Trump Administration Blinks, Revises Tip-Pooling Legislation

May 7, 2018
Sally Abrahamson

In late March, the Trump administration backed off from a proposal that would have effectively given restaurants and other employers the legal right to pocket workers’ tips. The U.S. Department of Labor (DOL) announced the proposed rule change last December, saying it would give employers the “freedom to share tips between traditionally tipped and non-tipped workers.” It would have rolled back regulations introduced in 2011 by the Obama administration that barred employers from redistributing tips to anyone other than the employees who would normally receive them.

Too often, however, tip-pooling with non-tipped workers becomes wage theft when employers use it as a way to redirect tips to themselves. In the case of the DOL proposal, managers, supervisors and even business owners would have been legally entitled to receive a portion of workers’ tips.

Thankfully, the backlash that erupted in response to the proposed change forced the DOL to reconsider the proposal and, ultimately, put forward amendments to the Fair Labor Standards Act (FLSA) that better protect tipped workers.

Changes Would Have Allowed Employers to Steal $5.8 Billion Annually from Workers

The DOL initially downplayed the impact of the rule change on tipped workers, but if the proposed changes happened, the new tip-pooling rules could have cost American workers $5.8 billion each year, according to a report by the Economic Policy Institute. That is money rightfully earned by workers that would have gone straight into the pockets of their employers – essentially a legalized form of wage theft.

Tipped workers are already vulnerable to wage theft. One study recently showed that 12 percent of workers in Chicago, Los Angeles, and New York had their tips stolen by employers or supervisors. Restaurant and bar workers are also much more likely to experience wage theft, which more often than not comes in the form of employers stealing tips.

If the DOL’s proposals had taken effect, a whole swath of the American workforce already at risk for wage theft would have suffered even more – and it would have been entirely legal.

Congress Amends FLSA to Bar Tip-Pooling, Enact Harsher Penalties

Thanks to the efforts of labor organizations, as well as Senator Patty Murray (D-Washington), the DOL backed off of its original plans. Consequently, legislation was introduced as part of the recent congressional spending bill to amend the FLSA to state that employers may not under any circumstances pocket tips earned by employees.

As reported in the New York Times, the compromise calls for language that expressly prohibits employers from keeping any portion of workers’ tips. Tips could be shared between tipped- and non-tipped employees only if employers pay all employees the regular minimum wage, as opposed to a reduced minimum wage. Also, supervisors, managers, and business owners are barred from participating in tip pools – a provision the DOL had previously pushed.

The FLSA revisions also increase the penalties for employers who steal workers’ tips. In addition to having to pay back the stolen tips to employees, they will be liable for liquidated damages and penalties of up to $1,100 for each violation.

Vigilance Still Needed for Vulnerable Tipped Workers

Tipped workers may be somewhat thankful that the DOL backed off from its plan to create a nightmare scenario of legalized wage abuse. They may also take some consolation from the fact that the amended FLSA preserves their right to keep their hard-earned money.

The fact that the DOL could even consider legalizing tip-stealing, however, should still be cause for alarm and warrants continued vigilance on this issue. Labor groups may have won this battle, but the war on this country’s lowest-paid workers may not yet be over.

(*Prior results do not guarantee a similar outcome.)