Restaurant industry trade associations have filed a lawsuit against the U.S. Department of Labor (DOL) on behalf of restaurants and restaurant employees who share in tips and participate in tip pools. The lawsuit was brought by the Oregon Restaurant and Lodging Association, the Washington Restaurant Association, the Alaska CHARR, and the National Restaurant Association, along with a Portland, Oregon, restaurant and an employee of that restaurant.   

The lawsuit, filed in the United States District Court in Portland, asks the court to declare recent DOL regulations prohibiting back-of-the-house (kitchen) workers from sharing in tips left by customers unlawful and not applicable to restaurants that pay employees who share the tips at least federal or the applicable (if higher) state minimum wage with no tip credit.

In 2010, the U.S. Court of Appeals for the Ninth Circuit—the federal appellate court with jurisdiction over numerous Western states including, among others, Alaska, Oregon, and Washington—ruled that federal law does not prohibit an employer from instituting a tip pool that includes back-of-the-house workers if that employer pays its employees who share in tips the full minimum wage and does not take a tip credit. Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). DOL responded approximately a year later, publishing regulations in direct conflict with the Woody Woo decision.

Shortly after the DOL published these regulations on April 5, 2011, restaurant trade groups and at least one United States senator contacted the DOL to raise concerns about these regulations and the confusion they create for employers, particularly in the Ninth Circuit, given their conflict with the Woody Woo decision. Enforcement of DOL’s new regulations against employers in the Ninth Circuit was left unclear by DOL at that time.

However, on Feb. 29, 2012, DOL issued a field assistance bulletin clarifying its position by rejecting the Ninth Circuit’s Woody Woo decision and declaring: “The Wage and Hour Division will enforce nationwide the 2011 final rule [including against employers in the Ninth Circuit] explaining [DOL’s position] that a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit . . . .”

In March 2012, restaurant trade associations again asked DOL to reconsider its position on this issue, to withdraw its Feb. 29 Bulletin, and to clarify that employers in the Ninth Circuit who pay their employees the full minimum wage and do not take a tip credit may legally implement tip pools that adhere to the Ninth Circuit’s Woody Woo ruling. DOL rejected this request. 

As a result, the plaintiffs felt they were left with no choice but to seek court intervention. It is their position that, not only are the DOL’s 2011 Regulations unlawful, but they fail to take into consideration the intent of the customers who leave tips, as well as of the employees who share in the tips. As one example, they point to the fact that the employee who joined this lawsuit is currently working as a server for the plaintiff restaurant, and is the one who initiated getting the restaurant’s tip pool to include its back-of-the-house employees.

As the court complaint explains, this was done as a matter of fairness and to recognize the fact that back-of-house employee performance directly impacts guest satisfaction and tips left by those guests.    

Jackson Lewis LLP, a nationwide labor and employment law firm, and Paul DeCamp, a partner in the firm’s Washington, D.C. office and former Administrator of DOL’s Wage and Hour Division, represent the plaintiffs in this litigation.

“This issue is about fairness to restaurant workers, and it is extremely important to those who earn their livelihood preparing and serving our food,” says Paul DeCamp on behalf of the plaintiffs. “Simply put, federal law clearly allows a restaurant to give kitchen personnel such as cooks and dishwashers a share in a tip pool when the restaurant pays its employees the full federal minimum wage and does not take a tip credit. Plaintiffs are asking the court to compel DOL to respect that law.”

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