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Two Months on the Job; Two Significant Steps Forward for Secretary Acosta

Labor & Employment Alert Kelly Lyon Davis

Since last November’s election, employers have had many open questions about healthcare, wage and hour, joint employment, and other important considerations. With the confirmation of United States Labor Secretary Alexander Acosta last month and the release of the White House’s Unified Agenda late last week, we now have a better idea of at least two of the changes employers will face in the wage and hour arena in the coming year.

Overtime Changes on the Horizon

Today, the Department of Labor (DOL) published a Request for Information relating to the Obama-era overtime rule, gathering information that it will use in revising the overtime regulations. The Obama administration changes were blocked by a Texas judge just before the effective date of those changes late last year. As you recall, the 2016 revisions to the regulations significantly increased the minimum salary threshold for an exempt employee ― from $455 per week to $913 per week (or $23,660 to $47,476 per year). Some felt the increase was too high, and others suggested that any increase should be phased in over a number of years. The DOL is accepting comments for the next 60 days to aid in further revising the regulations for exempt employees. If you wish to provide information in response to the DOL’s eleven questions, you can submit comments here.

Changes to Tip Pooling Regulations

Those employers in the hospitability industry with tipped employees may soon have more flexibility in requiring employees to participate in tip pools with certain non-tipped employees. This could allow employers to lower the hourly wages they pay to “back of the house” staff and make up the difference through tip sharing requirements.

Tip Pooling Background

In 2010, the 9th Circuit Court of Appeals held that the Fair Labor Standards Act (the FLSA) does not prohibit an employer from organizing a tip pool that includes employees who do not traditionally receive tips, so long as the employer does not take the tip credit and instead pays its employees at least the full minimum wage per hour. In the restaurant industry, these non-tipped employees are commonly referred to as “back of the house” workers such as cooks, dishwashers, and other kitchen staff.

Apparently unhappy with that decision, in 2011 the DOL issued regulations overturning the 9th Circuit’s decision. According to the DOL, regardless of an employer’s reliance on the tip credit to meet its minimum wage and overtime pay obligations, the tips are the sole property of the employee, with the only exceptions being those outlined in the regulations. 29 CFR § 531.52.

The regulations further provide that a tip pool is invalid if it includes individuals who do not customarily and regularly receive tips. 29 CFR §§ 531.54, 531.59(b). A DOL field assistance bulletin issued in 2012 confirmed the DOL’s nationwide enforcement position on tip pooling. Thus, “back of the house” employees and others who do not customarily and regularly receive tips are not currently able to participate in a tip pool, even if the employer does not take advantage of the tip credit.

Since the 2010 9th Circuit decision, there have been other legal challenges resulting in confusion over the rules. There are two petitions currently pending with the United States Supreme Court.

The Proposed Action

In a move that could eliminate some of the challenges and certainly the confusion with the hospitality industry, the DOL plans to issue a Notice of Proposed Rule Making next month in which it will propose to rescind the current regulations prohibiting certain types of tip pooling by employers who do not take the tip credit. Once final, this rule would allow employers to arrange tip pools that include “back of the house” and other non-tipped employees, so long as the employer does not take a tip credit against its minimum wage and overtime obligations. If the employer takes the tip credit and pays its tipped employees an hourly wage lower than the state’s minimum wage (currently $7.25 under federal law or a specific amount under state law, whichever is higher), then the employer will remain bound by the current tip credit rules which prohibit tip pooling with non-tipped employees.

Next Steps for Employers

Employers should not make any changes just yet. Quarles & Brady LLP will monitor the DOL’s actions and provide a further update when the tip pooling revisions are final. While we do not expect the DOL to enforce the tip pooling regulations in the meantime, employees who are required to pool tips with non-tipped employees, even if they are being paid at least the full minimum wage, may still have a claim.

In the meantime, now is a great time for employers to review any policies that relate to tip pooling, as well as the notifications they provide to employees about the tip pooling and the tip credit, if applicable. If you need guidance, please contact Kelly L. Davis at (239) 659-5066 / [email protected], or your local Quarles & Brady LLP attorney.