Democrat Changes Tune on Labor Dept. Tip Pool Controversy

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By Ben Penn

Sen. Jeff Merkley (D-Ore.) stands with worker advocates opposing the Labor Department’s move to reverse an Obama-era tipping rule that declared tips to be the property of the employees who receive them. More than six years earlier, however, he wrote the agency seeking clarity on employer concerns about the regulation.

“I have heard significant concerns from restaurant owners and managers in Oregon about new Department of Labor rules on tip pooling and tip crediting” and their apparent contradiction with a court ruling, Merkley wrote In a 2011 letter obtained by Bloomberg Law. The Oregon Democrat went on to ask the DOL to “provide clarification for employers in the 9th Circuit with regard to what portions of the new rule do and do not apply.”

Fast forward to this month, when the Trump administration’s DOL proposed rescinding the earlier regulation, which had forbid certain tip-sharing arrangements between restaurant servers and cooks. The rescission proposal has drawn outrage from worker-advocacy groups such as the National Employment Law Project and Restaurant Opportunities Centers United, which hosted a Capitol Hill news conference Dec. 12 to demand the DOL reconsider the proposal. They argue the DOL has gone too far by specifically proposing language that would enable restaurants not to just allow tip-sharing, but to pocket their employees’ gratuities.

“Here comes team Trump, and they say, ‘We’re on the side of the powerful against the people,” Merkley said, while standing with restaurant employees and representatives from NELP, ROC United and the Economic Policy Institute. “Tell the restaurant owners to keep their hands off our servers’ tips.”

Merkley aides told Bloomberg Law that he was simply trying to help Oregon restaurants understand their responsibilities under the rule when it was proposed

“In 2011 the Senator asked for clarifications so that employers would understand exactly how the tip pooling rule worked,” Merkley spokesman Ray Zaccaro said. “That rule, which the Senator supported, ensured that tips remained the property of employees. This proposed change doesn’t, which is why he’s opposing it.”

The senator’s letter doesn’t outright oppose the Obama rulemaking, but could still be used by industry groups to cast doubt on the merit of critics’ claims. Over his past nine years on the Senate, Merkley is a frequent supporter of organized labor and legislation to protect workers’ rights.

Service employer groups support the DOL’s rule reversal, saying it will give restaurant workers and management the freedom to design their own tipping arrangements and lift pay for back-of-house restaurant workers when the front-of-house workers are paid a full minimum wage in addition to tips. The National Restaurant Association argues the rule caused tremendous confusion about the state of play for businesses in states such as Oregon, where tipped workers must be paid the full minimum wage.

In 43 other states, businesses can take a tip credit to pay an hourly wage of as little as $2.13, provided that gratuities bring the worker’s average pay up to the federal minimum wage of $7.25 per hour.

Confusion or Concern?

Patricia Smith, who was DOL solicitor at the time of Merkley’s inquiry, recalls corresponding with the senator’s office in 2011. “I don’t remember any pushback from his office when we explained what our position was,” Smith told Bloomberg Law.

“I don’t think he was trying to weigh in substantively. He was talking about the confusion,” Smith, now a senior counsel at NELP, said. “He had been told that this was a situation—there was this 9th Circuit opinion that would’ve given them the right to have a broader tip pool, and now we have a regulation, so what was the state of the law?”

The Merkley letter refers to a 2010 decision in Cumbie v. Woody Woo, in which the appellate court ruled that the Fair Labor Standards Act does not restrict tip-pooling between front-of-house and back-of-house employees when the employer does not apply the tip credit. The DOL’s Wage and Hour Division wrote the 2011 rule directly in response to that decision, in an attempt to clarify the agency’s interpretation that tips belong to workers even when they are paid the minimum wage.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com

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