Thursday, April 12, 2018

Tip Pooling


Tip pooling in the hospitality industry has been affected by a recent act of Congress and a Minnesota class action that have garnered significant attention. The Congressional act will have limited impact on Minnesota employers because they continue to be subject to substantial restrictions on tip pooling under state law. Tip pooling is the practice of sharing tips between front-of-house staff and back-of-house staff. On March 23, 2018, Congress passed a budget reconciliation bill that included a rider amending the federal Fair Labor Standards Act (FLSA) and related tip pooling regulations. The FLSA prohibits employers from keeping tips received by their employees, including allowing managers or supervisors to keep any portion of employees’ tips, regardless whether the employer takes a “tip credit” toward the FLSA’s minimum wage requirement. (Minnesota law does not permit a tip credit in any event.) 

The new amendment changes the FLSA regulations so that they no longer prohibit an employer from tip pooling when the employer is not taking a tip credit. The amendment does not change the rule that managers or supervisors cannot be in a tip pool; but does affect the available penalties and enforcement authority for the recovery of all tips unlawfully kept by the employer. The amended federal law also provides for doubling of damages and civil money penalties up to $1,100 when employers unlawfully keep employee tips. 

Minnesota has its own tip pooling law, stating that “any gratuity received by an employee or deposited in or about a place of business for personal services rendered by an employee is the sole property of the employee.” Thus, Minnesota employers may not require employees to pool tips in any circumstance. A highly publicized state class action ruling in August 2017, found Surly Brewing in violation of this restriction. Surly had implemented a tip pooling practice that was not entirely voluntary; its practice ran afoul of the law by essentially mandating that tipped employees pool tips and share them with non-tipped staff. The Plaintiffs argued, among other things, that tip-pooling arrangements are an employer’s way of effectively subsidizing the wages it pays its back-of-house staff with tips belonging to the front-of-house employees.

The Surly court held that under the state law if an employee does not want to participate in tip pooling, the employee cannot be required to do so and must be free from pressure and coercion by colleagues or management to participate. The court recognized that each individual employee has a right to control his or her tips. This individual right cannot be usurped by a “majority rule” voting procedure such as the one Surly had used. 

Surly Brewing Company settled the class-action suit for $2.5 million on April 2, 2018. The settlement proceeds will be split among 140 Surly bartenders and servers.

To avoid liability under Minnesota law, employers must not require any employee to participate in a tip pool against his or her will. Each tipped employee must be given a free choice.

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