The Ninth Circuit Court of Appeals has upheld U.S. Department of Labor regulations invalidating tip-pooling arrangements that include kitchen staff and other employees who are not customarily tipped (often referred to as “back-of-house” employees). The ruling is yet another chapter in the saga of tip pooling in non-tip credit states in the Ninth Circuit (Alaska, California, Nevada, Montana, Oregon, and Washington) that started with Cumbie v. Woody Woo.
While the employer’s mandatory tip pool with back-of-the-house employees was found legal in Woody Woo, this latest decision effectively guts the ability of employers in non-tip-credit states to require front-of-the-house employees to share tips with back-of-house employees.
While the decision may ultimately be reversed on further appeal or overridden through legislative efforts, restaurateurs in western non-tip-credit states should:
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Carefully review all tip-pooling, tip-sharing, and tip-out policies. Restaurateurs should not require or encourage employees to share tips with back-of-house employees in any form. Tipping policies should allow tip-sharing only between customarily-tipped employees (not managers, supervisors, cooks, dishwashers, or other kitchen employees).
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Review “tip jar” policies. It is unclear whether the DOL regulation applies to tip jars. At a minimum, employers who use tip jars should not allow tip-jar proceeds to be shared with managers or any other employee who could be considered an “agent” of the employer. The best practice is to limit tip jar tip-sharing to customarily-tipped employees.
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Consider eliminating tips and explore other options.
Importantly, note that state laws may differ from federal law and may impose different or greater burdens (California and New York, for example). Some states require written tip-sharing agreements, and even where that is not required, a written policy is recommended. Given the confusing array of laws and ambiguity regarding interpretation, employers should consult with legal counsel to ensure compliance with federal, state, and local tip-related laws.
