Punching In: DOL’s Summer of Enforcement Efforts on Tipped Wages

Monday morning (Tuesday this time) musings for workplace watchers.

Citing Companies for Shorted Tips|Big Business Fights Walkaround Rule

Rebecca Rainey: The US Labor Department has had a busy summer cracking down on tip theft. Since June, the agency’s wage arm has cited at least 13 companies for violations of its rules surrounding the tip-credit and tip pools.

Refresher: Under federal wage laws, employers can pay tip-earning workers as little as $2.13 an hour, so long as they earn $30 a month in tips. Employers are still responsible for ensuring these workers make at least the minimum wage at the end of the pay period, as well as overtime premium pay. There are also several limits on pooling tips—a common practice where tips are collected to distribute equally to other workers on the shift—such as only permitting those pools when all the workers participating are earning the tipped wage or when all workers contributing receive the full minimum wage.

Employers are also barred from keeping “any portion of employees’ tips for any purpose,” according to DOL’s fact sheet on tip regulations, and must keep various records including the weekly or monthly amount of tips received by an employee.

One of the largest cases involving these rules this summer includes a $1.3 million consent judgment obtained by the DOL against the operator of La Tolteca Authentic Mexican Restaurant for overtime and tip pooling violations.

Near the end of August, the division found the restaurant required “servers and bartenders to surrender a percentage of their tips, based on their total sales, to the restaurant at each shift’s end.” The employer also failed to keep records on how the tips were used, “making them unable to prove the restaurant’s tip pool was valid,” the agency said.

“Customer tips for good service are the property of the people who earned them, not their employers,” Wage and Hour Administrator Jessica Looman said in a statement on the judgment. “Misuse of all or any portion of tips by management violates workers’ rights.”

The DOL also recovered $912,000 in back wages, withheld tips, and liquidated damages from a New Hampshire taproom in July, after the agency found the restaurant illegally allowed managers and supervisors to participate in the tip pool, pocketed workers credit card tips, and failed to pay overtime. Over the course of the summer the agency also issued citations for allegedly having illegal participants in tip pools to two restaurants operating as Max’s of Manilain Hawaii; Ohana’s Japanese Steak Restaurant, The Catch and Johnny Fab’s Cadillac Grill, as well as The Peak Inn LLC and Adair’s Saloon Inc. in Texas; and three Tito’s Taqueria locations in Massachusetts, Vermont, and New Hampshire.

Other businesses with alleged tip-pool or tipping violations this summer include:

• Friendship Diner LLC
• Round Table Pizza
• Tejas Chocolate LLC and Tejas Dragon Companies LLC
• Tim’s Tavern
• Crackin’ Crab
• LaLobe Inc.
• IHOP franchises operated by R & R Restaurant Group Inc. and 2103 Restaurant Group LLC

But despite DOL’s hot-tip-recovery summer, the Fifth Circuit recently limited the agency’s ability to intervene in situations where tipped employees are spending a large amount of time on side-work instead of tip earning duties.

On Aug. 23, the US Court of Appeals for the Fifth Circuit set aside a 2021 rule that required employers to pay tipped workers the full $7.25 federal minimum wage when they engaged in tip-supporting work, like rolling silverware or filling salt shakers, for more than 30 minutes straight or for more than 20% of their workweek.

Following the ruling, employers with tipped workers “can relax a little bit,” said Paul DeCamp, a management-side attorney with Epstein Becker Green who represented the restaurant groups that brought the lawsuit against the tip rule.

“For employees who are in a tipped occupation, as long as you meet the criteria in the statute in terms of receiving enough in tips and giving adequate notice, you can pay the employee at a tipped wage for all of the time that the employee works. That’s it. It was never meant to be complicated,” he said.

The DOL declined to comment on how the ruling will impact its enforcement efforts.

A tip jar at a coffee shop in the Union Market district in Washington. The DOL is cracking down on tip theft.

Al Drago/Bloomberg via Getty Images

Tre’Vaughn Howard: The back and forth continues in a lawsuit challenging the US Occupational Safety and Health Administration’s walkaround rule to broaden the scope of who can accompany an OSHA compliance officer on workplace inspections.

The fight in the courtroom centers on whether OSHA has the power to make this change and if big business can prove having more eyes on these inspections would actually cause them harm.

The US Chamber of Commerce, along with a coalition of business groups, sued OSHA in the US District Court for the Western District of Texas. The case against the federal agency focuses on the scope of OSHA’s statutory authority, echoing the US Supreme Court’s recent decision to overturn Chevron deference.

The legal doctrine empowered courts to defer to federal regulators’ interpretations of unclear laws. Judges now have a broader mandate to rein in regulators when and if they deem the agency to have exceeded its authority.

OSHA is looking to have the suit thrown out, however, arguing the businesses lack Article III standing and that the court lacks jurisdiction to adjudicate a claim under the Regulatory Flexibility Act.

The walkaround rule doesn’t directly regulate any employers, rather it clarifies employees’ rights to authorize a representative of their choosing, OSHA said in their bid to dismiss.

The business groups “do not identify a single member that suffers a certainly impending injury.” Instead, they rely on a “speculative chain of future events regarding unknown members,” OSHA added.

The group of twelve associations include the Associated Builders and Contractors as well as the National Retail Federation, among others. They’re challenging the rule’s constitutionality by arguing it intrudes on their property rights under the Fifth Amendment and by extension the Fourth Amendment as well.

They also argue the rule went beyond the agency’s statutory authority in their latest bid to counter OSHA’s motion. The rule is an attempt for OSHA to avoid judicial review and is “facially invalid because OSHA adopted an incorrect interpretation,” the business groups said.

We’re punching out. Daily Labor Report subscribers, please check in for updates during the week, and feel free to reach out to us.