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By: Timothy J. Holdsworth
In 2011, the U.S. Department of Labor (“DOL”) revised its regulations to support its position that the Fair Labor Standards Act (“FLSA”) requires that tipped employees retain all their tips regardless of whether the employer takes the tip credit for those employees. These regulations have repeatedly been challenged in courts, and circuits have split over their legality. In addition, several states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have enacted legislation requiring employers to pay tipped employees the state minimum wage, effectively abolishing the federal tip credit.
As we predicted, in the wake of this litigation and legislation the DOL has issued a Notice of Proposed Rulemaking (“NPRM”) announcing its intent to reverse these 2011 regulations in part. The DOL now proposes to rescind the portion of the regulations that apply to employers that do not take a tip credit, but instead pay wages of at least the federal minimum wage.
One major effect of this change is that employers would now be able to create tip-pooling arrangements that include employees who do not regularly and customarily receive tips. For example, a restaurant could share tips among both servers and dishwashers. In its NPR, the DOL acknowledges that its proposed changes will allow employers and employees greater flexibility in determining their pay policies and allow employers to reduce wage disparities among all employees that contribute to customers’ experience.
The DOL will be accepting public comments on its proposed changes until February 5, 2018. We will update you once the DOL announces the finalized changes, but we do not expect the DOL to modify the changes significantly (if they decide to do so at all). Until the portions of the regulation are rescinded, employers need to be sure their tip policies comply with the current interpretation of the 2011 regulation in their circuit. Additionally, employers need to comply with any applicable state and local compensation laws and regulations regarding tips and tip-pooling, as they could face liability under those laws regardless of the proposed changes discussed in this blog.
If you have any questions about these changes or would like more information on navigating wage and hour laws, please contact Timothy J. Holdsworth at firstname.lastname@example.org.