Was Worker Fired for Refusing to Share Tips Owed Damages?

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By Christine Pulfrey

“You owe me the wages I lost when you wrongly fired me for refusing to share my tips,” Barnaby, an unemployed bartender, said to his former employer, Sal.

“I paid you full and proper wages while you were employed, so I owe you nothing,” Sal replied, noting that there is no penalty under state law for firing a worker for refusing to share tips.

FACTS: A bartender said he was told by his employer to share his tips with other staff members, or there would be consequences. The bartender chose not to do so. Because of his refusal, he said he was told by his manager that he was fired for not sharing tips with back-of-house staff members, including those who cleared tables.

The bartender, who had worked for the Minnesota employer for seven years, was unable to find work after he was fired. He filed a lawsuit against the employer, claiming the manager violated state law, which forbids employers from requiring employees to share their tips. Although the bartender had not lost wages from failing to share his tips, he sought damages for lost income that resulted from what he claimed was wrongful termination.

In response to the lawsuit, the employer claimed that state law prohibited businesses from requiring that employees share gratuities, but the law did not prohibit employers from firing employees who refused to do so. The employer noted that state law did not contain language that allowed former employees to sue for wrongful discharge related to the sharing of tips.

The bartender was not harmed by the employer’s tip-sharing requirement because, having been fired, he could not be compelled, required, or coerced to do anything by the employer, the employer said. Additionally, the former employee could not pursue a wrongful discharge claim under the state’s wage and hour law because he had not suffered a loss of tips and did not claim unpaid minimum wage or overtime, the employer said.

The state’s wage and hour law does not specifically prohibit employers from discharging employees for refusing to share tips, a district court ruled, dismissing the bartender’s complaint. The legislature would have included language allowing employees who refused to share tips sue for wrongful discharge, if that’s what it wanted, the court said.

The bartender appealed and the state appeals court reversed the district court ruling, concluding that the bartender stated a claim upon which appropriate relief could be granted.

The employer filed an appeal with the state supreme court.

ISSUE: May a worker fired for failing to share tips, a practice prohibited by state law, bring a lawsuit seeking damages against the employer?

DECISION: The state’s highest court upheld the appeals court ruling, saying that the employer improperly and coercively inserted itself into a decision that the law explicitly leaves to employee discretion. The high court added that the employer’s interpretation of the law was “unreasonable.”

In everyday language, threatening to terminate an employee for failing to do something constitutes coercion by the employer, the high court said.

The bartender and his former employer concurred that the state’s law unambiguously says that employers must not require employees to share a gratuity and that employees who agree to share tips must do so without employer coercion or participation, the court said.

Under the employer’s interpretation, the state’s law is violated only when the unlawful threat compels employee compliance, the court said. In fact, the violation occurs when the requirement is made, regardless of whether the employee complies, it said.

Regarding the employer’s claim that the bartender may not sue under state law because the law does not explicitly allow a wrongful discharge claim to stem from an employee’s refusal to share tips, “we disagree,” the court said.

The state’s wage and hour law does not use the words “wrongful discharge” in connection with tip sharing, but it prohibits an employer from terminating an employee for refusing to share tips, the court said.

The state’s wage and hour law punishes wrongful discharge in contexts such as whistleblowing, but not explicitly for tip sharing, the high court said. However, the state’s wage and hour law does not prohibit an employee from bringing a claim for termination for refusing to share gratuities under other provisions of the state’s laws that allow employees to sue for any statutory violation, the court said.

Additionally, the law lets aggrieved employees recover appropriate civil remedies, including back pay, a type of damages typically awarded in wrongful-discharge actions, the court said. So, the bartender may sue for damages normally associated with wrongful discharge claims, not just lost wages, it said ( Burt v. Rackner Inc. , Minn., No. A15-2045, Court Opinion 10/17/17 ).

POINTERS: Tips received by a tipped employee are considered the employee’s sole property.

Federal and state laws govern tip-pooling and tip-sharing arrangements.

The federal Fair Labor Standards Act allows tip-pooling arrangements among service employees who typically receive tips, but does not compel tipped employees to pool tips among employees who do not normally receive tips, including cooks and dishwashers.

Generally, federal law applies when state law does not exist on the matter or when state law is less favorable to the worker than federal law.

Since July 20, 2017, the Labor Department has refused to enforce a 2011 final rule that forbids employers from using an employee’s tips, even if the employer had taken a tip credit under Section 3(m) of the FLSA, for reasons other than those it was legally allowed as credits against its employee wage obligations or according to a valid tip pool.

If regulations under review by the White House are finalized, the 2011 final rule on tip pools could be canceled.

A petition also is before the U.S. Supreme Court that challenges the Labor Department’s position that it may apply the 2011 regulations, even against employers that do not take a tip credit, prohibiting such employers from setting up a tip pool that includes employees who are not customarily tipped.

For more information, see PAG’s “FLSA Minimum Wage Rules” chapter.

To contact the reporter on this story: Christine Pulfrey at cpulfrey@bna.com. To contact the editor on this story: Michael Baer at mbaer@bna.com.

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