Restaurant Industry Sues Over New Tip Pooling Regulations that Exclude Kitchen Staff from Tip Pools

On July 12, 2012, restaurant associations filed a lawsuit against the U.S. Department of Labor (DOL) on behalf of restaurants and their employees who share in tips and participate in tip pools.  The lawsuit was brought by the Oregon Restaurant and Lodging Association, the Washington Restaurant Association, the Alaska CHARR and the National Restaurant Association, along with a Portland, Oregon restaurant and an employee of that restaurant.

The lawsuit, filed by Jackson Lewis in the United States District Court in Portland, asks the court to declare recent DOL regulations prohibiting back-of-the-house (kitchen) workers from sharing in tips left by customers unlawful and not applicable to restaurants that pay employees who share the tips at least federal or the applicable (if higher) state minimum wage with no tip credit.

As summarized in an earlier post, the DOL regulations are inconsistent with a recent court decision allowing restaurants to organize tip pooling.  In 2010, the U.S. Court of Appeals for the Ninth Circuit—the federal appellate court with jurisdiction over numerous Western states including, among others, Alaska, Oregon, and Washington—ruled that federal law does not prohibit an employer from instituting a tip pool that includes back-of-the-house workers if that employer pays its employees who share in tips the full minimum wage and does not take a tip credit.  Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).  DOL responded approximately a year later, publishing regulations in direct conflict with the Woody Woo decision.

Shortly after the DOL published these regulations on April 5, 2011, restaurant associations and at least one United States Senator contacted the DOL to raise concerns about these regulations and the confusion they create for employers, particularly in the Ninth Circuit, given their conflict with the Woody Woo decision. Enforcement of DOL’s new regulations against employers in the Ninth Circuit was left unclear by DOL at that time.

However, on February 29, 2012, DOL issued a field assistance bulletin clarifying its position by rejecting the Ninth Circuit’s Woody Woo decision and declaring: “The Wage and Hour Division will enforce nationwide the 2011 final rule [including against employers in the Ninth Circuit] explaining [DOL’s position] that a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit . . . .”

In March 2012, the restaurant associations again asked DOL to reconsider its position on this issue, to withdraw its February 29 Bulletin, and to clarify that employers in the Ninth Circuit who pay their employees the full minimum wage and do not take a tip credit may legally implement tip pools that adhere to the Ninth Circuit’s Woody Woo ruling. DOL rejected this request.

As a result, the restaurant associations felt they were left with no choice but to seek court intervention.  The restaurant associations state that the DOL’s 2011 Regulations are unlawful and fail to take into consideration the intent of the customers who leave tips, as well as of the employees who share in the tips.  As one example, they point to the fact that the employee who joined this lawsuit is currently working as a server for the plaintiff restaurant, and is the one who initiated getting the restaurant’s tip pool to include its back-of-the-house employees.  As the court complaint explains, this was done as a matter of fairness and to recognize the fact that back-of-house employee performance directly impacts guest satisfaction and tips left by those guests.