Eye on Hospitality: New Approaches to Tip Pooling

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By Paul Schlienz

Tip pooling is back in the news. Last week the U.S. Department of Labor (DOL) made headlines by indicating that it would rescind its controversial tip pooling rule at least as it applies in states like Washington where tips cannot be used to offset the federal minimum wage.

While this is good news for the industry, it is not an immediate change to existing law, and a new rule-making process could take a year or longer.

We are also waiting on the U.S. Supreme Court to possibly weigh in. In January, the Washington Hospitality Association, the National Restaurant Association and others petitioned the Supreme Court to review the Ninth Circuit’s 2016 decision upholding an ill-advised DOL rule against including back-of-the-house employees in mandatory tip pools. No action from the high court is expected before September 8, which is the new deadline for the DOL to respond to the National Restaurant Association’s certiorari petition.

Background

The tip pooling issue has been front and center on many restaurant operators’ minds since 2011 when the DOL revised regulations concerning tips. Those regulations state that 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 Washington Restaurant Association and others filed a lawsuit against DOL challenging those regulations that wouldn’t allow back-of-the-house employees to be included in the tip pool. In 2013, the court ruled in favor of restaurants, finding the regulations invalid.  DOL then appealed this ruling, and in 2016, the Ninth Circuit Court of Appeals reversed itself and upheld DOL’s rule. Then, on Jan. 18, 2017, the Association, along with Washington Hospitality and other associations submitted a certiorari petition to the U.S. Supreme Court challenging DOL’s prohibition on including back-of-the-house employees in employer-mandated tip pools. We are waiting to hear if the Supreme Court will hear the case.

Forging New Approaches

In the meantime, restaurants in Washington have been adjusting to uncertainty about mandatory tip pools in a variety of ways.  We’ve written in the past about the move toward service charges or higher menu prices. Voluntary tip pools are another way restaurateurs are achieving better equity between the front and the back of the house.

Here’s how one of the systems we’ve heard about works: The restaurant asks servers to choose between two options: Participate in a mandatory tip pool that includes just barbacks, bussers and hosts or opt instead to participate in the voluntary tip pool that also includes cooks and the dishwashers. Either way, the percentage that the servers contribute to the tip pool is the same, so they don’t lose anything by choosing to be in the voluntary tip pool. The servers fill out a form that indicates their choice.

Exactly how this form is worded and conveyed to staff is important.

“We must be clear that it’s the server’s choice to reward the back-of-the-house kitchen staff, that the employees can change that choice at any time and that the employees need to initial that box,” said Sandip Soli, partner with the Real Property Law Group, PLLC. “We also absolutely recommend that restaurants train their managers and anyone in a position of hiring, firing to never influence, never suggest and never tell employees what the other employees are doing with the form. Retraining of managers on this topic should occur on a regular basis.”

If you are considering this approach, Soli says, “Make sure the employees are aware of how they can change their decision to join the voluntary tip pool if they want to do so. Make sure that that process is easy and that the restaurant’s team knows what to do, so no one would ever be prevented from changing the decision in relation to the voluntary tip pool.”

Before making a change in tipping or tip pool practices, it is wise to get legal advice to confirm that the approach and communication strategies you are adopting will pass legal muster.

Look for more Eye on Hospitality articles on tipping and tip alternatives this summer.

Categories: News Room