Rehearing Denied on Challenge to DOL Tip-Pooling Rule

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By Lawrence E. Dubé

Sept. 6 — The U.S. Court of Appeals for the Ninth Circuit won’t rehear a panel decision that upheld a Labor Department rule on tip pooling, the court decided ( Oregon Rest. & Lodging Ass’n v. Perez , 2016 BL 289794, 9th Cir., rehearing denied 9/6/16 ).

En banc rehearings are rarely granted, and the result in this case may not be surprising, but the court’s Sept. 6 decision drew an unusually long and vigorous dissent.

The Oregon Restaurant and Lodging Association and other challengers argued the DOL exceeded its authority under the Fair Labor Standards Act by extending tip-pooling restrictions to all employers, not just those that claim a tip credit under the act, but a three-judge panel upheld the DOL rule 2-1 in February.

The challengers petitioned for rehearing en banc but failed to secure the support of a majority of the court’s judges. However, 10 judges joined in a 20-page dissent that charged “the panel majority’s extravagant theory is more than the Constitution will bear.”

Panel Decision Backed DOL Rule

The panel decision reversed two district court decisions and upheld a Labor Department rule promulgated in 2011 that makes the tip pool restrictions found in the FLSA applicable to all employers, not just to those that use the tip credit to pay employees who receive tips less than the minimum wage.

Restaurant associations, joined by casinos, hotels and other employers, challenged the DOL rule, arguing the FLSA only prohibits invalid tip-pooling arrangements when an employer invokes the act’s tip credit, 29 U.S.C. § 203(m). If an employer pays the statutory minimum wage to workers who receive tips, it can establish tip pools without violating any FLSA restrictions, the employers argued.

However, the Ninth Circuit panel found that DOL permissibly interpreted the “silence” of the FLSA on tipping to mean employees generally own their tips and that no employer can require employees to share their tips with other workers who don’t “customarily and regularly receive tips” from the employer’s customers (816 F.3d 1080, 26 WH Cases2d 10 (9th Cir. 2016)).

Judges Harry Pregerson and John B. Owens were in the majority on the panel. Judge N. Randy Smith dissented from the panel ruling.

Challengers Fail to Win Court Rehearing

The Oregon Restaurant Association and other challengers filed a petition for rehearing by the panel or, in the alternative, by the full court. The DOL opposed any rehearing, and the appeals court denied both requests.

Judges Pregerson and Owens voted to deny a panel rehearing, while Judge Smith voted to grant it.

Judge Diarmuid F. O’Scannlain dissented from the denial of an en banc rehearing. He was joined in the dissent by Judges Alex Kozinski, Ronald M. Gould, Richard C. Tallman, Jay S. Bybee, Consuelo Maria Callahan, Carlos T. Bea, Milan D. Smith, Sandra S. Ikuta, and N. Randy Smith.

The dissent argued federal agencies can exercise only powers delegated by Congress. “Flouting that first principle,” the dissent said, “the panel majority equates a statute’s ‘silence’ with an agency’s invitation to regulate, thereby reaching the startling conclusion that the Department of Labor can prohibit any workplace practice Congress has not ‘unambiguously and categorically protected’ through positive law.”

The dissenting judges said that “if a restaurant guarantees its employees the federal minimum wage, the restaurant can (so far as federal labor law is concerned) force its servers to share their tips with the bussers, cooks, and dishwashers.” The tip credit provision that Congress included in the FLSA “does not apply here—it is simply indifferent to the fate of the servers’ tips,” the dissenting judges said.

Jackson Lewis P.C. filed the petition for rehearing for the Oregon Restaurant and Lodging Association and other challengers. Justice Department attorneys filed the government’s response.

To contact the reporter on this story: Lawrence E. Dubé in Washington at

To contact the editor responsible for this story: Susan J. McGolrick at

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