On September 24, 2021, the U.S. Department of Labor (“DOL”) published a Final Rule (“Rule”) updating the regulations implementing the Fair Labor Standards Act (“FLSA”). The Rule specifically addresses concerns surrounding employers who keep their employees’ tip money—whether they mean to or not. In addition, the Rule modifies its regulatory provisions governing managers and supervisors.
As previously covered by HR Legalist, the specifics of tip rules and “tip pooling” requirements have been a political football in the past, with the state of the law and enforcement changing depending on what party controls the White House. Now, under the Biden Administration, enforcement of tip violations is expected to be more aggressive. True to form, this Rule inserts new penalty language aimed at employers who keep employees’ tips and does not limit its protections to “deliberate and willful” violations. Once a violation is established, the Rule states that civil monetary penalties (CMPs) are to be assessed “as the Secretary determines appropriate.” To be sure, the Rule addresses “deliberate and willful” violations as well, and the Rule provides some added clarification as to when this standard might be met. When assessing a violation, the Wage and Hour Division (“WHD”) of the DOL will consider “all of the facts and circumstances surrounding the violation.” To that end, the Rule states that an employer’s receipt of advice from the WHD regarding unlawful conduct, while not automatically dispositive, “can be sufficient” to establish a willful violation. Additionally, an employer is in “reckless disregard” of the FLSA when, based on all the facts and circumstances, it should have inquired into the lawfulness of its conduct but failed to do so adequately.
The Rule allows the WHD to levy CMPs of up to $1,100 against employers who retain employees’ tips or who otherwise violate federal tipping rules, in addition to being liable to the employee affected for all tips unlawfully kept, and an additional equal amount as liquidated (double) damages. With the Rule’s implementation going into effect 60 days after its publication, it is clear that the DOL is taking an aggressive stance on FLSA tip violations (willful or otherwise).
The Rule also clarifies that managers and supervisors can only receive tips in circumstances where they “directly and solely” provide service to customers. The Consolidated Appropriations Act (“CAA”), implemented in 2018, allowed employees to share or “pool” tips. The CAA permitted this type of pooling so long as managers or supervisors did not take a tip credit in order to pay tipped employees less than the minimum wage. However, confusion remained in instances where employers received tips directly. The Rule clarifies that managers and supervisors cannot share tips with employees for services rendered jointly; however, non-managerial employees may give portions of their personal tips directly to other employees. Furthermore, while managers and supervisors can contribute to mandatory tip pools or tip-sharing arrangements, they cannot receive tips from such arrangements. Some states go further, expressly prohibiting mandatory tip pooling or restricting its use. Therefore, employers should consult both state and federal rules when making such arrangements.
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