Section 203(m) of the Fair Labor Standards Act (FLSA) addresses an employer’s use of the tip credit for tipped employees, and provides that an employer cannot take a tip credit unless the employee has been provided notice of the use of the tip credit, and all tips are retained by the employee, although valid tip pooling arrangements are not prohibited.
In its Fact Sheet #15, revised in July 2013, the United States Department of Labor (DOL) reiterates the position in its 2011 regulations that a tip is the sole property of the tipped employee regardless of whether the employer takes the tip credit. At the time it issued the Fact Sheet, a district court in Oregon had declared invalid the DOL’s 2011 regulation that limited an employer’s use of its employees’ tips when the employer has not taken a tip credit against its minimum wage obligations. Oregon Restaurant & Lodging v. Solis, 948 F. Supp. 2d 1217 (D. Or. 2013). As a result of that decision, the DOL decided it would not enforce the tip retention requirements against any employer that had not taken the tip credit in jurisdictions within the Ninth Circuit while the government considered its options for appeal of the decision.
In July 2015, the Ninth Circuit reversed the Oregon district court’s decision and remanded the case, finding in part that in exercising its discretion to regulate, the DOL promulgated a rule that is consistent with the FLSA’s language, legislative history, and purpose. Oregon Restaurant & Lodging v. Perez, No. 13-35765, 2016 U.S. App. Lexis 3119 (9th Cir. Feb. 23, 2016).
The issue, however, is far from settled. Late last month, a district court in Utah flatly rejected the holding in Perez, noting that the Perez majority analysis affords deference to a DOL regulation that contradicts the plain language of the statute. Brueningsen v. Resort Express Inc., No. 2:12-CV-843-DN, 2016 U.S. App. Lexis 39747 (D. Utah Mar. 25, 2016). Put another way, the district court in Utah agreed that where an employer did not take a tip credit to meet the minimum wage requirement for certain employees, it could retain some or all of the employees’ non cash tips.
Despite the conflicting court authorities, employers should expect the DOL to take the Perez position and find FLSA violations where an employer that does not take a tip credit retains all or some of the employees’ tips.