Long sought by the restaurant industry, legal tip pooling is imminent

Currently, restaurants are allowed to share tips among servers, bartenders, bussers, and hosts, but a federal law called the Fair Labor Standards Act bans them from including cooks, dishwashers, and other kitchen workers in a larger tip pool. The proposed rulemaking would change that, modifying the law to allow all restaurant workers in the pool, except managers, as long as the business isn’t taking advantage of a tip credit.

Theoretically, that could include any restaurant, but practically speaking, this means big changes for establishments in four major dining markets: California, Nevada, Oregon, and Washington. There, tip credits are illegal, and all restaurant workers are on the same minimum wage. Because of that, managers there will be allowed to institute mandatory tip sharing for the whole staff. (Alaska, Minnesota, and Montana, three other states that ban tip credits, also ban mandatory tip pools.)

The rulemaking is a triumph for the restaurant industry, which pushed this proposal for years before finding a partner in a sympathetic Trump administration. Shortly after the president’s inauguration, the National Restaurant Association filed a petition with the Supreme Court to overturn a lower court ban on tip pools. That didn’t go anywhere, but a few months later, the Trump administration’s new labor secretary offered a proposal to do just that.

That effort, led by now-disgraced Labor Secretary Alexander Acosta, failed amid concerns that managers who distributed tips would steal them. A compromise was then written into the 2018 spending bill, allowing for tip pools as long as managers were explicitly banned from participating in them. This new rule writes that compromise into law.

Pay discrepancies are a real thing in restaurants, particularly at upscale joints in dining meccas like Los Angeles, San Francisco, Las Vegas, Seattle and Portland, where bartenders and servers can take home thousands of dollars a week while the cooks and dishwashers in back may be just scraping by. 

In theory, in those cities, things could be evened out by sharing the wealth. But that lets employers off the hook. Since the Obama administration, it’s been the wisdom of the labor department that tips belong to employees who receive them. Tips are their property. Under this new rule, that would no longer be the case. Rather than raise wages in the kitchen, the logic goes, managers could take billions of dollars away from workers in the front of the house. 

It’s important to note that this doesn’t only affect workers in those six states. The law would affect employees in any restaurant, almost anywhere in the country, where a restaurateur has declined to take a tip credit, and everyone is paid at least the full minimum wage. That unusual move is currently a precondition of becoming a no-tipping establishment. 

The proposal would also put the nail in the coffin for an obscure provision known as the 80/20 rule, which requires restaurants to pay servers, bartenders, and bussers the full minimum wage when side work exceeds 20 percent of their shift. The Department of Labor rescinded guidance on the rule last year, and then announced in February that it would no longer enforce it.

Again, as with the tip pool, the 80/20 rule is an issue that divides management and labor. Side work is typically done when customers aren’t around—it’s rolling napkins, cleaning menus and counters, filling sugars, and cutting up limes for margaritas. Usually, it’s at the beginning or end of a shift, but sometimes side work happens during a slowdown in service, which causes problems for managers who aren’t tracking it. 

Judy Conti, the government affairs director for the National Employment Law Project, a New York-based think tank, said in a written statement that without the rule, employers will be free to take advantage of tipped workers and have them perform “excessive amounts of non-tip generating work” for rock-bottom, subminimum wages. Right now, that’s illegal. Several fast-casual chains have been sued by workers seeking proper remuneration for side work, settling for millions of dollars. 

The Department of Labor is now accepting public comment on the proposed rule. Barring a massive outcry, it’s likely to become the law.

Update, October 18, 2019, 5:00 p.m., EST: This story includes information about states that ban tip pools.