Federal Court Upholds Tip Pooling Overtime Rules

Federal Court Upholds Tip Pooling Overtime Rules

PORTLAND — The U.S. Court of Appeals for the Ninth Circuit issued a decision upholding a regulation promulgated by the U.S. Department of Labor in 2011 regarding tip pools under the Fair Labor Standards Act (FLSA). The decision was issued to decide two cases. The first was brought by the Oregon Restaurant and Lodging Association, consisting of restaurants, taverns, and one individual, challenging the validity of the regulation. The second case was brought by a group of casino dealers against their employer, Wynn Las Vegas LLC. In both cases, the employers paid the employees at least the federal minimum wage and did not take a tip credit. The employers also instituted tip pools, in which customarily tipped employees like servers and casino dealers were required to share tips with non-customarily tipped employees like kitchen staff and casino floor supervisors. The federal district courts sided with the employers in these cases, but the court of appeals reversed their decision.

DOL Regulations on Tip Pools

DOL issued a rule in 2011 that expressly prohibits the use of a tip pool only if it is comprised exclusively of employees who are customarily and regularly tipped. Employers may fulfill part of its minimum wage obligation to a tipped employee by taking a tip credit, as long as it gives notice to its employees and allows them to retain all the tips they receive, unless they participate in a valid tip pool. However, if the tip pool includes distributions to supervisors and other workers who do not customarily and regularly receive tips, then the tip pooling arrangement violates FLSA.

The Court of Appeals found that DOL’s interpretation of FLSA in the regulation was permissible. According to the court, the purpose of FLSA does not support the view that Congress intended to permanently allow employers that do not take a tip credit to do whatever they wish with their employees’ tips. It is a broad and remedial law that Congress frequently and extended, and the DOL’s tip pooling restrictions is consistent with Congressional intent.

Dissenting Judge on Appeal

One judge dissented with the ruling, and stated that the majority decision ignored another decision by that same court that held that employers who do not take the tip credit are not bound by FLSA’s restrictions on tip pooling. In that previous case, the court found that the regulation only imposes a condition on employers that take a tip credit, not a blanket requirement on all employers regardless of whether they take the tip credit.

Under FLSA, employers must ensure that tip pools consist only of employees that are customarily tipped. You should call (855) 754-2795 or complete the Free Unpaid Overtime Case Review form on the top right of this page if you or a loved one is a tipped employee and suspects that an employer is violating FLSA’s tipping provisions. Our top-rated team of wage lawyers will evaluate your situation to determine your best course of action. We will also determine if it is in your best interest to file a lawsuit against your employer. There are strict time limitations for filing, so it is important that you call our experienced attorneys today.

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