Federal Appeals Court Ruling May Require You to Revise Your Tip-Pooling Practices

tip-pooling, Naperville business law attorneyOwning a restaurant or bar can be extremely profitable and fulfilling. On the other hand, it can also be tremendously stressful, as the ebb and flow of business and unpredictable customer rushes can make scheduling and maintaining appropriate staff levels very difficult. Employee compensation is also more complex, in many cases, as bartenders and waitstaff customarily receive tips from grateful customers, giving you the opportunity to take advantage of wage credits available under federal law.

As a business law attorney, I have helped many clients who own bars and restaurants understand the various state and federal regulations that apply in regard to paying their employees. With that in mind, I wanted to talk a little about a recent U.S. appeals court ruling and what it might mean for some business owners.

Ninth Circuit Appellate Decision

In February of this year, the Ninth U.S. Circuit Court of Appeals issued a ruling that upheld a regulation put into place the Department of Labor in 2011. The regulation prohibits the forced pooling of tips to be shared with workers who do not customarily receive tips, even if the employer does not take the available tip credit and pays the entire staff at least minimum wage. The additional rule was needed to extend similar provisions in the Fair Labor Standards Act, as the FLSA only makes reference to employers who do take the tip credit.

Prior History

The appeals court’s decision effectively recognizes the power of the Department of Labor to enact new rules in spite of previous court rulings. The ability of the DOL to do so was in question because, in 2010, the same court said that employers who paid minimum wage and did not take the tip credit were permitted to force tip-pooling to share with non-tipped personnel such as cooks and dishwashers. That decision was based solely on the silence of the FLSA on the matter. Following the ruling, the DOL addressed the issue directly, a move that the current ruling acknowledged was well within the DOL’s rights and jurisdiction.

What Does This Mean for You?

Illinois does not fall under the jurisdiction of the Ninth Circuit, but the decision is still important as it validates the DOL’s authority and the rule in question. Therefore, if you own a business that employs staff who are customarily tipped, you may require them to pool their tips only to be shared with other tipped staff members. For example, a tip bucket behind a for cash tips to be shared with all of the bartenders is fine. Requiring your bartenders to give some of those tips to non-tipped workers like security staff or cooks is against DOL regulations, regardless of whether you pay your tipped workers full minimum wage or take the tip credit.

Have Additional Questions?

To learn more about your rights and responsibilities under the Fair Labor Standards Act or other Department of Labor rules, contact an experienced Naperville business law attorney. At The Gierach Law Firm, we have the skill and knowledge to help you fully protect your business investment and increase your profitability. Call 630-756-1160 to schedule a consultation today.



Chicago Tribune

U.S. Department of Labor – Fair Labor Standards Act

Los Angeles Times

National Restaurant Association