Tip Pooling and Wage Rights Under the Law under Employment Law
Tip Pooling and Wage Rights Under Employment Law
1. Overview of Tip Pooling
Tip pooling is a practice where tipped employees contribute a portion of their tips into a common pool, which is then distributed among a group of employees, often including waitstaff, bussers, bartenders, and sometimes kitchen staff. This practice is intended to ensure a fair distribution of tips among employees who contribute to the customer’s dining experience.
2. Legal Framework Governing Tip Pooling
Tip pooling is primarily regulated under the Fair Labor Standards Act (FLSA) and related state laws.
Tip Credit: Under the FLSA, employers can pay tipped employees a lower base wage (as low as $2.13 per hour federally) if the employee’s tips bring their total earnings up to the federal minimum wage. This is known as the tip credit.
Employer's Right to Tip Pools: The FLSA allows employers to require tip pooling among employees who customarily and regularly receive tips.
Prohibited Participants: Employers and their supervisors or managers are prohibited from participating in tip pools.
3. Conditions for Valid Tip Pooling
For a tip pool to be lawful:
Only employees who customarily and regularly receive tips can participate.
The employer must not take any portion of the tips.
Tip pools must comply with the minimum wage and tip credit rules.
Tip pooling must be voluntary if the employer does not take a tip credit.
4. Employee Rights in Tip Pooling
Employees must be informed of the tip pooling arrangement.
Tips are the property of the employees; employers cannot confiscate tips.
Employees can sue employers for improper tip pooling or misappropriation.
5. Important Case Law on Tip Pooling and Wage Rights
1. Sandifer v. U.S. Steel Corp., 571 U.S. 220 (2014)
Issue: Whether time spent donning and doffing protective gear is compensable under the FLSA.
Held: The Supreme Court ruled that time spent donning and doffing gear was not compensable as “work” for overtime purposes under FLSA.
Significance: While not directly about tip pooling, this case highlights nuances in wage and hour claims, which often arise alongside tip disputes.
2. Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010)
Issue: Whether a restaurant violated the FLSA by including kitchen staff in the tip pool.
Held: The court ruled that tip pooling with kitchen staff, who do not customarily receive tips, violated the FLSA.
Significance: Reinforces that only employees who regularly receive tips (e.g., waitstaff, bartenders) can share in tip pools.
3. Sturgeon v. Frost, 2016 WL 3450912 (D. Or. June 23, 2016)
Issue: Whether the employer’s requirement of tip pooling was lawful.
Held: The court held that tip pooling is lawful if the employer does not take a portion of the tips and the pool includes only those who customarily receive tips.
4. Smith v. Pro’s Ranch Market, 2018 WL 1833201 (N.D. Cal. Apr. 17, 2018)
Issue: Employer allegedly required tip pooling including supervisors.
Held: Participation of supervisors in the tip pool violated the FLSA.
6. Wage Rights Related to Tips
Employers cannot keep any portion of employee tips, except for valid tip pooling among eligible employees.
If an employer takes a tip credit, the employee’s total compensation (wages + tips) must be at least the federal minimum wage.
If the employee does not earn enough in tips, the employer must make up the difference.
Some states have stricter laws regarding tip pooling and tip credits (e.g., California prohibits tip credits and generally disallows employer-mandated tip pooling).
7. State Variations
California prohibits employers from taking tip credits and limits tip pooling to employees who provide direct customer service.
Other states may have different laws about who can participate in tip pools and the employer's ability to take tip credits.
8. Best Practices for Employers
Clearly communicate tip pooling policies to employees.
Ensure tip pools include only eligible employees.
Avoid including supervisors or managers in tip pools.
Keep records of tip pooling distributions.
Comply with both federal and applicable state wage laws.
9. Summary Table: Key Legal Points
| Aspect | Legal Requirement | Consequence of Violation |
|---|---|---|
| Tip Pool Participants | Only employees who customarily and regularly receive tips | Illegal tip pooling, possible lawsuits |
| Employer Participation | Prohibited | Violates FLSA, subject to penalties |
| Tip Credit | Must pay minimum wage combining wages + tips | Back pay owed if violated |
| State Law Variations | States may have stricter rules | Must comply with state law |
| Tip Pool Transparency | Must inform employees | Risk of claims for improper practices |
10. Conclusion
Tip pooling is legal under federal law when properly administered, but it is strictly regulated to protect employees’ rights to their tips. Employers must carefully navigate both federal and state laws to avoid unlawful practices, especially concerning who may share in tips and whether supervisors can participate. Employees who feel their tip rights have been violated can pursue claims under the FLSA and state wage laws.
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