Friday, July 1, 2016

Take Care with Required Tip Sharing: MN Court of Appeals Holds that Wrongful Discharge Claim Based on Refusal to Share Tips Can Proceed

The Minnesota Court of Appeals recently clarified that an employee who is fired for refusing to comply with an employer’s unlawful tip-sharing practice can sue for wrongful discharge under the Minnesota Fair Labor Standards Act (“MFLSA”) and seek monetary damages, including back pay. In Burt v. Rackner, an employee of Bunny’s Bar & Grill (“Bunny’s”) was told that he “needed to give more of his tips to the bussers, and that there would be consequences if that did not happen.” That did not happen and Bunny’s fired the employee for not sharing his tips with other staff.

The Court ruled that the plaintiff’s claim could proceed, because the MFLSA prohibits an employer from requiring an employee “to contribute or share a gratuity . . . with the employer or other employees or to contribute any or all of the gratuity to a fund or pool operated for the benefit of the employer or employees.” See Minn. Stat. § 177.24, subd. 3 (2014). In Rackner, the employee argued that he was fired for refusing to participate in an illegal tip-sharing pool and that his discharge entitled him to sue for damages under the MFLSA. Conversely, Bunny’s argued that because the MFLSA does not contain a provision expressly prohibiting an employer from discharging an employee who declines to participate in an unlawful tip-sharing arrangement, there is no private cause of action for wrongful discharge in such a circumstance. Bunny’s also argued that the plaintiff’s alleged damages were limited to lost tips and could not include back pay.

The Court agreed with the employee and held that, where an employer requires, as a condition of continued employment, that an employee consent to tip sharing rules expressly prohibited by the MFLSA, the employee is authorized by statute to sue for damages normally associated with a wrongful-discharge cause of action. The Court reasoned that the Minnesota legislature intended the MFLSA to apply broadly, both in its substance and as to damages, and that permitting wrongful discharge suits seeking damages beyond solely the recovery of lost tip money (as Bunny’s had argued) was consistent with that legislative intent.

Tips on Tipping:

In light of the Rackner decision, employers should consider taking the following steps:
  • Review Tipping Practices. Employers with tipped employees should review their tipping practices for compliance with the MFLSA. The MFLSA generally prohibits requiring a direct service employee (e.g. one who performs direct service for a customer) from pooling or sharing tips. Tip sharing is not prohibited, however, when multiple direct service employees provide the direct service at issue, such as at a banquet. In addition, purely voluntary sharing or fund-contribution is permitted in the absence of “employer coercion or participation.” See Minn. Stat. § 177.24, subd. 3 (2014). To position itself to prove voluntariness, an employer should document with employees that any tip sharing is voluntary.
  • Be Mindful of Limits on Tip Credits. As a reminder, while the FLSA permits an employer to credit part of an employee’s tips to the minimum wage requirement, the MFLSA does not. Under the MFLSA, an employer cannot credit any portion of tips to the minimum wage requirement. Employers should take care in having any discussions about or participation in a voluntary tip-sharing program to ensure its actions cannot be interpreted as employer coercion or participation.

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