Tip Pooling: A brief overview of the Ninth Circuit ruling

Tip Pooling: A brief overview of the Ninth Circuit ruling

By Bob Donovan, Donovan Employment Law

I am one of the attorneys of record in the WRA’s lawsuit against the U.S. Department of Labor (DOL).  I also spent several years as in-house counsel for a national restaurant company, and have a number of restaurant clients.  Recently, I engaged in conference calls with WRA members, discussing the Ninth Circuit’s ruling on tip pooling, and how it affects restaurants.

This article is the first of a series of three articles based on the discussions we had in these calls.

A brief overview

At issue in the lawsuit is whether certain portions of DOL’s 2011 regulations concerning tips and tip pooling are valid.

The regulations were issued by DOL to address a 2010 Ninth Circuit ruling, Cumbie v. Woody Woo.  In that ruling, the court held that federal limits on employer use of tips, and on who can be in a tip pool, do not apply to employers who pay their employees the full federal minimum wage and do not credit any tip income toward paying that wage. Thus, according to that ruling, DOL’s regulations concerning tips didn’t apply in Washington.

In response, in 2011, DOL published revised regulations concerning tips. Those regulations state that even for employees who are

paid at least full federal minimum wage, tips are the property of the employee and cannot be used by an employer except to implement a valid tip pool, which can only include customarily and regularly tipped employees.

The WRA and others (Oregon Restaurant & Lodging Association, Alaska CHARR, National Restaurant Association, a restaurant and one of its tipped employees) filed a lawsuit against DOL, in Oregon federal court, challenging those regulations. In 2013, that court ruled in favor of the WRA and its co-plaintiffs, holding that the regulations are invalid, and that DOL is prevented from enforcing them against anyone who was a member of one of the plaintiff restaurant associations, including the WRA, at the time of the ruling.

In February, the Ninth Circuit reversed the Oregon court’s ruling, holding that the DOL’s 2011 regulations are valid, and therefore enforceable even against employers who pay their employees the full federal minimum wage and do not credit any tip income towards paying that wage.

What now?

The WRA and its co-plaintiffs are considering their options. These are: petitioning to have the case reconsidered by the Ninth Circuit’s three-judge panel that issued this ruling, petitioning to have the entire Ninth Circuit hear the case, or appealing to the U.S. Supreme Court. At least one of these actions likely will be taken.

Whichever action is taken, there is no guarantee the request will be granted. The Supreme Court may not grant a request to hear the case, the three-judge panel may not grant a request for reconsideration, and the Ninth Circuit may not grant a request for review by the full court.

If the requested action is granted, there is no guarantee the Ninth Circuit’s recent ruling will be reversed as a result.

In the next article of this series, we will discuss what you can do if you have a tip pool that might be unlawful under the new regulations.

If you would like a private consultation with me to receive formal legal advice on this and its impact on your business, please feel free to contact me at bob@donovanemploymentlaw.com, or 206.743.9234. I am happy to offer a reduced rate for a 30-minute consultation on these important issues.

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