Labor Department Proposes A Reversal Of Its Current Tip-Pooling Rules

On December 5, the Department of Labor published a Notice of Proposed Rulemaking to reverse its 2011 rule prohibiting employers from sharing tips obtained by service workers with non-tipped staff.

The proposed rule would allow employers who pay at least minimum wage (without taking a tip credit) to share tips through a tip pool with employees who do not traditionally receive direct tips — such as restaurant cooks, dishwashers, and other “back of the house” employees. The proposed rule could arguably even allow an employer to pocket the tips altogether.

The proposed rule would not affect employers who claim a tip credit under the Fair Labor Standards Act. Any employer claiming a tip credit would still be prohibited from requiring tip pooling with non-tipped workers.

The Department’s press release for the proposed rule stated that employers would now “have the freedom to allow sharing of tips among more employees,” which would “help decrease wage disparities between tipped and non-tipped workers.” The Department also raised concerns about the significant amount of litigation involving tip pooling since the 2011 rule was implemented, which has placed enforceability of the current law into question with a split in the Circuit Courts of Appeal.

The proposed rule will be available for public comment for a 30-day period, which the Department of Labor must review per federal rulemaking procedure. Employers should wait until the rule is finalized before taking action, and even then, should carefully consider any alternative state-specific laws that may impact the proposed Department of Labor rule.