OCEAN CITY — A federal rule change proposed by the Department of Labor in December that would have required tipped employees to share tips with back-of-the-house co-workers, and perhaps even their employers, was denied last week by Congress.
In December, the Trump administration’s Department of Labor (DOL) announced a Notice of Proposed Rulemaking (NPRM) regarding the tip regulations under the Fair Labor Standards Act. Under the proposed rule change, employers would essentially have the freedom to collect tips earned by front-line staff such as servers and bartenders and redistribute the tips to other workers such as cooks and dish washers, for example.
In simplest terms, an employer would be able to collect all of the tips earned by front-of-the-house staff and after ensuring the front-line servers are paid the federal minimum wage of $7.25, redistribute the rest of the tips to other workers. Essentially, the rule would allow employers to subsidize the pay of traditionally non-tipped employees on the backs of the tipped employees.
The proposed rule change could have long-ranging effects in resort communities such as Ocean City and its hospitality-based economy. With hundreds of restaurants, bars, hotels and other hospitality-based businesses, tips are flowing throughout the summer in Ocean City and the DOL’s proposed rule change announced this week could dramatically change how the earnings are redistributed.
However, the DOL’s proposed rule change was struck out of the omnibus budget bill passed by Congress last week. Instead, congressional leaders included language in the approved budget bill that codifies protections for tipped employees against employers, supervisors and managers taking any portion of their tips and redistributing them to other non-tipped employees.
The proposed rule change was removed after a months-long public comment period during which hundreds of thousands of tipped employees from around the country submitted letters and emails and commented at various hearings on the proposed measure. Advocates for tipped employees were declaring victory this week after Congress shot down the proposed rule change.
“Today represents a historic victory for restaurant workers,” said Saru Jayamaran, co-founder and president of Restaurant Opportunities Center United. “The National Restaurant Association wanted to steal workers’ tips, but the workers said no and they won. The fact that hundreds of thousands of workers stood up and said no to employers taking their tips, and that Congressional leadership listened and acted, is a testament to the power of workers standing up together.”
Christine Owens, executive director of the National Employment Law Project, called the decision to shoot down the proposed tip-sharing rule change a landmark victory.
“The law cannot be more clear,” she said. “Tips belong to workers and no one else. This landmark victory belongs to all the restaurant servers, bartenders, car wash workers, valets, attendants and all the other tipped workers who fought back when the Trump administration proposed its misguided tip-stealing rule.”
Under the current rule, employers can claim a tip credit that allows them to pay tipped employees considerably lower than the federal minimum wage, in many cases as low as $2 to $3 an hour. The assumption is the tips those workers earn more than compensate them above and beyond the federally-mandated $7.25 minimum wage. To be sure, most servers and bartenders working in a busy summer seasonal business often earn far more than the minimum wage and sometimes make as much as $20 to $30 an hour during strong shift in the height of the season.
However, the rule change proposed this week by the DOL would have allowed employers to collect those wages and redistribute them to other workers as a means to reduce the disparity in earnings.
Proponents of the proposed rule change applauded it as a means to reduce or eliminate the disparity in wages that often exists between tipped employees and non-tipped employees. The National Restaurant Association strongly supported the proposed rule change. Angelo Amador, executive director of the Restaurant Law Center, or the legal arm of the National Restaurant Association, suggested the current wage system in most restaurants unfairly diminished back-of-the-house workers’ ability to maximize their earning potential.
“Allowing the kitchen staff to enjoy a share of the tips that their efforts help generate is more equitable than the current regulations, which categorically deny kitchen staff an opportunity to participate in tips,” he said. “As given the demographics in restaurants, where kitchen staff skew minority while dining room staff skew non-minority, it is especially important that federal law not impose barriers to kitchen workers receiving greater earnings.”
Amador essentially said a happier back-of-the-house staff armed with the ability to earn a share of the tips would be more inclined to improve the overall customer experience.
“Any loss of tips through pooling may be offset in part or if full by virtue of better performance by kitchen staff newly motivated by their ability to reap a share of the tips their efforts help produce, leading to better overall kitchen performance, greater customer satisfaction and higher overall levels of tips,” he said.
Amador said the issue boiled down to equity in the potential earning ability for all employees.
“This is a fairness issue,” he wrote. “There is no good reason, for example, why a busser who clears dirty dishes from a table should be eligible to share in tips left by a customer, but the dishwasher who cleans the dirty dishes should not. Similarly, there is no good reason why a bartender who prepares a drink for a customer should be eligible to share in tips, but a cook who prepares the guests’ food should not. After all, it is because of the work performed by all employees in the restaurant that a server is in a position to even collect a tip.”
Closer to home, Ocean City Hotel-Motel-Restaurant Association Executive Director Susan Jones said her board had not yet discussed last week’s decision to strike down the proposed rule change on tip-pooling, but she had her own cursory opinion.
“In my opinion, pooled tips belong to those who provide the customers with the service,” she said. “Servers are front-of-the-house personalities and provide the service and, therefore, are entitled to their tips. The front of the house has the interaction with the public and their tips are based on that interaction.”
