FLSA amendment bans employers from keeping tips, now allows tip pooling

Hidden within the mammoth $1.3 trillion spending bill passed by Congress last month are some important changes to the Fair Labor Standards Act (FLSA) around employee tips. The FLSA amendment strikes a compromise between opposing factions, as the Trump Administration Department of Labor (DOL) seeks to repeal a 2011 Obama-era rule that made it illegal for employers to pool tips among non-tipped employees.

The FLSA tip changes contained in the spending bill are as follows:

1. Employers may now require tipped employees to share tips with non-manager, traditionally non-tipped employees (e.g., back-of-the-house employees), as long as employers do not take a tip credit.
2. Employers may not keep employee tips for any purpose, including sharing those tips with managers or supervisors. This prohibition applies even if the employer claims a tip credit.

What happens next?

The FLSA amendment was spurred by anxiety around recent rules proposed by the DOL that seek to permit employers to share tips among all employees even if no tip credit is taken, and a growing federal Circuit Court split around the validity of the Obama-era DOL regulations.

Now that Congress has moved to address tip pooling, it remains to be seen how the DOL will address the validity of mandatory tip pooling among tipped and traditionally non-tipped employees if no tip credit is taken. The DOL Wage and Hour Division has indicated its intent to continue with rulemaking “in the near future.”

Employers in the seven states that do not allow employers to use tip credits will now be able to share tips with these non-manager, traditionally non-tipped employees. However, because the FLSA amendments do not address how to handle conflicting state law provisions, we are likely to see a significant number of disputes in courts in states that currently prohibit tip pooling.

What does this mean for employers?

Employers will need to be careful when it comes to implementing or maintaining a tip pooling arrangement going forward.

Employers found to be repeatedly or willfully in violation of the law are liable for the confiscated tips and the amount of any tip credit as well as an equal sum in liquidated damages. The DOL also has the authority to levy civil penalties of up to $1,100 per offense.

Employers should review their current tip pooling policies considering this FLSA amendment. Employers will need to determine if it makes more sense to take advantage of tip credits or to use a tip pooling arrangement in the workplace. Employers should also be cautious when determining who is eligible to participate in a tip pooling arrangement because the FLSA prohibits employers from sharing tips with “managers” and “supervisors” in all cases. The DOL Wage and Hour Division has indicated that it will use the duties test for exempt executive employees to determine whether an employee is a “manager” or “supervisor.”

Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.