As anyone who has worked in a restaurant knows, tips can be a huge source of stress among the staff. Since many servers are not paid a very generous base rate, they rely on tips as their primary source of income; as such, worries and frustrations surrounding poor tippers run rampant. In addition to these concerns, restaurants’ policies regarding tipping pools can cause a great deal of tension among the staff. An ongoing struggle in an Oregon federal court between the Department of Labor and the National Restaurant Association, along with industry groups in Oregon, Alaska, and Washington, illustrate some of the tensions surrounding tipping pools.
As Law360 recently reported, the Department of Labor has faced a great deal of opposition from the restaurant industry for putting out a rule that would bar restaurants from including kitchen workers in their tipping pool schemes. Tip pools are meant to equalize some of the natural disparities among restaurant staff. In general, only servers receive tips from customers; but a wide variety of employees both in the front and the back of the house — including hosts, kitchen workers, busboys, and janitorial staff – also contribute to the quality of a diner’s experience. In an attempt to be fair to these other employees, many restaurants operate a tipping pool, in which servers are expected to contribute a certain percentage of each tip they receive into a pool that is then redistributed among the staff.
The Labor Department claims that its rule, which came out in April of 2011, was promulgated in order to crack down on restaurants that were inaccurately using tip pools. Under the federal Fair Labor Standards Act, restaurant employers are allowed to pay their servers a minimum cash wage of $2.13 per hour, as long as their overall wage, including tips, comes to over the federal minimum wage, $7.25 per hour. Tipping pools are permitted, but only if employers are not using this “tip credit” system. According to the rule, the tips also cannot be distributed to back-of-the-house employees such as chefs, line cooks, dishwashers, or other employees who do not customarily receive tips.
The National Restaurant Association, as well as four hospitality groups, and a Portland-based restaurant and one of its employees brought suit in 2012 to challenge the Labor Department’s rule, and litigation is ongoing. The plaintiffs claim that the Labor Department’s rule is invalid because it contradicts a Ninth Circuit case, Cumbie v. Woody Woo Inc., which found that the federal Fair Labor Standards Act does not limit an employer from requiring front-of-the-house employees from sharing tips. The Labor Department, however, argues that the Ninth Circuit erred in its ruling in Cumbie and claims that it will continue to apply the new rule across the county, including in the states covered by the Ninth Circuit (such as Oregon). Since litigation is ongoing, it will be interesting to see how this case finally turns out, and what impact it will have on restaurants and their employees in Oregon, as well as across the country.
In our next post, we will take a deeper look at some of the intricacies of the legal arguments in this case. In the meantime, if you or someone you know works in the restaurant industry and is worried about how the new Department of Labor rule affects you, please contact one of our attorneys to help navigate your concerns.