Disagreement over DOL’s Tip Credit Position Continues
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.
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