Nearing the Tipping Point


Regulatory, judicial, and state developments related to tipped wages are as hot this summer as the weather. Rules are soon to be proposed, court cases are under consideration, and New York and Washington, D.C., are weighing decisions that would affect tipped workers in the days to come.

Federal Rulemaking Pending

In August, the Labor Department is expected to issue a notice of proposed rulemaking (RIN 1235-AA21) to align its tip regulations with recent statutory amendments made to the Fair Labor Standards Act, the department said in its spring semiannual regulatory agenda.

Under the FLSA tip-credit amendment contained in a recent budget measure, employers must not keep employee tips, must prohibit managers and supervisors from participating in tip pools, and may allow back-of-the-house workers to participate in tip pools as long as all workers are paid at least the federal minimum wage of $7.25 an hour.

The measure, better known as the Consolidated Appropriations Act, 2018 (Pub. L. 115-141), was signed into law March 23 by President Donald Trump.

In an April 6 Field Assistance Bulletin (FAB 2018-3), the Labor Department clarified when a worker qualifies as a manager or supervisor, and addressed enforcement of FLSA tip-credit rules and penalties, which were amended by the budget measure.

Wage and Hour Division regulations that barred tip pooling when employers pay tipped employees at least the full FLSA minimum wage and do not claim a tip credit have no further force or effect “(until any future action by the WHD administrator,” the guidance said, noting that the division “expects to proceed with rulemaking to fully address the impact of the 2018 amendments.”

More than 200,000 comments on the proposed rule were received by the Feb. 5 deadline.

Court Challenges

In the courts, the National Restaurant Association also has challenged the Labor Department’s authority and enforcement with regard to tip-related regulations.

The Restaurant Law Center, the litigation office of the National Restaurant Association, on July 6 brought a lawsuit in a federal district court in Texas against the Labor Department to invalidate a department policy that requires tipped workers to be paid the full federal minimum wage of at least $7.25 for time spent on tasks that do not generate tips if the tasks make up at least 20 percent of their weekly hours.

The policy is arbitrary and capricious under the Administrative Procedure Act and contrary to the FLSA, the association said, noting that the regulation was not formulated through the rulemaking process.

The case is Restaurant Law Center v. U.S. Dept. of Labor, W.D. Tex., No. 18-cv-567, complaint filed 7/6/18.

On June 25, the Supreme Court denied the National Restaurant Association’s Jan. 19 petition challenging the Labor Department’s regulatory authority to ban tip-sharing with employees who do not usually receive tips and its claim that changes to labor law should be legislated through Congress.

The Labor Department in its reply brief, which was filed May 22 after having requested nine extensions, noted that since the petition had been filed “a series of administrative and legislative developments have altered the relevant legal landscape.”

The department also noted that Labor Secretary Alexander Acosta testified March 6 at a House subcommittee hearing that he was persuaded by the Tenth Circuit’s reasoning that the Labor Department lacked statutory authority for the 2011 regulations at issue, but said that Congress could implement a solution, which it did on March 23 when it enacted the FLSA tip-credit amendments that were contained in the recent budget measure.

The high court’s denial upheld a rule that, as evidenced by the developments described by the Labor Department, was no longer in effect.

The case is Nat’l Rest. Ass’n v. DOL, U.S., No. 16-920, cert. denied 6/25/18.

New York

A series of public hearings that were to evaluate the possibility of ending minimum-wage tip credits in New York concluded June 27. The deadline for written testimony was July 1.

Gov. Andrew M. Cuomo (D) introduced a proposal Dec. 17, 2017, to eliminate the tip credit, which allows employers to pay workers a subminimum wage.  By Jan. 25, the state labor department had identified the dates and locations where hearings would be held from March to June across the state “to solicit input from workers, businesses, and others.”

In the wake of the hearings and the July 1 deadline for written testimony, the state labor department was analyzing hundreds of comments it received, along with nearly 40 hours of testimony, and was studying relevant research to formulate its recommendations, according to the department’s website.

“With the volume of materials to be analyzed, it is too soon in the process to discuss any sort of timeline for the release of the recommendations or their implementation,” the department said.

District of Columbia

On July 10, at the Council of the District of Columbia’s last meeting before its summer recess, seven of the council’s 13 members co-introduced legislation to repeal Initiative 77, which D.C. voters approved June 19. The initiative increases the direct minimum cash wage that tipped workers must receive to $15 by 2025. Thereafter, the direct minimum cash wage for tipped workers is to be phased out, and tipped workers are to receive the same hourly minimum wage as other District of Columbia workers.

The first increase to the tipped-worker direct minimum cash wage, which would increase the tipped workers’ direct cash wage to $4.50, was to take effect July 1. However, the measure is subject to a 30-day congressional review, which must conclude before the measure’s provisions can take effect.

Congressional Rep. Mark Meadows (R-N.C.) and Rep. Gary Palmer (R-Ala.) have proposed amendments to block the District of Columbia from spending any money to implement Initiative 77, a news release from the office of Rep. Eleanor Holmes Norton (D-D.C.) said.

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