TIPBlogPIc1.bmpAuthored by Alex Passantino

On February 29, 2012, the Deputy Administrator of the Wage and Hour Division (WHD) of the U.S. Department of Labor issued Field Assistance Bulletin (“FAB”) [*] 2012-2, in which she sets forth WHD’s enforcement policy with respect to the 2011 tip credit regulations.  Readers of this blog will recall that in April 2011 WHD published a final rule addressing a number of issues under the FLSA.  Among the topics in the rulemaking were several issues related to tip credit, including a detailed description of the disclosures an employer must provide to a tipped employee, the maximum contribution an employee can be required to make to a tip pool, and the ownership of tips.

It is the final point — the ownership of tips — that is discussed in the FAB.  Specifically, the FAB makes clear that WHD

will enforce nationwide the 2011 final rule explaining that a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit, and that the employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, except as a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool. 

WHD will seek to enforce this position in the states making up the Ninth Circuit — Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington — notwithstanding that court’s decision in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).  In Woody Woo, the employer did not avail itself of the tip credit (which was prohibited by state law), but required that the tipped employees participate in a tip pool with employees who are not typically permitted in a mandatory tip pool (e.g., cooks and dishwashers).  The Ninth Circuit held that the limitations on an employer’s ability to use an employee’s tips are limited to those situations in which an employer takes the tip credit.  Specifically, the court concluded that the FLSA “imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees.”

In the 2011 final rule, WHD expressly rejected the holding of Woody Woo and revised the regulations to state:

Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool.

29 C.F.R. 531.52.

In the FAB, WHD makes clear that this is its position across the country.  Because Woody Woo was decided prior to the publication of the final rule in 2011, WHD now concludes that it is not precluded from enforcing the rule everywhere, including the Ninth Circuit.

Notably, the FAB fails to remind field enforcement personnel (and the public) of a critical piece of the puzzle.  That piece was discussed in detail in the 2008 proposed rule and briefly in the 2011 final rule.  Notwithstanding the repeated statements by WHD that “tips are the property of the employee,” nothing in the FLSA creates an independent property right that can be enforced by WHD or in private litigation.  WHD has authority to enforce the minimum wage and overtime provisions of the FLSA, and, unless an employee’s tips are being used in a manner that results in a violation of one of those provisions, the FLSA does not provide a remedy.  As WHD noted in the preamble to the 2011 final rule:

Thus, if an employer pays the employee a direct wage in excess of the minimum wage–and thus did not claim a credit against any portion of the employee’s tips and did not utilize the employee’s tips in any way–the employer would be able to make deductions but only from the cash wage amount paid directly by the employer and only to the extent that the deductions did not reduce the employer’s direct wage payment to an amount below the minimum wage.

Ultimately, the rules and regulations surrounding tipped employees are often difficult to apply, especially when they are combined with concurrently-applicable state laws.  Employers — particularly those in the Ninth Circuit — should take this opportunity to review their practices with respect to tipped employees and ensure that they are in compliance.


 [*]  A FAB is an internal — but publicly released — document in which the National Office of WHD explains a change, clarification, or application of an enforcement policy or practice to WHD’s field enforcement personnel.