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Tip Sharing: Budget Law Amends FLSA and Derails DOL Action

By Zachary A. Hummel on April 3, 2018
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Last week, the federal government passed its new budget proposal, which included an amendment of the Fair Labor Standards Act (FLSA) to protect the rights of tipped workers. Prior to this law, tip sharing rules were governed by DOL wage and hour regulations.

The new law is in direct opposition to a proposed Department of Labor (DOL) regulation that would have allowed employers who pay all of their employees the full minimum wage (not the tipped minimum) to retain all tips or distribute the tips among management or any non-tipped employees (e.g. cooks, dishwashers, etc.). The new regulation was proposed by the DOL last year and its announcement prompted a large backlash that resulted in the legislative action.

The new law (i) prohibits employers and supervisors from collecting or retaining tips made by employees and (ii) allows tip sharing between tipped and non-tipped employees if the employer pays the full minimum wage to all employees.

The National Restaurant Association opposed the legislation and downplayed the consequence of the proposed DOL regulations, arguing that most employers wouldn’t retain tips even if they were allowed to because of the adverse reaction of tipped employees and customers. Employers have voiced concerns over income equality in the restaurant industry between front of the house servers and back of the house employees such as cooks and dishwashers.

The new law contains several remedial measures. Violations will prompt a civil penalty not to exceed $1,100 for each such violation and, in addition to being liable for all tips unlawfully kept and associated damages, employers will also be liable for the difference between the sub-minimum wage and the regular minimum wage for all hours worked.

Employers of tipped employees will have some additional flexibility in tip distribution from the prior regulatory scheme, but must still protect against retention of any portion of tips by management.

Photo of Zachary A. Hummel Zachary A. Hummel

Zachary Hummel focuses his practice in the areas of labor and employment law and has extensive experience advising clients in a wide variety of industries, including banking, finance, retail, health care, life sciences, hospitality, trucking, mining, manufacturing and service. He represents clients in…

Zachary Hummel focuses his practice in the areas of labor and employment law and has extensive experience advising clients in a wide variety of industries, including banking, finance, retail, health care, life sciences, hospitality, trucking, mining, manufacturing and service. He represents clients in federal and state courts and before administrative agencies in the full range of employment matters such as employment discrimination, wage and hour class and collective actions, illegal harassment (including sexual harassment), legally mandated leaves and retaliation. Zachary regularly advises clients on personnel issues that arise under these same topics in addition to disciplinary issues; hiring and termination; reductions in force; internal investigations; requests for accommodations; personnel policies, handbooks and manuals; and non-compete agreements.

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  • Posted in:
    Employment & Labor
  • Blog:
    Employment Law Letter
  • Organization:
    Shipman & Goodwin LLP
  • Article: View Original Source

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