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New Law Prevents Employers from Taking Tips

In the restaurant industry, "tip-pooling" is the practice of sharing tips between front-house tipped-employees (servers and waiters), and back-house non-tipped employees (cooks and dishwashers). Traditionally, employers have not been allowed to require tip-pooling under most circumstances.

In December 2017, the Department of Labor (DOL) proposed a new rule that has allowed employers to require tip-pooling among these groups, including even allowing employers to keep employees' tips for themselves, so long as employees were paid the federal minimum wage ($7.25). For Michigan employers to tip-pool, employers would have to pay the state minimum wage ($9.25).

On March 23, 2018, the new Congressional budget, laid out in the Consolidated Appropriations Act, 2018 (the "Act"), was signed into law. The Act, among many other things, rejects part of the DOL's proposed new rule on tip-pooling. Specifically, it amends the Fair Labor Standards Act (FLSA) to prohibit employers, managers, or supervisors from keeping employees' tips. The Act adds the following language to the FLSA: "[a]n employer may not keep tips received by its employees for any purposes, including allowing managers and supervisors to keep any portion of employee's tips, regardless of whether or not the employer takes a tip credit."

However, the Act fails to define the terms "manager" or "supervisor," which may create some uncertainty going forward. For instance, the Act does not address whether employees with any supervisory authority are prohibited from sharing tips, even if they are in positions that traditionally have done so. Further guidance from the DOL on this issue may be necessary.

Although the Act amends the FLSA to prevent employers from pocketing tips, it doesn’t completely void the DOL's proposed tip-pool rule. If implemented, the new rule would still allow employers to pool employees' tips and share such tips with back-house employees, provided all employees in the pool are paid the minimum wage.   

© 2020 Varnum LLPNational Law Review, Volume VIII, Number 88


About this Author

Seth Arthur, Varnum Law Firm, Grand Rapids, Labor and Employment Attorney

Seth is a member of the Labor and Employment Practice Team. He has experience with employment disputes, labor disputes and employment agreements. He has also worked on commercial litigation, environmental litigation and Proposition 65 compliance.

Seth formerly served as a judicial clerk for Kent County 17th Circuit Court, serving the Honorable Patricia Gardner and the Honorable Patrick Hillary. While in law school, he received several legal writing awards and was a member of the Trial Practice Institute.

Elizabeth Wells Skaggs, labor and employment attorney, Varnum

Beth is a partner in the labor and employment practice group, focusing employment issues and litigation. She has counseled business clients on a variety of matters affecting the workplace, including effective employee handbooks and policies, disciplinary and dispute resolution procedures, discrimination issues, disability accommodation, wage-hour matters, family medical leave, harassment prevention and litigation avoidance.  When litigation is unavoidable, Beth has significant experience representing employers under the numerous state and federal statutes that govern the employment relationship, including the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and the Family and Medical Leave Act.  Beth has experience in both single-plaintiff cases and complex class and collective actions.