The Trump administration recently backed away from a proposed regulation by the Department of Labor (DOL) that would make it easier for employers to require servers and other workers who earn tips to share them with kitchen staff who do not.
Congress passed their spending bill on March 23 with legislation that amends the Fair Labor Standards Act (FLSA) and makes it clear that tips belong to the workers who receive them and cannot be taken by their employers, managers, or supervisors.
The regulation proposed by the DOL would reverse an Obama-era rule declaring that tips are the property of employees and cannot be distributed to back-of-the-house employees, including workers who are paid the federal minimum wage of $7.25 an hour.
After the proposal endured months of opposition, a compromise was negotiated by Senator Patty Murray (D-WA), who serves as Ranking Member of the Senate Committee on Heath, Education, Labor and Pensions, and Labor Secretary Alexander Acosta.
The battle stems from Democratic and employee advocate criticism of the proposed rule. Labor advocacy groups had argued that DOL’s proposed regulation would transfer billions of dollars from workers to employers. However, the restaurant industry had backed the proposal, arguing it would allow the tips given to servers to be shared with “back-of-house” workers, like cooks and dishwashers.
In February, it was reported the DOL scaled down its projection for the amount that might be transferred from workers to their bosses. They then reportedly abandoned the projection under pressure from Secretary Acosta and DOL staff. It is standard practice for proposed regulations with more than $100 million in economic impact to include an economic analysis.
The DOL’s inspector general opened an inquiry and, separately, Secretary Acosta was asked to testify before Congress. While testifying and under pressure for throwing out the economic analysis, Secretary Acosta was asked why anyone other than workers should be allowed a share of their tips. He pointed to the fact that the FLSA did not give him authority to prevent employers from taking tips if the workers were paid the standard minimum wage. However, he indicated that he personally did not want employers to be allowed to take tips. This furthered negotiations with Senator Murray and ultimately an agreement between the administration and the proposal’s opponents.
Inserted into the congressional spending bill passed on March 23, the federal law would be revised to make it clear that employers cannot keep any portion of the tips earned by their workers. Tips are allowed to be redistributed to non-tipped workers only if employers pay all their employees the standard minimum wage in their jurisdiction, as opposed to the lower minimum wage that most states allow for tipped workers.
The language makes clear that employers are not allowed to access the tips collected for employees “for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips regardless of whether or not the employer takes a tip credit.” This includes liquidated damages and civil money penalties for violations of this provision, and allows employees to bring actions against the employer.
A challenge arising from the language in the new law is that the FLSA still does not define the terms manager and supervisor. Additionally, the agreement renders portions of the DOL’s proposed regulation invalid, so the proposal may be entirely pulled or revised to properly reflect the language in the omnibus.