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By Ben Penn
The backlash to a Labor Department proposal reversing an Obama-era tip-pooling rule is shifting behind the scenes to the legal arena.
Some employee-side attorneys, ripping a page from the management bar’s playbook, told Bloomberg Law they might be able to squash the DOL’s effort by suing to preserve the 2011 regulation. The Labor Department recently said it’s scrapping the Obama administration rule banning certain tip pooling arrangements that involve restaurant servers and other workers who make tips and back-of-the-house workers who don’t.
Several worker rights’ groups are analyzing whether the new proposed rule’s absence of a quantitative economic analysis may run afoul of the federal statute governing the regulatory process. Senior attorneys at these organizations said it could violate the Administrative Procedure Act, but only if the final version of the rule does in fact include the full analysis, as is expected. That’s because this might prove the DOL was capable of running a similar analysis in the proposed rule, but chose not to, rendering the entire process “arbitrary and capricious,” the lawyers said.
The groups’ legal review is at a nascent stage and won’t necessarily lead to a lawsuit. The effort is the latest manifestation of how a seemingly technical labor regulation has sparked unexpectedly broad rebuke from worker organizing centers, Democrats, and advocacy groups.
The DOL’s December proposed rule would rescind the prior administration’s regulation, which had prohibited restaurants, bars, and other service industry employers from requiring front-of-house employees, such as servers and bartenders, to share gratuities with back-of-house workers, such as cooks and dishwashers. Critics were quick to question the DOL for not estimating in the proposal the amount of wages that would be transferred from workers to employers as a result of the change. Rules like this one that are labeled “economically significant” must typically go through a quantitative economic analysis of benefits and transfers, including at the proposed stage.
The attorneys, who spoke on the condition of anonymity to discuss ongoing strategies, said the basis of the lawsuit would be that the department concealed the potential economic consequences of the proposal, denying the public the chance to weigh in during the public notice and comment period.
“Prior to publication of the 2017 NPRM, the Department engaged in a deliberative process that complies with the Administrative Procedure Act,” a DOL spokesman told Bloomberg Law via email. “The NPRM contains a qualitative economic analysis of the tip credit proposal, with a quantitative analysis of the regulatory familiarization costs. The tip credit proposal is still out for public comment and the Department welcomes input—including data—from the regulated community.”
The qualitative analysis doesn’t discuss dollar figures, while the regulatory familiarization costs refers to costs absorbed by businesses in responding to the rule. “The Department is unable to quantify how customers will respond to proposed regulatory changes,” the proposal states, in explaining why the effect on workers’ wages hasn’t been analyzed.
Some former Obama officials who are outraged over the handling of this rule have accused Labor Secretary Alexander Acosta of intentionally hiding the effects on workers’ wallets by leaving out the analysis. The rule change only kicks in if restaurants pay tipped employees a full minimum wage, without applying a tip credit. The Fair Labor Standards Act’s tip credit provisions permit employers to pay an hourly wage of as little as $2.13, depending on the state, provided that gratuities bring the worker’s average pay up to the federal minimum wage of $7.25 per hour.
The latest proposal doesn’t expressly ban businesses from keeping servers’ tips and applying them toward capital improvements at the restaurant and other expenses.
In defending the merits of the rule in December, a department official told Bloomberg Law that the agency doesn’t anticipate the rule leading to businesses stealing their workers’ tips. Rather, the regulation is intended to spur better teamwork between front-of-house and back-of-house employees and to boost the pay of lower-earning cooks and dishwashers, the official said.
The proposed rule welcomes commenters to provide data on the estimated benefits and transfers of the rule. The comment period closes on Feb. 5.
Although stakeholders won’t have the DOL’s internal estimate to consider, they will be able to comment on an outside analysis from the left-leaning Economic Policy Institute. The study, conducted by the DOL’s chief economist from 2014-2017, found that the proposed regulation would transfer $5.8 billion a year from workers to employers.
The restaurant industry, a major proponent of the new rulemaking effort, still has litigation pending before the Supreme Court that seeks to invalidate the original 2011 rule. Angelo Amador, the National Restaurant Association’s senior vice president and regulatory counsel, told Bloomberg Law that the Obama rule on tip sharing also did not include a quantitative economic analysis. The NRA lawsuit is not tied to a missing analysis, but that could change.
“If they were to succeed with such an argument in court, we would succeed with the same argument in court on the 2011 rule,” Amador told Bloomberg Law, when briefed on the worker attorneys’ legal theory. “We would intervene and point out that the 2011 rule should also be thrown out, and we wind up in the same place.”
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