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Tip Pool Rules Found Reasonable by Federal Appeals Court

It is common in the US for certain types of workers to be paid in tips, as well as wages. These workers are usually those in the service industry who work directly with customers, such as waiters, bartenders, and delivery drivers. Some companies operate with tip pools, so that all the tips get collected and then distributed among the service staff. Sometimes these tip pools include employees who don’t normally receive tips, such as dishwashers and bouncers.

The Fair Labor Standards Act (FLSA) is the federal law that provides regulations for things like minimum wage, overtime, and how tipped employees get paid. The federal minimum wage is currently set at $7.25 per hour, but there is a lower minimum wage of $2.13 per hour for employees who receive tips. If the worker’s tips and wages combined do not add up to at least the federal minimum wage, the employer must pay the worker the difference.

For some employers who hire tipped workers, the FLSA allows the employers to take a tip credit for the difference between the federal minimum wage and the lower tipped employee minimum wage, but not all states allow their employers to take a tip credit.

The FLSA allows tip pools among employees who normally receive tips, such as wait staff, bellhops, and busboys, but it does not specify whether tip pools can be extended to include other types of workers if the employer does not receive a tip credit. The U.S. Department of Labor (DOL) ruled that tip pools that include back-of-the-house workers are invalid, regardless of whether the employer receives a tip credit.

Oregon is one of the states that does not allow its employers to take a tip credit. Because of this, several restaurant and lodging associations that conduct business in Oregon sued to get the DOL’s ruling on extended tip pools invalidated. They argued that, because the FLSA does not specify whether only employers who take a tip credit can expand their tip pools, the DOL misinterpreted the law when it said even employers who don’t take a tip credit cannot expand their tipping pools.

The lawsuit was filed in Oregon District Court, and the court agreed that the DOL had misinterpreted the law. The ruling was appealed and the Ninth Circuit Court reversed the lower court’s ruling, saying the DOL’s interpretation of the law had been reasonable. The case has therefore been remanded back to the Oregon District Court.

The Circuit Court’s ruling affects all employers conducting business within the Ninth Circuit Court’s jurisdiction, which includes Alaska, Hawaii, Idaho, Washington, California, Arizona, Montana, and Nevada. All employers who hire tipped workers in the United States, but especially in those states, need to be aware of the Ninth Circuit Court’s recent ruling regarding tip pools. Even if the employers don’t receive a tip credit, tip pools are only valid for servers who interact directly with customers and normally receive tips. Employers with extended tip pools might want to start thinking about changing their practices in order to avoid the potential for a wage and hour lawsuit from their tipped workers.

The Chicago class action lawyers at the Chicago Overtime Law Center are investigating unpaid overtime claims by waiters and bus boys and other restaurant and hotel workers against national restaurant chains including Hilton, W, Marriott, Sheraton, Disney, Holiday Inn, Best Western, HomeTown Buffet, Old Country Buffet, Applebees, Chipotle, Red Lobster, Olive Garden, Cracker Barrel, Outback Steak House, Taco Bell, Burger King, Texas Roadhouse, Logan’s, Wendy’s and hotels for mis-classifying employees as managers or assistant managers, forcing employees to work off the clock at business, failing to share all tips, erasing or altering time sheets or time records, pressuring workers not to report or record overtime, and otherwise failing to pay workers for overtime and other wages. If you are the victim these wage theft practices call us at (312) 869-4095 or contact us online.

The Chicago class action attorneys at the Chicago Overtime Law Center have three decades of experience fighting to help employees who are victims of wage, overtime and tip theft by their employers. We have a team of Chicago unpaid overtime lawyers who concentrate on prosecuting state and nationwide class action lawsuits. Our attorneys work out of Chicago and Oak Brook offices and pursue claims for workers all over the Chicago area including Deerfield and Northbrook. We protect unpaid workers who haven’t received overtime throughout the Chicago area including in DuPage, Kendall, Lake, McHenry, Kane and Cook Counties.

Our Palatine and Schaumburg overtime lawyers are intimately familiar with the issues that arise during wage claim litigation, and we know the laws that govern overtime cases well. Many employers mis-classify employees as being exempt from overtime laws and pay workers salaries instead of hourly wages in order to avoid paying them overtime. Some employers mistakenly classify employees as exempt and others intentionally do so in order to circumvent the law. In either case, workers do not receive the wages they should, and a lawsuit may be the only way to recover their earned wages.

The Chicago Overtime Law Center is based in Chicago, and represents clients throughout the country who have unpaid overtime and other employment right claims.