Industry News | July 13, 2012

Industry Associations Oppose Labor Dept. on Tip Sharing

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.”


Tip pooling is for bad managers or socialists. Socialist is self-explanatory, but bad mangers because they forgot to cost out properly, they don't take care of their employees, and now they want the better servers to carry the others. Then they want the servers to make up for the non-competitive wages they are paying the back of house (because if you had competitive wages - you would not need this). This is the sickness that makes 'waiter' a bad word in this country while it can be a very good profession in others. This is why 'restaurant manager' ranks down with 'used car salesman'. Let people who excel receive the benefits of their work - you will get the reward as well if you work with them instead of trying to pick their pockets. Shame on you NRA - you are acting like politicians instead of businessmen!

The custom of tipping began long ago before there was minimum wage laws. Later federal minimum wage law was enacted and took into consideration tip income and provided for a tip credit for employees who are paid by guests. As time progressed many states enacted their own laws on minimum wage and tip credit. This has resulted in little or no tip credit in many states, most of them on the West Coast and Hawaii.The tip percentage across the nation is relatively the same. However, the wages paid to servers varies widely by state from less than $3 per hour to as much as $8 per hour. Servers at any one of my family casual restaurants in Hawaii net over $22 per hour after tipping out to hostesses, bussers and a voluntary kitchen tip pool that averages about 50 cents per hour worked to every kitchen staff. The server combined net tip and minimum wage income is about $29/hr.Average cooks wages for our business is about $12 per hour. I'd love to pay more. But the margin is already thin. Every 25 cents paid to servers in minimum wage costs my business $17,500 per year. If Hawaii had a reasonable tip credit like so many other states, we'd be able to pay our cooks much more.The 'waiter' feels that the tip income belongs soley to him, since he "excels" at his craft. No doubt he is talented and gives very good service. But how much would he receive in tips if he had no food to deliver? Restaurant owners do not force guests to leave tips, for good food & service. Why are so many servers feeling that the tips are just for the service? It seems to me that many servers over estimate the role they play in the overall dining experience. Newly trained servers in our restaurant earn tips close to their experienced counterparts in less than 8 weeks. It takes much longer to become good cook!I propose to change the guest checks and credit card receipts to include an extra line for guests to determine how much of their tips they would like the kitchen staff to receive. Maybe letting the guest decide would give servers a better idea of who and what the guest values most. I'll bet many guests would split the tip 50/50! Servers should be more aware of how they make their money and who really butters their bread.In the meantime, I think that if restaurants pay the full minimum wage to servers, they should be able to control reasonable tip pools including the kitchen staff.Another solution would be to set minimum wages for tipped employees at Minimum Wage less 50% of the average tips they claim per hour worked, but not less than $1.00 per hour. That would result in a server earning $22 per hour in tips to be paid $1.00 by his employer and result in $23.50 per hour gross. This would also provide incentive to restaurant owners to encourage tipped employees to claim more of their cash tips as income. Not that they aren't forthcoming with that information already. There is also a very obvious income tax issue here.The more servers earn in tips, the less the restaurateur pays in wages. That sounds pretty fair to me. Since it is the restaurateur that makes the investment, trains the cooks, creates & maintains an environment were the general public willingly gives its employees cash. What other business or organization can do that!!

Why not just pay your kitchen staff higher salaries instead of trying to have your servers subsidize your decision not too?

Wanting to pay more and actually being able to pay more are two very different things. We'd have to raise prices at least 25% just to get the kitchen staff wages even close to what servers make per hour. Guest counts would drop and the restaurant would suffer a serious loss in sales. Server's schedules would be cut too.Every time we raise prices, servers get an automatic increase in tip income, without changing or improving a single behavior.You may be a very good server, but I doubt you could run a restaurant successfully for very long.If you think it is greed that is keeping us from paying more, think again. It seems to me to be the other way around.Do you claim every single dollar earned in tips to the IRS? Talk about greed!Guests leave generous tips for the entire experience and servers feel that they are responsible the whole deal.SO, how do you feel about letting the guest decide and giving them a chance to put Server Tips and Kitchen Tips options on the guest checks and credit card voucher? Put your money where your mouth is!!

comment about "picking their pockets" doesn't really make much sense.

I completely agree with you. Restaurant owners have nothing to offer their workers, and because of their negative attitude and state of mind they want to take possession of their tips to pay for the kitchen employees who are poorly paid. With that kind of mentality you cannot go anywhere. Poor vision lead to nowhere, or a deserted island, where there's no hope.

A well-spoken response by Spice54 but lets leave socialism and other ideologies out of this discussion. Its quite simple really. Back-of-the-house employees DO reserve to be compensated for their hard workbut through competitive wages! After college, I worked was a server and bartender in Chicago for several years before beginning my professional career. Having experienced forced tip sharing firsthand, it was never an attempt by management to reward back-of-the-house employees and promote teamwork and moral. It was always a measure by management and owners to reduce labor cost to a minimum, for their own benefit.

