Tip Pool May Include Employees Not Customarily Tipped If No Tip Credit is Taken
By Kathryn T. McGuigan and Douglas Weiner
In a landmark decision upholding the validity of the employer’s mandatory tip pool, on February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit issued its opinion in Misty Cumbie v. Woody Woo, Inc. No. 08-35718. The court held that where the employer paid a direct wage of at least minimum wage to restaurant wait staff, requiring them to participate in a tip-pooling arrangement with other restaurant employees does not violate the Fair Labor Standards Act. (“FLSA”)..
The Oregon restaurant took no tip credit, rather paid its wait staff a direct hourly wage in excess of the applicable minimum wage requirement. In addition to their hourly wage, the servers received a portion of the daily tips, distributed to employees through a tip pool. The restaurant required the wait staff to participate in its tip pool that included all restaurant employees, except managers. The largest portion of the pool went to the kitchen staff, employees not customarily tipped in the restaurant industry.
A server filed a class action lawsuit against the restaurant alleging that the tip-pooling arrangement violated the minimum wage, and tip provisions of the FLSA. In granting the restaurant’s motion to dismiss the case, the District Court found that there is nothing in the text of the FLSA that restricts employee tip pooling arrangements when no tip credit is taken, thus the restaurant’s tip pooling arrangement was valid. In a well reasoned opinion specially refuting the Secretary of Labor’s arguments submitted in an amicus brief, the Ninth Circuit affirmed citing the Supreme Court’s adage that an agreement is per se valid, “unless subject to statutory interference”.
The Cumbie Court held when an employer does not take a tip credit, it may lawfully require servers to participate in a tip pool with employees who are not customarily tipped.
Although the court’s ruling appears reasonable and persuasive, it is not clear what the Department of Labor’s enforcement policy will be, or whether this court’s ruling will be adopted in other circuits. As this issue develops we will update this blog.
The Ninth Circuit got it wrong. While federal law, section 203(m), states that nothing in this section shall be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips, the Ninth Circuit has construed the law in a manner which prohibits the pooling of tips among employees who customarily and regularly receive tips. Before the Cumbie ruling, the pooling of tips was restricted to those which only included employees who customarily and regularly receive tips. After the Cumbie ruling employer are free to include anyone in their tip pool.
What should be done when the courts insist on violating the very laws they have been entrusted to interpret and rule upon?
While section 203(m) is clearly directed at curbing abuses by the courts which might undue the intent of laws passed by Congress, the Ninth Circuit apparently has no concern for the ristrictions federal laws have placed on the courts.
After Cumbie, it is apprarent that the pooling of tips will be considered as the court approved ability of an employer to steal the tips customers present his workers.
Federal law states that nothing in this section shall be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips. This law is directed at those who are in a position to construe federal law. According to federal law, no person in a position to construe federal law, such as judges, shall construe 29 USC section 203(m) to where the "pooling of tips" is prohibited.
Now please read how federal regulations define "the pooling of tips"
CFR 531.54 TIP POOLING
Where employees practice tip splitting, as where waiters give a portion of "their" tips to the busboys, both the amounts retained by the waiters and those given the busboys are considered tips of the individuals who retain them, in applying the provisions of section 3(m) and 3(t). Similarly, where an accounting is made to an employer for his information only or in furtherance of a pooling arrangement whereby the employer redistributes the tips to the employees upon some basis to which they have "mutually agreed" among themselves, the amounts received and retained by each individual as his own are counted as his tips for purposes of the Act.
Please note that while the Ninth Circuit ruled that section 203(m) does not prohibit an employer from requiring an agreement where tips are turned over to the employer, federal laws and regulations explain that federal laws shall not be construed to where the waiters are prohibited from giving a portion of "THEIR" tips to the busboy.
Likewise, while the Ninth CIrcuit ruled that section 203(m) suggests that a unilateral agreement may exist whereby tips must be turned over to the control of the employer, federal laws and regulations explain that section 203(m) shall not be construed to prohibit where employees mutually agree on the basis by which tips will be redistributed through a tip pool.
In conclusion, the Ninth Circuit is directly violating federal law by construing section 203(m) in a manner where the "pooling of tips", as defined under CFR 531.52, is unlawfully prohibited.
