Tip-Sharing

The Department of Labor (DOL) under the current administration proposed changing the law to permit restaurant employers to require tip sharing between servers and cooks.  The DOL’s proposed rule received more than 218,000 comments, most of which were negative.  The Economic Policy Institute recently published a report that estimated $5.8 billion dollars in tips would be taken from servers, redistributed to back of the house staff, and possibly just retained by the employer, if the DOL’s rule had passed.

Currently, the federal minimum wage for workers who get tips is $2.13 per hour, when the employer takes the maximum tip credit.  Several states no longer permit an employer to take a tip credit.

The Fair Labor Standards Act is a federal law that sets forth the parameters of minimum wage and overtime for all employers. In addition to the FLSA, most states have corresponding wage laws that provide a state minimum wage rate.  In fact, many cities and states have already raised their overall minimum wages, as the federal law has become out of date.  It was last updated in 2009.

The 2,232-page spending bill passed in March 2018 included a section that made clear that employers may not pocket any portion of tips that diners leave for workers.   Despite threatening to veto the bill, President Trump did eventually sign it.  Since taking office, the Department of Labor under the Trump administration has made a number of decisions that lean heavily in favor of the employer and against the employee.  This is unsurprising given the appointments made by President Trump, which have all been very pro-employer appointments.  The passage of this bill marks a rare victory for employees, amid a series of pro-employer decisions from the Department of Labor.

Imagine that you are involved in years of heated litigation. You and your adversary come to a solution, then propose the matter to the Court for approval.  Next thing you know, you’re either cleaning up or back to square one.  This is what happened to TGI Friday’s. When it comes to the Fair Labor Standards Act (FLSA), there are certain no-no’s that Courts in certain jurisdictions routinely decry related to confidentiality and releases.

No Secrets Here

Fundamentally, the Court wants wage and hour matters to be of public record, so making them confidential thwarts that.  Second, if you have a collective or class action based on wage and hour causes of action, then the release should contain that and make sense. Inconsistency comes when the Court permits confidential arbitrations but forbids confidential FLSA settlements.

In the Southern District of New York, a nationwide settlement totaling $19 million for tipped workers was rejected by the Court for containing confidentiality and overly broad releases.  There were nearly 30,000 tipped workers in the class, which alleged a plethora of tip credit violations, including impermissible tip sharing, failure to provide tip credit notice and various state wage and hour law violations, such as New York’s spread of hours and uniform expenses (see Zorrilla v. Carlson Restaurants Inc., 14-cv-2740). Confidentiality provisions are eschewed unless one can articulate specific rationale for it with considerable precision.

TMI for TGI Friday’s

The Court rejected Friday’s overly broad release, which various courts view as inappropriate in the context of a wage and hour case.  For example, what if the Company raided the pension plan? For a wage and hour release, that claim would need to be released, even though it wasn’t litigated.  More common is that certain individuals may have harassment claims or other employment-related disputes with the company that are wholly unrelated to the wage and hour case, but the company seeks to release them.

Another part of the litigation was the defendant’s attempt to pick off the lead plaintiffs via Rule 68.  This was popular for some time but is falling out of fashion.  The defendants would try to proffer what they unilaterally thought was maximum relief and then motion to dismiss so the case wouldn’t advance to the class certification stage.  The perils and pitfalls of this technique have been exposed by savvy counsel and addressed by the US Supreme Court. Occasionally it is still employed, but it did not work here.

Based on the Court’s ruling here, the obvious solution is not to omit the contested clauses, but the Defendants may not want to do so quickly.  Another irony is that the confidentiality sought is highlighted by the disapproval, whereas an approval even without a confidentiality clause could have silently sailed away like Friday’s short-lived Mangorita.

 

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The Trump administration’s Department of Labor (DOL) has proposed a rule that would erase protections for tipped employees if enacted. Under the proposed regulations, employers may require tipped employees to share their hard-earned tips with non-tipped employees as long as the tipped employee is paid at least minimum wage by the employer. For example, if a waiter is paid $10/hour plus tips from his employer, then his employer can require him to share his tips with the kitchen staff.

The proposed rule would still prohibit an employer from taking a tip credit and requiring a tipped employee to share tips with non-tipped employees, i.e. managers and kitchen staff.  Under the Fair Labor Standards Act (FLSA), an employer is permitted to take a credit for the tips an employee earns and pay a lower hourly wage if the following conditions are met: (1) the tip credit does not exceed $5.12 per hour (the employer must still pay at least $2.13 per hour in actual wages); (2) the employer gives notice to the employee of the tip credit; and (3) the employee makes sufficient tips to make up the difference between the amount the employer pays and the minimum wage. While tipped employees can be required to share or pool tips with fellow tipped employees, under current DOL regulations they cannot be required to share or pool tips with non-tipped employees.

The DOL claims the new regulations—to only prohibit sharing tips with non-tipped employees when the employer takes a tip credit—are in response to a Circuit split between Federal Courts on whether the current regulation is an accurate application of the requirements of the FLSA.  The DOL even asserts that this proposal will benefit tipped employees. Time and again though, courts have found that tip pooling schemes and tip credits generally are prime areas for abuse by employers. Employers frequently improperly include employees in tip pools, improperly calculate tipped employees’ overtime pay, improperly use tips to compensate employees for non-tipped work, pay non-tipped employees with tips, and improperly withhold tips from employees.

If you have any further questions about how tipped employees should be paid, the Wage Authority Group is awaiting your call.

 

 

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Show Me the Money

A bartender who worked for a Minnesota employer for seven years was fed up with sharing his tip money and one day refused to do so. Because of his refusal, his manager fired him. Before he was fired, he was told he was required to share his tips with other staff members or there would be consequences. The bartender chose not to do so and had difficulty finding employment afterwards. He went on to file a lawsuit against the employer, claiming the employer violated state law, which prohibits employers from demanding employees to share their tips. Although the bartender had not lost wages from failing to share his tips, since he didn’t share them, he sought damages for lost income that resulted for wrongful termination

The employer made an argument in their defense that even though the state law prohibits employers from forcing employees to share his tips, the state law did not explicitly contain language that allowed former employees to sue for wrongful termination for refusing to share tips. Additionally, they argued the former employee could not pursue a wrongful termination claim when he had not suffered a loss of tips and was paid all hours worked while employed. A district court agreed with the employer’s argument and dismissed the case for failure to state a claim.

Minnesota Keeps the Change

The bartender appealed, and the court of appeals reversed the district court ruling, concluding that the bartender stated a claim upon which appropriate relief could be granted. The state’s highest court upheld the appeals court ruling, reprimanding the employer for improperly and unreasonably interpreting a law that explicitly leaves it at the employee’s discretion. They ruled that it is a common sense interpretation when a state law protects an employee from being threatened by the employer for failing to do something that is in their own right to protect. The state’s law is violated when the requirement and coercion is made, regardless of whether the employee complies.

The highest court in the Minnesota ruling can be interpreted that tips received by a tipped employee are considered the employee’s sole property under state law. Additionally, the law allows aggrieved employees to recover appropriate civil remedies, including back pay — a type of damages typically awarded in wrongful-discharge actions. Therefore, the bartender may sue for damages normally associated with wrongful discharge claims, not just lost wages. The federal Fair Labor Standards Act (FLSA) allows tip-pooling arrangements among service employees who typically receive tips but does not compel tipped employees to pool tips among employees who do not normally receive tips, including cooks and dishwashers. Statutes like the FLSA and the Minnesota state wage and hour laws call for damages, such as double damages with attorney fees paid on top of it.

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