AnneThat is the exact reason why the above restaurant owners and managers want servers to share tips. They don't want to pay their kitchen staff higher wages.

If you feel that way about your back of the house staff then should pay them more.I close my case.

I think that restaurants should feel very lucky that they get away with not paying their workers. Imagine if you had to pay workers like all other companies. Can you imagine how much Microsoft, Google, Apple, Facebook etc... have to pay to hire, and retains employees? Probably not minimum wage like restaurant owners do. And they have to pay them health benefits, 401K, paid vacation, sick day etc....Restaurants don't pay anything, and that is their bad choice. They view their employees as unskilled (WRONG ON THAT), so they pay them the least amount of possible. They also offer no benefit. And I see some restaurant owners who want to use the gratuities from guests to servers to pay their cooks. LUDICROUS! If you cannot pay your employees well, THAT MEANS YOU DO SOMETHING WRONG.If you need the public to pay for your cooks salaries, YOU DO SOMETHING WRONG, AND YOU DO NOT KNOW YOUR BUSINESS. You are simply FAILING. You do not know how to run a restaurant business.If all you can do is to offer a paycheck, poor YOU. If it's all you can do, WOW I feel so bad for you. And some of yu are asking for the guests to help pay your cook. POOR RESTAURANT OWNERS. Change industry, you do not know what this business is all about.If you do not make a lot of profit, that means you are not successful. If you are not successful, that means you are not passionate about this business so get out of this business before you go out of business. Competition is fierce and you'll get knocked out sooner than later.You are in HOSPITALITY, not just restaurant. Hospitality is about GIVING, treating people like royalties, giving them a great dining experience. It's about GIVING, not TAKING.If you cannot give to your employees, that means you cannot give to the customers. Your attitude remains the same. You are who you are. A giver is a giver, and a taker is a taker. If you try to take money from your employees, the waitstaff you only pay minimum wage, you do not offer health insurance, retirement plan, sick day and vacation, you have nothing to offer. With that, you have nothing to give your customers. You lead by example. If you cannot make happy your employees, you cannot make your customers happy.You need to start educating yourself and start reading about the most successful companies in the U.S and see their goal, their vision and how they treat their employees. If you want to be successful, you must study those who are and follow in their footstep. NO SECRET.

My daughter is a server receiving below-minimum wage and depends upon tips to bring her at least up to minimum. Her restaurant does have a tip pool distributed to the entire staff--including back of house.The cooks do receive minimum wage. So, in essence, my daughter subsidizes their pay.Besides waiting tables, servers are expected to ensure that the coffee and beverage serving stations are filled per the schedule to ensure freshness, prepare desserts, and keep the dining area clean. During 'the rush,' these can be very time-consuming, dividing her attention away from face-to-face customer service.Most customers don't realize, first of all, that the server does not always receive minimum wage. They expect the employer to fairly compensate all employees. At least in our area of the country, leaving a 'tip' is a thank-you to the server for providing good customer service, e.g. being attentive to the diner, bringing the order out hot (or cold) and getting it all correct, as well as reading the customer 'clues' about the way they prefer to be treated.I do believe restaurant owners take advantage of the lower minimum for their serving staff.

I have no problem with tip sharing as long as the waitstaff are paid the same minimum wage as other staff. In some states, the minimum wage for waitstaff is around $3/hr while back of house staff get standard minimum wage. If you are going to share tips, pay the wait staff an hourly wage that is fair.

A very simple question may answer as to whether tips should be shared with the BOH staff and why managers and owners want to "share" the tips... Where did all the bus boys go? Operations like TGI Friday's and Chili's used to have many on their staffs, typically making around $5 to $7 an hour and receiving a modest tip-out from the servers they helped. Then, one day, a smart manager said, Man, I can put three servers on the floor for the cost of one busboy. Managers make decisions for the good of the restaurant and for themselves. Lowering expenses, makes managers look great. I am not against tip-pools, but to say that they are anything but to lower BOH expenses is a false argument. If you dont believe me, go and find some busboys.

A very simple question may answer as to whether tips should be shared with the BOH staff and why managers and owners want to "share" the tips... Where did all the bus boys go? Operations like TGI Friday's and Chili's used to have many on their staffs, typically making around $5 to $7 an hour and receiving a modest tip-out from the servers they helped. Then, one day, a smart manager said, Man, I can put three servers on the floor for the cost of one busboy. Managers make decisions for the good of the restaurant and for themselves. Lowering expenses, makes managers look great. I am not against tip-pools, but to say that they are anything but to lower BOH expenses is a false argument. If you dont believe me, go and find some busboys.

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