Those in the restaurant business in Texas — employers and employees — should keep tabs on a couple of cases coming before the U.S. Supreme Court. At issue in both cases is the authority of the U.S. Department of Labor to regulate and restrict tip-pooling, a subject that could seriously impact how restaurant workers are compensated.
Tip-pooling is a common voluntary practice in which certain employees in restaurants — those commonly tipped such as hosts and waitstaff — share the tips.
In 2011, the Department of Labor issued regulations that extended tip-pooling restrictions to all restaurants and other businesses with tipped employees (such as casinos), including those that pay their employees minimum wage. It restricted tip-pooling to the front-of-the-house employees, leaving out back-of-the-house workers such as chefs and other food preparers and washers who are not normally tipped.
Failure to comply with these federal regulations can result in a legal claim against the restaurant under the federal Fair Labor Standards Act (FLSA).
In a state such as Texas — which is a tip-credit state — restaurateurs can pay their employees a tipped minimum wage (currently at $2.13 per hour), which is much less than the federal minimum wage of $7.25 per hour. This is only legal as long as the amounts these employees receive from the tip pool results in earnings that at least match the federal minimum wage.
Restaurants are in favor of tip-pooling because it allows them to pay lower wages to their employees. Restaurants that have extended tip-pooling to include back-of-the-house employees have found themselves in hot water, facing FLSA claims brought by tipped employees being required to share their money with fellow workers who don’t directly receive tips from customers.
Compounding the problem are employees in the restaurant business who are not clearly front-of-the-house or back-of-the-house workers such as food runners. Food runners, or expediters, facilitate clear communication between customers, waiters and the kitchen, making sure orders are being cooked in a timely fashion and ready for a table simultaneously. Sometimes, it is unclear whether these employees can legitimately share in the tip pool, and getting it wrong could land the restaurant in a FLSA lawsuit.
The Department of Labor’s regulation was challenged in court but upheld by the Ninth Circuit Court of Appeals. Known as Wynn Las Vegas v. Joseph Cesarz, the case has been accepted for review by the U.S. Supreme Court this fall, which could result in a reversal of the Ninth Circuit’s ruling.
In a related petition, National Restaurant Association v. U.S. Department of Labor, the U.S. Supreme Court is being asked to review the DOL’s authority to issue regulations restricting an employer’s ability to include more employees in the tip pool.
The U.S. Supreme Court’s decisions could alleviate a tip-pooling legal thicket with which restaurants and their employees now have to contend. It could also restrict how much regulatory power a federal agency can wield in legal gray areas such as who can benefit from tip-pooling.
Andrew Greenwell is a lawyer with a civil trial and appellate practice with a focus on commercial litigation. He was listed as a Super Lawyer in 2011-12 and 2014-15 and a Best Lawyer since 2005.
