Trump’s Regulatory Czar Defends Tip Pool Rule’s Transparency

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By Ben Penn

The Trump administration’s top regulatory official preached transparency in rule making on a conference call Feb. 8. When the conversation steered to data reportedly scrubbed from the Labor Department’s recent tip pool proposal, she largely dodged the issue.

“We are looking closely at” agencies’ "analysis of costs and benefits,” Neomi Rao, administrator of the White House Office of Information and Regulatory Affairs, said on the call. “We want agencies to regulate in a manner that is giving fair notice to the public and respects due process.”

But Rao sidestepped questions about a Bloomberg Law report that the Labor Department proposed a new tip sharing rule after dropping internal analyses showing that the rule could cost workers up to billions of dollars.

“Of course I can’t comment on internal deliberative matters,” she said, before referring substantive questions on the topic to the DOL.

The Labor Department’s proposed rule would reverse a 2011 regulation by legalizing tip sharing arrangements that involve restaurant servers and other workers who make tips and back-of-the-house workers who don’t. Bloomberg Law recently reported that the department worked with OIRA on an economic analysis projecting up to billions in worker gratuities could change hands to their managers as a result of the proposal. The department ultimately received White House clearance to release the rule for public comment without this data at all, four current and former DOL sources said.

The revelation has sparked fierce opposition from Democrats and worker advocates, and triggered a DOL Office of the Inspector General investigation.

The proposed regulation would only apply to businesses that pay tipped workers at least the full minimum wage of $7.25 per hour. It would allow managers to participate in the tip sharing arrangements.

Analysis Expected in Final Rule

Rao, speaking on a call hosted by the Federalist Society’s Regulatory Transparency Project, used her opening remarks to emphasize OIRA’s commitment to giving the public access to cost-benefits data during regulatory and deregulatory actions.

In response to Bloomberg Law’s query on how her comments square with the DOL’s December proposed rule to permit tip sharing, she said, “We would expect to see the full quantitative analysis in the final rule, and hope that the comments can shed some light on what the scope of that is.”

But the tip pooling proposal managed to clear the Office of Management and Budget without the scrapped analysis. DOL explained that the department isn’t able to quantify an estimate of gratuities that employers would retain for themselves, as opposed to those redistributed among employees. The agency asked for public comment to inform such a full analysis in the final rule.

It’s not clear whether OMB Director Mick Mulvaney approved the deletion of the numbers or if OIRA signed off as well.

“As previously stated, after receiving public comment, the Department intends to publish an informed cost benefit analysis as part of any final rule,” a DOL spokesman said in a statement.

No Data in 2011 Rule Either

Rao, on the conference call, then fielded a question on whether it’s common for OIRA to permit an agency to delay the release of data until the final rule stage. The administrator responded by noting the original 2011 rule, which this proposal would rescind, also did not include a quantitative costs-benefits analysis.

“At least there’s some precedent from the previous administration,” she said.

The White House didn’t tag the Obama-era rule as “economically significant” as it did in the 2017 proposed rule to reverse it. That designation usually goes to rules with a projected annual impact of $100 million more. The Obama-era rule was seen as an effort to add statutory clarity to the agency’s longstanding enforcement position that tips are the property of employees.

The DOL has also sought to justify the necessity to reverse that rule by noting that several appeals courts have struck down the 2011 regulation as an illegal abuse of agency authority.

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