Congress Amends FLSA to Bar Employers from Keeping Workers’ Tips

Congress Amends FLSA to Bar Employers from Keeping Workers’ Tips

When the US Department of Labor proposed a new rule in December concerning the treatment of tips under the Fair Labor Standards Act, the proposal drew fire from critics who said it effectively permitted employers such as restaurants to withhold their employees tips. The regulation, which would only apply to employers who pay a full minimum wage and do not take a tip credit, would allow these employers to require that tips be pooled and shared with back-of-house staff who do not traditionally receive direct tips, such as restaurant cooks and dishwashers—a practice banned by the Obama administration.

A stipulation in the regulation that managers could use pooled tip money to make structural improvements, like expanding the dining area, or to lower menu prices, led employee advocates to argue that it would result in many tips not accruing to employees at all. The Labor Department publicly contended that these fears were baseless, but last month, an internal analysis of the proposal’s impact came to light, showing that employees could indeed lose out on billions of dollars in tips. Senior officials in the department shelved the analysis and ordered staff to revise their methodology to produce a more favorable result. The revelation cast doubt on the future of the rule and led to calls from members of Congress to discard it and warnings from state attorneys general that the department may have broken the law in rolling out the proposal.

The rule is still pending, but now, if it does come into effect, it will do so with its critics’ main objection addressed.

The omnibus spending bill passed by Congress last week included a provision negotiated between Washington Senator Patty Murray and Labor Secretary Alexander Acosta that amends the FLSA to explicitly prohibit employers from pocketing workers’ tips, regardless of whether they pay the full minimum wage, The Hill reported last week. The amendment also gives workers the right to sue to recover withheld tips plus damages and empowers the department to levy civil penalties on violators.

Murray’s amendment will not block the other components of the proposed regulation. If the rule is ultimately enacted, it will represent a significant victory for the restaurant industry, which has been lobbying for years to have more control over the distribution of employees’ tips. Industry groups say it is only fair to allow kitchen staff to share in tips as they also contribute to customers’ experience, but labor groups and servers themselves say restaurants should pay those employees higher base wages rather than requiring dining room staff to relinquish some of their tips.