Tip Pooling Requirements Remain in Dispute

Tip Pooling Requirements Remain in Dispute https://wahospitality.org/wp-content/uploads/2013/11/Tips3-284x198.jpg

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Restaurant owners should be aware of the on-going and somewhat convoluted dispute between federal courts and the federal Department of Labor (DOL) regarding tip pooling. The DOL and the Ninth Circuit – the federal appeals court with jurisdiction over Washington – have been disputing application of tip pooling for years. The split between the court and the DOL leaves proper use of tip pooling in question although the DOL recently provided guidance that will help many Washington restaurants.

The dispute between the DOL and the courts has seen much recent back and forth.  Prior to 2010 the DOL maintained that in order to be “valid” a tip pool could not include back of house employees such as dishwashers or cooks who were not customarily and regularly tipped by guests.  In 2010, the Ninth Circuit ruled in Cumbie v. Woody Woo that if an employer did not take a tip credit there were no restrictions on which employees could participate in a tip pool.  In response, the DOL issued new regulations in 2011 stating the Woody Woo decision was wrong, then in 2012 issued an official Bulletin stating that regardless of whether a tip credit was taken restrictions on tip pool participation applied and would be enforced nationwide.

Within months, a group including the Washington Restaurant Association filed a lawsuit in federal court in Oregon – Oregon Restaurant and Lodging v. Solis – arguing the DOL lacked authority to issue the new regulations.  The court ruled against the DOL in June 2013, finding the DOL had no discretion to change the meaning of the underlying statutes as interpreted by Woody Woo.   The court ruled the new DOL regulations were invalid and an employer that does not take a tip credit may include employees in tip pools who are not customarily or regularly tipped.  Unwilling to accept defeat, the DOL appealed the Oregon Restaurant decision in August 2013 and the case is currently pending before the Ninth Circuit.  In September 2013 the DOL posted a notice online stating that until the case resolves, the DOL could not enforce its regulations and tip pooling requirements against parties to the lawsuit “…and members of the plaintiff associations that can demonstrate that they were a member of one of the plaintiff associations in this litigation on June 24, 2013.”

The on-going dispute creates uncertainty but the September 2013 notice is potentially very significant.  The WRA was a named party in the Oregon Restaurant case and restaurants that can establish membership on June 24, 2013 will not face enforcement action by the DOL until the appeal is resolved.  This will likely be a year or more and then the case could be appealed further to the United States Supreme Court – a process that could easily take several more years.

Takeaway points for Washington restaurants are:

  • WRA members should verify whether they were Association members on June 24, 2013.  If so, members may utilize tip pools that include back of house employees without risking enforcement efforts by the DOL at least while the Oregon Restaurant decision is still before appellate courts.
  • The question remains very much in flux.  The Ninth Circuit will likely confirm its earlier decision in Woody Woo but the DOL may continue contesting the issue.  Restaurants should be aware that there are no guarantees that the more permissive Ninth Circuit analysis will eventually win out.
  • Washington restaurants who were NOT members of WRA on June 24th, should carefully consider how to utilize tip pools.  While the September DOL notice indicates some hesitation, enforcement efforts could still be made against non-WRA member restaurants.  Restaurants who were not WRA members on June 24th may wish to follow the DOL approach in order to prevent risk.

This post was written by Patrick Pearce, a Member of OMW’s Employment and Labor Law Practice Group. He can be reached at ppearce@omwlaw.com. This is a summary of a complex area of the law and is not legal advice and should not be relied on for any purpose.

 

 

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