The employer argued its policy of giving 55 to 70 percent of the pooled tips to the kitchen staff was valid because Cumbie was already making minimum wage. In its 2010 decision, the court said “nothing in the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken.”

A year later, DOL finalized a rule to reflect its view that the court ruling was wrong. The agency said that “tips are the property of the employee whether or not the employer has taken a tip credit.” The rule effectively expanded the ban on pooling tips to cover those who make minimum wage.

Last year in a split decision, the 9th Circuit Court of Appeals reversed course in a case challenging the rule. In a split decision, the court upheld the rule and said the Woody Woo case did not prevent DOL from expanding its tip-pooling ban.

The 10th Circuit Court of Appeals, however, disagreed in a separate case from Colorado challenging the rule. In June, the court said the regulation expanding the tip pooling ban went beyond the Labor Department’s authority.

“An employer that pays its employees a set wage greater than the minimum wage does not violate the FLSA when it retains tips paid by customers,” Judge Harris Hartz wrote.

The legal fight isn’t over yet.

The National Restaurant Association is now asking the Supreme Court to step in and resolve the issue once and for all. 

Even though DOL is planning to repeal the rule, the Restaurant Law Center — the trade association’s legal arm — says the Supreme Court should still take up the case.

Amador said it has taken seven years for the issue to make its way to the Supreme Court. And if a future administration reinstates the rule, the association doesn’t want to have to fight it again in the courts.

DOL did not respond to requests for comment, but the restaurant association said the agency has asked the high court for several extensions. Their reply brief is now due Sept. 8.

The Supreme Court will meet for a conference on Sept. 25 and decide what cases to add to its docket for the new term, which begins Oct. 2.

On the regulatory front, the Labor Department had said it expected to release a notice of proposed rulemaking in August.

Labor advocates say they won’t have details on the new rule until its released.

Nayak said the DOL’s regulatory agenda suggests the agency is going to write a narrow rule that only impacts employees who are paid the full minimum wage. But he cautions that could change.

“The regulatory agenda is a great outline of what’s coming up, but it doesn’t limit what they can put out in a proposed rule,” Nayak said. “It’s not under OIRA (Office of Information and Regulatory Affairs) review yet. In that process a lot can happen.”

For now, there’s uncertainty on both sides in the debate as the restaurant industry pushes its legal fight and the Labor Department works on the new rule.

“I think we won’t have a great sense of what’s in it until we see the proposed rule,” said Nayak.