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New tip pool mandates could yield big fines for violating brands

A national labor lawyer is calling restaurant operators' attention to recently passed tipping legislation that may make them liable for big fines if they allow managers to share in tip pools, as well as other new intricacies that open tip pooling to all non-management restaurant employees.

May 31, 2018

A national labor lawyer is calling restaurant operators' attention to recently passed tipping legislation that may make them liable for big fines if they allow managers to share in tip pools, as well as other new intricacies that open tip pooling to all non-management restaurant employees.     

"The recently enacted Tip Income Protection Act of 2018 may have been buried in the 2,323 pages of the federal omnibus spending bill, but restaurants across the country need to be aware of this new law and understand its implications," LeClair Ryan Labor and Employment Team attorney, Setareh Ebrahimian, said in a news release about the  mandates. 

The legislation affects employers who pay a full minimum wage but don't take a so-called "tip credit," which allows them to take a credit toward their minimum wage obligations for tipped employees. The tip credit in those cases would be equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage. 

In these circumstances, Ebrahimian said the legislation allows employees who don't typically get tips to participate in tip pools where employers require tipped employees to combine those assets and create a formula to divvy them up among those in the pool. 

Previously, the Fair Labor Standards Act generally restricted tip pools to employees who "customarily and regularly" receive tips, now, pools can include "the back-of-the house employees like busboys, chefs, line cooks, and janitors," Ebrahimian writes. 

But, here's a critical difference that employers must know ... 

"The Act makes it very clear that tips belong to the employees, and not employers," she said. "This strict prohibition against managers, supervisors and employers collecting or retaining tips made by employees is critical in light of the increased penalties under the Act."

Those penalties were increased to include:

• Amount of tip credit taken and
• Amount of wages withheld and
• Liquidated damages in the same amount. 

"Additionally, the Secretary of Labor may impose civil penalties of $1,100 per violation," she said.

Potential points of complication

The attorney explained that the legislation does not directly address whether a distinction is being made between upper-level management and lower-level supervisor. For example, she said sometimes bartenders — though they cannot hire and fire employees — function as managers when owners aren't present, while also continuing to serve customers. It remains unclear whether that individual may still share in the tip pool, she said. 

"Restaurants commonly use tip-credit and tip pooling arrangements, and must be careful not to violate the FLSA," Ebrahimian said in the information about the new regulations. "Also, state law can provide stricter restrictions on these arrangements than the FLSA. We encourage employers considering these arrangements to contact legal counsel."
 

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