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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