In Oregon Rest. & Lodging Ass’n v. Perez, the Ninth Circuit ruled this week that federal law restricts a restaurant employer from maintaining a tip pool that includes “back-of-the-house” employees and requires directly tipped employees to share their tips, regardless of whether a tip credit is taken and employees are paid at least minimum wage.
The FLSA permits an employer to count a tipped employee’s tips toward its hourly minimum wage obligation. This is known as a “tip credit.” Section 203(m) of the FLSA requires employers who take a tip credit to give notice to employees and allow employees to retain all of the tips they receive, unless such employees participate in a valid tip pool. Under section 203(m), a tip pool is valid if it is comprised exclusively of employees who are “customarily and regularly” tipped, commonly referred to as “front-of-the-house” employees.
The employers in Oregon Rest. & Lodging Ass’n, however, did not take a tip credit against their minimum wage obligation. (Indeed, Oregon does not permit a “tip credit,” and requires that all employees receive the state-mandated minimum wage.) Rather, the employers in Oregon Rest. & Lodging Ass’n paid their tipped employees at least the federal minimum wage and required their employees to participate in tip pools. Unlike the tip pools contemplated by section 203(m), however, these tip pools included both front- and back-of-the-house employees.Continue Reading Ninth Circuit Declares Tip Pools Invalid Under FLSA Even Where Employers Pay More Than Minimum Wage