Hunton Employment & Labor Perspectives

The practice of “tip-pooling,” which refers to the sharing of tips between “front-of-house” staff (servers, waiters, bartenders) and “back-of-house” staff (chefs and dishwashers), has been in the news recently as the Trump Department of Labor (“DOL”) seeks to roll back a 2011 Obama-era rule limiting the practice under the Fair Labor Standards Act (“FLSA”).

Proposed in December 2017, the Trump administration’s new proposed rule  would allow an employer to include non-tipped employees in a tip-pool so long as all employees are paid minimum wage and the employer does not take a tip credit toward its minimum wage obligation.  More importantly, the new rule does not expressly prohibit employers from keeping a portion (or all) of the tips for themselves, which has caused vigorous debate and controversy.  This latter practice is known as “tip-skimming,” and under the Obama-era DOL, the practice was specifically prohibited by regulation.

Speaking to the House of Representatives subcommittee on labor spending on March 6, Labor Secretary Alexander Acosta clarified the DOL’s position on tip-skimming.  Acosta stated that “no one wants establishments to keep tips.” According to Bloomberg BNA, Acosta “fully supports” a provision that would prohibit employers from retaining employee tips.   He said, however, that until such a prohibition is added to the FLSA,  he does not believe that the DOL has the authority to block employers from controlling tips so long as the employer pays workers the full minimum wage.  Acosta indicated that this view was recently confirmed by a June 2017 ruling from the U.S. Court of Appeals for the Tenth Circuit.

It is too early to predict whether Congress will take Acosta up on the invitation to amend the FLSA to expressly prohibit an employer from retaining employee tips.  Absent congressional action, it does not appear that Acosta intends to change the DOL’s current view that it lacks authority to prohibit the practice of tip-skimming.