Tip-Pooling Rule Under Fire Over Shelved Impact Analysis

Tip-Pooling Rule Under Fire Over Shelved Impact Analysis

In December, the US Department of Labor proposed a change to regulations under the Fair Labor Standards Act that would permit employers of tipped workers who pay the minimum wage and do not claim a tip credit to require these workers to “shar[e] tips through a tip pool with employees who do not traditionally receive direct tips–such as restaurant cooks and dish washers.” Critics of the proposed rule say it would hurt employees by allowing restaurant managers to skim tips or even conceivably not distribute the tip pool to workers at all.

New revelations have handed ammunition to these critics and thrown the future of the tip-pooling rule into doubt. Last week, Bloomberg Law‘s Ben Penn reported that the Labor Department had shelved an internal analysis of the proposal’s impact that found employees would lose billions of dollars in tips. Senior officials in the department ordered staff to revise the methodology of their analysis to produce a more favorable result, Penn adds, and later calculations showed smaller losses. Ultimately, the White House allowed the Labor Department to publish the proposal without including any estimate of its economic transfer effects.

Opponents of the rule change have leapt on this story as a reason to scuttle the proposal. Massachusetts Senator Elizabeth Warren sent a sternly-worded letter to Secretary of Labor Alexander Acosta requesting copies of all analyses the department conducted on the rule and correspondence pertaining to them, as well as urging the secretary to delay the end of a public notice-and-comment period that was to end Monday, February 5 (he did not). In addition, 17 state attorneys general wrote to the Labor Department, pushing for the proposal to be withdrawn, the Hill reported:

In a 12-page letter Monday led by California Attorney General Xavier Becerra (D), Illinois Attorney General Lisa Madigan (D) and Pennsylvania Attorney General Josh Shapiro (D), the state officials said the rule contradicts centuries-old employee and consumer expectations about tipping, and threatens to seriously injure workers and deceive consumers.

The attorneys general said if recent reports are true, the Department of Labor (DOL) could have broken the law in rolling out its plan to rescind the Obama-era ban on tip-pooling. … The attorneys general said the Administrative Procedure Act “requires the agency to make available to the public, in a form that allows for meaningful comment, the data the agency used to develop the proposed rule.”

The Labor Department’s Office of Inspector General announced on Monday that it was conducting an audit of the rulemaking process used in issuing this proposal.