Department of Labor Revisits Tip Regulations

December 14, 2017 by Matthew G. Hawk, Associate

On December 4, 2017, the U.S. Department of Labor (“DOL”) announced proposed rulemaking regarding the Fair Labor Standards Act (“FLSA”)’s rules regarding tip-sharing.  The FLSA, codified at 29 U.S.C. § 201 et seq., provides that an employer can pay “tipped employees” at least $2.13 as a direct wage, and then take a “tip credit”, counting the employee’s tips toward their wages, so long as the total of the direct wage plus tips reaches at least the federally-mandated minimum wage of $7.25 an hour.  Under the current 2011 rules implementing the FLSA, however, employers who take the tip credit are treated identically to those who do not, and who simply pay their tipped employees the federal minimum as a direct wage.

Citing litigation involving employers who pay a direct cash wage of at least the mandated minimum, DOL seeks to revisit these rules.  DOL also cites the rise of state laws that require payment of the federal minimum wage as a direct cash wage as reducing the number of employees eligible to take a tip credit.  The proposed rule would revise 29 C.F.R. § 531.52 to remove the sentence “[t]ips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA.”  It also revises the subsequent sentence of § 531.52, as well as the last sentences of § 531.54 and § 531.59, to apply only to those employers who take the tip credit, rather than all employers.

According to DOL’s proposal, it expects that these changes will permit employers to utilize tips to fund tip-sharing arrangements with “back of the house” employees, such as dishwashers or cooks, who otherwise would not be considered employees that customarily receive tips and would thus be ineligible to participate in a tip-sharing pool.  As proposed, however, the revised rule only limits what those employers who take a tip-sharing credit do with tips; employers who do not can seemingly retain tips, so long as the tipped employees are paid at least the minimum wage.  Moreover, the Eleventh Circuit Court of Appeals has recognized that there is no private cause of action under FLSA for an employer’s unlawful retention of tips.  See, e.g., Malivuk v. Ameripark, LLC, 694 F. App’x 705, 709 (11th Cir. 2017).  Thus, if instituted, this rule change potentially could have significant impacts on tipped employees who receive a direct cash wage of at least the federal minimum, and leave them with little recourse if their employer retains tips.

If you would like more information on the foregoing, please do not hesitate to contact Matthew G. Hawk in our Tallahassee office at (850) 222-8121.

   Matthew G. Hawk, Associate
  (850) 222-8121