While USC 29 section 203(m), in conjunction with CFR 531.54, clearly instruct that section 203(m) shall not be construed to prohibit the waiters from giving a portion of "their" tips to the busboys, the Ninth Circuit has construed section 203(m) as a law suggesting that tips belong to the employer, rather than the waiters. How can the waiters give a portion of "their" tips to the busboys when the Ninth CIrcuit has ruled that their tips don't belong to them?
Likewise, while USC 29 section 203(m), in conjunction with CFR 531.54, clearly instruct that section 203(m) shall not be construed to prohibit employees from "mutually agreeing" among themselves on the basis by which tips will be distributed through a tip pool, how can the employees at Woody Woo's mutually agree on the basis by which tips will be distributed through a tip pool when the courts have ruled that the tips belong to the employer and, as such, the determination of how tips will be distributed through a tip pool is entirely up to the employer?
Why are judges being allowed to violate federal law in their attempt to appease special interests?
At question is whether or not the provisions of section 203(m) apply when an employer is not taking a tip credit.
While the Ninth Circuit ruled that the provisions of 203(m) only apply when an employer is taking a tip credit, the truth of the matter is, the Ninth Circuit's ruling is both ridiculous and contradicted by federal statutes and regulations.
Let me explain. First off. What the Ninth Circuit is suggesting is, if an employer elects to take part of the tips as a tip credit, the employer is subsequently prohibited from taking the tipped employee's tips and must allow him to retain all tips received. If an employer doesn't take part of the tips for a tip credit, the employer can take the employee's tips and doesn't have to allow the tipped employee to retain all tips. Does this interpretation sound right to you?
Why would Congress pass a law allowing employer to credit part of the tips their employee's receive unless crediting their tips was unlawful in the first place? That was the arguement made by the agent testifying on befalf the the Department of Labor in the Cumbie case.
Clearly the U.S. Department of Labor knows how ridiculous the Ninth Circuit's ruling is. In fact they testified that the Ninth Circuit's ruling would stand the statute on it's head. What they meant was, a ruling suggesting that employers could take control of their worker's tips would twist the law totally around to where the law would act to protect employers rather than employees. The Fair Labor Standards Act was intended to protect empoloyees, not their employers.
Section 203(m) cryptically explains the wage an employer is required to pay a tipped employee, however, it conditions such requirements with the following provisions.
The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the
provisions of this subsection, and all tips received by such employee have been retained by the employee, "EXCEPT" that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.
Now where does the law state that en employer who doesn't take a tip credit can disregard the provisions of section 203(m)? I just don't see it.
Please also note that CFR 531.40 seems to contradict the idea that the provisions of section 203(m) only apply when an employer is taking a tip credit.
CFR 531.40 states, No payment by the employer to a third party will be recognized as a valid payment of compensation required under the Act where it appears that such payment was part of a plan or arrangement to evade or circumvent the requirements of "section 3(m)" or subpart B of this part.
Why would CFR 531.40 neglect to explain that it only applies whan an employer is taking a tip credit if, as the Ninth CIrcuit has suggested, the provisions of 3(m) only apply when an employer is taking a tip credit?
Not only does CFR 531.40 contrdict the Ninth Circuit's ruling, CFR 531.52 also contradicts the Ninth Circuits ruling.
While the Ninth Circuit suggested that federal laws and regulaions support the idea that tips sometimes belong to the employer, CFR 531.52 contradicts such an idea by stating "Whether a tip is to be given, and its amount, are matters determined solely by the customer, and generally he has the right to determine who shall be the recipient of his gratuity."
While the Ninth CIrcuit relied on CFR 531.52 to support the idea that an agreement to the contrary could override the customer's right to determine who his tip belongs to, the Ninth Circuit blatantly ignored other pertinent language contained in CFR 531.52 which condradicts their opnion.
The Ninth CIrcuit stated,
Although we ordinarily begin our analysis with the text of the relevant statute, we pause to elucidate a background principle that guides our inquiry: “In businesses where tipping is customary, the tips, in the absence of an explicit contrary understanding, belong to the recipient. Where, however, [such] an arrangement is made . . . , in the absence of statutory interference, no reason is perceived for its invalidity.” Williams v. Jacksonville Terminal Co., 315 U.S. 386, 397 (1942) (internal citations omitted) (emphasis added).
