CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Circuit Split at a Tipping Point

Posted on: July 19th, 2017

By: Michael M. Hill

Many people know that employers in hospitality industries, like restaurants and hotels, where employees customarily receive tips from customers, are allowed under federal law to pay their tipped employees less than the federal minimum wage as long as these employees earn enough in tips to make up the difference and the employer provides certain notices. Under the Fair Labor Standards Act (“FLSA”), this is known as the employer’s “tip credit.”

But what if the employer chooses not to take the tip credit and instead pays its employees the minimum wage? Can the employer then keep all the tips? In the Tenth Circuit, which covers federal courts in Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming, the answer is “yes.”

In Marlow v. New Food Guy, Inc., No. 16-1134 (10th Cir. June 30, 2017), a catering company chose not to take the tip credit and instead paid its employee $12 an hour and $18 an hour for overtime. But the employee sued under the FLSA, claiming that she also was entitled to a share of the tips paid by the company’s customers. A federal court in Colorado dismissed the case, and the Tenth Circuit affirmed, holding that the FLSA does not require employers to pay its customers’ tips to its employees if the employer already is paying at least the minimum wage.

The interesting thing about this ruling is the employee’s argument that letting the company keep the customers’ tips violated a 2011 Department of Labor (“DOL”) regulation that tips are the property of the employee. The Court did not disagree; its holding directly contradicts this regulation. But the Court held that the DOL exceeded its authority in issuing the regulation. Congress did not tell the DOL to regulate ownership of tips; nor was there any ambiguity in the statute that needed clarification. Thus, in the Tenth Circuit’s view, because the DOL spoke without invitation or authority, this regulation is invalid.

The Supreme Court may well step in as we now have a circuit split on the issue. In Oregon Rest. & Lodging Ass’n v. Perez, 816 F.3d 1080 (9th Cir. 2016), which we wrote about here, the Ninth Circuit upheld this same regulation in holding that a company could not force its tipped employees to pool their tips with non-tipped employees (such as kitchen staff), even if the company paid minimum wage or higher, because, under the DOL regulation, tips are the property solely of the employee. The Ninth Circuit covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

The bottom line is that employers of tipped employees, with operations in multiple states, need to be sure their policies regarding tips comply with the interpretation of federal law in their circuit, as well as with the applicable compensation laws of their state.

For any questions, please contact Michael Hill at [email protected].

Comments are closed.