One of the most contentious issues in restaurants, at least in higher-end restaurants, is the pay disparity between the tipped servers and hourly cooks. The U.S. Department of Labor has just proposed new regulations to help narrow that gap, but critics say the Trump administration’s rules go too far: They would allow employers to control all tips, potentially legalizing a practice that is now considered wage theft under the law.
The regulations are “not just about sharing tips with the back-of-the-house staff — that part would be okay — but employers would have the right to decide what to do with the tips,” said Saru Jayaraman, president of Restaurant Opportunities Centers United, or ROC, an advocacy group for restaurant workers.
Allowing employers to distribute tips as they see fit, Jayaraman added, would end the Labor Department’s practice of treating gratuities as the property of workers, a custom that dates to the 1974 amendments to the Fair Labor Standards Act.
Labor Department officially published the proposed regulations Tuesday in the Federal Register, and the public has 30 days to comment on them. The rules would roll back some Obama administration-era regulations from 2011 that had expressly prohibited employers from splitting server tips with traditionally non-tipped employees, such as cooks and dishwashers. Back then, the agency was concerned server tips could, among other things, be used to pay the hourly wages of back-of-the-house employees.
The Obama regulations instigated a number of federal lawsuits, including ones from National Restaurant Association and other regional hospitality trade groups. The groups argued the Labor Department had overstepped its authority with the 2011 regulations, which were issued more than a year after the U.S. Court of Appeals for the Ninth Circuit ruled that employers could split server tips with traditionally non-tipped employees, but only if the businesses directly paid workers at least the full minimum wage and did not claim a federal tip credit. A tip credit is the portion of tips that employers are allowed to use to cover a worker’s minimum wage.
Before the 2011 rule change, some in the restaurant industry questioned whether all employers were required to follow the Fair Labor Standards Act’s rules on tipped employees. Some assumed that only restaurants that took advantage of the tip credit would have to heed the rules. Among other things, those rules require employees to retain all of their tips or take part in a tip-sharing pool that includes only “employees who customarily and regularly receive tips,” a group that does not include back-of-the-house cooks and dishwashers.
Federal courts — sometimes the same one — have issued conflicting rulings on whether some businesses don’t have to follow the act’s rules for tipped employees. Last year, the U.S. Court of Appeals for the Ninth Circuit sided with the Labor Department and its 2011 regulations, reversing its own ruling from 2010.
To muddy the waters more, the ruling by the U.S. Court of Appeals for the Tenth Circuit earlier this year held that some employers could rightfully claim servers’ tips and use them as they want. The clashing legal decisions could compel the Supreme Court to take up the National Restaurant Association’s case this term and clear up the confusion.
In the meantime, the Trump administration’s proposal seeks to remove some of the Obama-era prohibitions on tip-sharing. A Labor Department spokesman, speaking on the condition of anonymity, did not challenge criticisms that the rules would transfer control of tips from employees to employers. “This proposal would give workplaces the freedom to share tips among more employees,” he said.
While the proposal sounds promising in principal — a way to balance inequities between, say, fine-dining servers and bartenders earning nearly six figures a year and their colleagues in the kitchen earning $13 an hour — critics say the new rules could invite trouble. The rules, they say, would allow employers to distribute the pooled tips to anyone, including salaried managers or even themselves. (Worth noting: Some restaurants have opted out of the messy tipping system altogether; instead, they add a service charge to checks to pay employees equally.)
In recent years, high-profile chefs and restaurateurs have been sued for alleged wage theft, including Mario Batali, Daniel Boulud and Jessica Biel.
Molly Elkin, an attorney who represents workers in cases brought under the Fair Labor Standards Act, said it’s delusional to think that employers will take server tips and share them only with back-of-the-house employees, instantly creating one happy restaurant family. She compares the pay-equity fantasy to the trickle-down economics that the Trump administration and the GOP are promising with their tax bill.
“I just don’t see that happening in reality,” emailed Elkin, a partner at the Washington law firm Woodley & McGillivary. “The proposed rule does nothing more than authorize wage theft on the part of the employer. The employer can simply pocket the tips, and Trump’s [Labor Department] will not care.”
Jayaraman, the ROC president, said the new rules could have an even darker side. More than two-thirds of tipped employees in American restaurants are women, and they don’t all work in upscale restaurants with leather banquettes, 200-bottle wine lists and genteel diners. They work at IHOP, Applebee’s and similar national chains, Jayaraman said. They earn, according to the Bureau of Labor Statistics, an average annual wage of $24,410, though the agency’s figures may be lower than the actual incomes due to underreporting.
Regardless, Jayaraman points out that women in the restaurant industry, especially those in tipped positions, are routinely subject to sexual harassment. In 2014, ROC and Forward Together issued a report, “The Glass Floor: Sexual Harassment in the Restaurant Industry,” based on nearly 700 surveys of current and former restaurant workers.
In a recent investigation on sexual harassment in the restaurant industry, The Washington Post found women were frequent targets. For example, in 2015, the Equal Employment Opportunity Commission received 5,431 complaints of sexual harassment from women. Of the 2,036 claims that listed an industry, 12.5 percent came from the hotel and food industry, more than any other category, according to the National Women’s Law Center.
Jayaraman said allowing employers to distribute tips will make a bad situation worse for female servers who already tolerate inappropriate behavior from customers to receive decent tips.
“That will exacerbate a problem that already existed,” Jayaraman said.
It’s not clear how many restaurants the new rules would actually affect. In the proposed rules, the Labor Department assumes that “30 percent of all waiters and waitresses and bartenders work in states that prohibit employers from obtaining tips received by employees,” and therefore wouldn’t be affected by the change of rules. Elkin, the attorney, said that in her experience, most large companies don’t pay their employees the full minimum wage, so they wouldn’t be eligible under the new rules to control the workers’ tips.
“They better not get confused and start stealing tips from workers,” she added, “because they’re going to get in trouble.”