THE TRUMP administration is under fire for proposing a Labor Department regulation that could result in hotel and restaurant employers dipping into the tips customers leave for their employees, depriving the nation’s 14 million hard-working restaurant workers of significant amounts of money each year. Critics are right: This would be a bad policy. Unfortunately, the administration may have the law on its side, which means that the law, not just the regulation, is what really needs to change.
The federal Fair Labor Standards Act (FLSA) essentially gives employers a choice of what to pay their waitstaffs: either the minimum wage or more, or a much lower “tipped minimum,” as long as tips make up the difference. What the FLSA did not specifically cover, however, was what employers who paid wait staff the full minimum wage could do with tips. Some wanted to use the money for other things, for instance topping up the pay of their untipped “back of the house” workers, such as dishwashers. And so, in 2011, the Obama administration issued a regulation explicitly banning that: Even if you paid tipped workers full minimum wage, they kept all the tips, whether as individuals or as part of a “pool” in which only tipped workers could participate. This forbid employers from subsidizing the wages of non-tipped personnel by letting them share in the tip pool.
California and other states encompassing about 30 percent of the nation’s hotel and restaurant workers also have such a rule, so the Obama administration, in effect, was trying to nationalize it by regulation. Restaurants litigated — and most courts to consider the matter have sided with them, ruling that, as desirable as the Obama-era rule might be in terms of policy, the FLSA simply does not give the Labor Department power to impose it. Supreme Court intervention is likely; the fact that most lower courts sided with the restaurants means that a victory for restaurants at the high court is foreseeable, too.
Now comes the Labor Department proposal to rescind the rule, thereby allowing restaurants to share the waitstaff’s tips with back-of-the-house workers, thus equalizing compensation all around. That sounds nice; another way to look at it, though, is as an invitation to a restaurant industry facing tight labor markets and higher state minimum wages to tap a fresh stream of unrestricted cash for all kinds of business purposes. Wage theft is a chronic problem in the industry already. Even without actual bad faith, money is fungible: As the Trump Labor Department’s proposal frankly acknowledges, the net result may be that restaurants spend tips on capital improvements, not dishwasher wages.
Maybe someday restaurants and similar businesses will settle on a compensation model that does not rely on tips. Until then, the principle that tips belong to the people for whom the customer intended them should be upheld. This would be a good issue for Congress, even a Republican one, to take up, by amending the FLSA. In the likely event it does not, state lawmakers will have to do the job.