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Labor Department Proposes Killing Obama Tip Pooling Rule

December 4, 2017

Bloomberg Law | Ben Penn

The Labor Department wants to remove an Obama-era regulation that restricted the circumstances in which employers could force workers to share tips. In a proposed rule released this morning, the DOL’s Wage and Hour Division called for rescinding the 2011 regulation that prohibited restaurants, bars, and other service industry employers from requiring front-of-house employees, such as servers, to share tips with back-of-house workers, such as cooks and dishwashers. The original rule, which DOL stopped enforcing in July, applied only to tipped employees paid the full minimum wage, rather than the Fair Labor Standards Act’s lower minimum for tipped workers. “Our proposal only applies where an employer pays a full minimum wage and does not take the tip credit,” a Labor Department official told Bloomberg Law. “These are restaurant cooks and dishwashers, back-of-the-house staff. The concept here is these employees are as integral to the experience of the customer as front-of-the-office staff, and often they are not compensated to the same degree potentially as front-of-the-house staff.” The proposed rule would eliminate from the Fair Labor Standards Act language under the 2011 rule that stated tips are the property of the employee regardless of whether the employer has applied a tip credit. Tip credits 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.

When the DOL first announced an intent to undo this regulation in the semi-annual regulatory agenda in July, worker advocates and Democrats such as Sen. Patty Murray (Wash.) expressed concern that the department was moving to roll back financial security for low-wage workers in the service industry, most of whom are women. Supporters of the prior administration’s rule argue it protected vulnerable employees from unscrupulous managers who might skim tips. The DOL official, in an interview, said that the Wage and Hour Division will continue to “fully and fairly enforce all aspects of the Fair Labor Standards Act.”

Supreme Court Asked to Weigh In
In addition to the policy basis for unwinding the rule, the official pointed to litigation in several appellate courts that’s caused the department to reconsider the stance taken in the Obama administration. “There is some legitimate question about the authority of the Labor Department to regulate in this space where there’s no tip credit taken,” the official said. The rescission proposal comes as the U.S. Supreme Court is considering the National Restaurant Association’s petition to invalidate the tip-pool regulation. The Justice Department and Labor Department have until February to file a reply brief to the NRA’s request for the high court to take the case. Publishing a regulation to nullify the rule may allow the government to sidestep the issue of taking a position in front of the Supreme Court that differs from the stance taken during the Obama administration, when the DOJ defended the rule. The public will have 30 days to comment on the proposal, once it is formally published in the Federal Register Dec. 5. The Trump administration has emphasized the need for agencies to remove regulations that they believe are unnecessary and create job losses. The DOL is off to a deliberate start in identifying rules that fit in this category, but tip pooling is one of the few regulations from the prior administration that current Labor Secretary Alexander Acosta has moved to fully repeal. More rules marked for rescission may come as soon as this week with the fall regulatory agenda by the White House


About Ben Penn (Bloomberg Law)

Ben Penn is a labor and employment reporter at Bloomberg Law. He covers the U.S. Department of Labor, including policy, regulation, litigation, and personnel shakeups. Tackling issues from the worker and employer perspectives, Penn regularly explores federal government rules and enforcement procedures that are designed to protect employees’ paychecks and rights on the job.

He wrote extensively on the Obama administration’s active labor and employment agenda, including a controversial regulation to expand workers’ access to overtime pay. Then, after the 2016 election, Penn dove deep into the Trump administration’s efforts to roll back Obama-era workplace rules. Whether he’s examining the federal court dockets, the White House regulatory agenda, or lobbying disclosures, Penn is constantly reporting on the next Labor Department development before it happens. In addition to his breaking news and enterprise pieces, he co-authors the weekly Monday morning column, Punching In, forecasting and opining on the week’s top workplace news out of Congress and the executive branch.

After joining Bloomberg Law in 2013, Penn has also reported on union organizing and collective bargaining, labor market economics, and the National Labor Relations Board. He’s made multiple appearances on Bloomberg Radio.