The Fair Labor Standards Act now permits back-of house employees to participate in mandatory tip pools, provided no tip credit is taken against minimum wage.  The Consolidated Appropriations Act, 2018 budget bill effectively amends the FLSA to clarify two important points: back of house employees MAY participate in certain tip pools however supervisor/manager/owners MAY NOT participate in tip pools.

How does that affect employers doing business in California?

Labor Code section 351 permits mandatory tip pooling for an employee who provides “direct table service” or who is in the “chain of service.”  In 2009, the court in Etheridge v. Reins International California, Inc. (2009) 172 Cal.App.4th 908, 922 held that kitchen staff contribute to the “chain of service” and could receive tips under section 351.

In 2011, the DOL issued a regulation prohibiting back of house employees from participating in tip pools regardless of whether a tip credit was taken.  There was litigation over whether the DOL had authority to issue such a regulation, however the Ninth Circuit in Oregon Restaurant and Lodging Association v. Perez, 816 F.3d 1080 (9th Cir. 2016) held that the DOL acted within the scope of their power, effectively invalidating Etheridge and Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).

Now that the DOL regulations have been reversed by the recently passed budget bill and FLSA amendment, it seems as though the holdings of Etheridge and Woody Woo are back, clearing the way for back of house employee inclusion in tip pools.

But, we are exercising caution before advising clients to change their tip pools.  Still pending is an appeal to the Supreme Court in the Oregon Restaurant and Lodging Association case as well as a still valid DLSE Opinion Letter from September 8, 2005 that does not include kitchen staff as part of the “chain of service.”  Making changes to your California tip pool at this juncture seems premature as we don’t want you to be the test case.

I just returned from the Cornell HR in Hospitality Conference in Las Vegas with my partner Carolyn Richmond.  I participated in the Executive Summit and shared ideas with some of the most innovative minds in the hospitality industry.  Here is my annual top ten list of take-aways:

  1. While no one knows what will happen under the Trump Administration, some common assumptions include:  Less active Department of Labor and NLRB (especially as to non-union work forces ); EEOC likely to apply current law to egregious situations, but not expand it
  2. That said, states like California will pick up the slack, so California employers should not expect any decrease in claims or lawsuits
  3. One of labor’s biggest concerns about the Trump Administration is the shift in courts; there are 117 vacant federal court vacancies, which means a lot of conservative judges could be appointed and rule in a more business-friendly way
  4. A less powerful NLRB may mean more corporate campaigns, and with that may come more RICO lawsuits to challenge them
  5. How hotels treat their Sales Managers (whether exempt or non-exempt) is still all over the map, although the trend is certainly towards classifying lower level sales and catering managers as non-exempt
  6. Employees are focused on more than just compensation and benefits; renewed focus on culture, recognition and development
  7. Benchmarking is only part of the equation, because if you pay the median, you can’t differentiate from others and get the best candidates
  8. Acknowledging that many millennials move on after a few years, many recruiting efforts now focus on alumni re-recruiting, which changes the off-boarding process and the attitudes towards employees who leave
  9. Automation is a hot topic in hospitality, but companies need to balance guest experience with efficiency; Human Resources should embrace technology to free up time to focus on people, not mundane tasks
  10. Anticipate trend to de-regulate tip pooling so that more employees can participate without such archaic restrictions on back of the house and time spent touching tables