What they obviously meant was, Although we ordinarily begin our analysis with the text of the relevant statute, we find it more favorable to the defendent, in this case, to take selected text from the Department of Labor's official opinions out of context
My point is, the Ninth Circuit utilized the Department of Labor's formal opinions, the Code of Federal Regulations, to support their conclusion that the Department of Labor's opinion concerning this regulation is incorrect and not subject to the Chevron deference.
Another point I would like to make is, section 203(m) provides the statutory language interfering with, and prohibiting employer from making tips their property, By stating that nothing in this section shall be construed to prohibit the 'pooling of tips, and by defining such "pooling of tips" as where the waiters give a portion of "their" tips to the busboy, section 203(m) is providing statutory interference with an employer making tips his property. If an employer were to make tips his property, then the waiters would be unable to give a portion of "their" tips to the busboy.
Likewise, section 203(m) provides statutory interference by defining the "pooling of tips" not as where employers determine how tips will be distributed through a tip pool but by clearly explaining that the "the pooling of tips", as referenced in section 203(m), is where employees mutually agree on the basis by which tips will be redistributed through a tip pool. If an employer were to make tips his property, then the employee would subsequently be prohibited from mutually agreeing on the basis by which tips will redistributed through a tip pool.
The problem is, the Ninth Circuit blatantly took part of CFR 531.52 out of context. The worst part is, the opinion they attempted to utilize is an opinion issued by the Department of Labor. So in essence, they are utilizing part of the DOL's opinion concerning CFR 531.52 to discredit the DOL's opinion concerning CFR 531.52.
While CFR 531.52 explains that an agreement to the contrary between the recipient and a third party, in this case the employer, would result in the customer losing his right to to determine who will be the recipient of his gratuity, the regulation along with a long standing Department of Labor opinion contradict such an idea.
While the Department of Labor has issued an opinion suggesting that employers are prohibited from entering into an "agreement to the contrary", as refered to in CFR 531.52, the regulations, itself, contradicts the idea that employer can enter into a unilateral agreement with the recipient whereby tips will become the property of the employer. If tips are a sum employees may give over to their employer, why would CFR 531.52 define tips as a sum presented by a customer? Why would CFR 531.52 expain that whether a tip is given is a matter determineed solely by the customer, when according to the Ninth Circuit, the recipient of a customer's tip may determine whether the customer's tip is given to an employer?
On top of all the contradicting evidence I have already provided, CFR 531.54 contains more language contradicting the Ninth Circuits ruling.
While the Ninth Circuit has suggested that a unilateral agrement can result in tips not belonging to the recipient of a customer's tip, CFR 531.54 explains that such agreements are to be mutually agreed upon. Clearly CFR 531.52 is addressing and clarifying that the "agreement to the contrary", refered to in CFR 531.52, is supposed to be a mutual agreement and not a unilateral agreement as suggested by the Ninth Circuit.
Likewise, tip pooling, as defined under CFR 531.54 and as refered to as an "agreement to the contrary" in CFR 531.52, is defined in CFR 531.54 as where the waiters give a portion of "their" tips to the busboy. Please note that CFR 531.52 does not define tip pooling, or the "agreement to the contrary", as where an employer requires that the waiter give part of his tips over to someone else.
In conclusion, the Ninth Circuit's ruling must be overturned. It is a gross miscarriage of justice. What they have actually ruled is, employers can steal the tips customers present their workers unless an employer chooses to steal the customer's tip through the guise of a tip credit.
The whole situation surrounding tips is really messed up. The tip credit is an illegal peice of legislation to start with. What it does is it unconstitutionally and unlawfully gives over the customer's private property, his tip, to business owners without any consent from those customers whose tips are being taken.
Likewise, tip pooling, as it is currently being interpretted, simply allows businesses to seize and control money that doesn't belong to them. An employer who is errantly allowed to require tip pooling is an employer who has gained an ability to spend the customer's private property.
Laws adopted under the guise of protecting workers who receive tip income have been twisted into laws protecting those businesses insistent on stealing the tips customers present their workers.
These truths may be ignored. These truths may be covered up with rhetoric and lies, These truths may be swept under the rug. But.... these truths will never go away.