Tip-Sharing Rule Leaves Lawyers Hungry for Certainty

Bloomberg BNA Daily Labor Report – Jon Steingart

Restaurants could see a drop in litigation in the short term as the Labor Department considers a plan to rescind an Obama-era regulation that governs “tip pooling,” or sharing of tips, among restaurant employees.

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Some of the uncertainty involves separate probes by the Labor Department inspector general and congressional Democrats into the agency’s handling of the rulemaking process. The inquiries followed a Bloomberg Law report that said the agency withheld data that showed its proposal could allow restaurant owners to pocket billions of dollars in tips.

And there’s uncertainty about the final rule itself. Its specifics won’t be known until the agency reviews input it received during the comment period, which closed Feb. 5.

Litigation over improper allocation of tips can be costly for businesses. New York’s Serendipity 3 restaurant, known for offering a $295 burger for which it donates profits to charity, recently agreed to pay $975,000 to settle a lawsuit in which former bussers and servers alleged an improper tip pool and other pay issues, according to a copy of the agreement submitted Feb. 7 for court approval.

The Labor Department’s proposal would roll back a regulation the Obama administration finalized in 2011 that says employees “who customarily and regularly receive tips,” such as waiters and bussers, can’t be required to share them. Rescinding the rule would let an employer reallocate the gratuities left by customers, either for the business, or to distribute as partial compensation for non-tipped employees like dishwashers.

The rulemaking process itself, however, may not have a huge impact on the number of lawsuits filed alleging skimming of tips. “I’m not sure that there will be many employees’ counsel who are timing their claims based on what’s happening in D.C.,” Bartlett said. “I have talked to some of the savvier lawyers on the plaintiffs’ side to try to surmise the extent to which they manage their caseloads based on legislative and regulatory actions. Most have suggested fairly adamantly that they don’t do it at all.”

Does More Attention Equal More Litigation?

If the Fair Labor Standards Act regulation is rolled back, it seems likely that there would be fewer lawsuits alleging violations of tip pool rules.

On the other hand, an increase in attention surrounding the revised rule could lead to more workers becoming aware of their rights and thus more likely to try to assert them.

Litigation is largely initiated by workers and their lawyers filing lawsuits against employers.

One group that has been among the loudest voices in opposition to the tip pool rule is already planning to hire more lawyers to advocate on workers’ behalf. “We are building a full legal department within ROC, many more attorneys than we’ve had before,” Saru Jayaraman, president of worker advocacy group Restaurant Opportunities Center United, told Bloomberg Law.

Rescinding the rule probably won’t affect lawsuits that have already been filed because it likely wouldn’t be retroactive, Sally Abrahamson, a partner in worker-side law firm Outten & Golden LLP’s Washington office, told Bloomberg Law. She said hospitality workers are frequently subjected to employers skimming their tips.

“The optimist in me is happy that this is getting so much blowback because tip theft is rampant in the restaurant industry,” said Abrahamson, who represents restaurant workers as a member of the firm’s class action practice group. “It isn’t good that this is happening, but I am hopeful that more tipped employees will become aware of their rights.”

“Still, it’s not going to make up for the billions of dollars that tipped employees will lose,” she said. “Tip theft is a huge problem and perhaps sophisticated corporations that are multinational operations and high end restaurants may comply, but I just don’t think that’s the reality for most restaurant workers.”