On March 23, 2018, President Trump signed into law the Consolidated Appropriations Act. As you may remember, earlier this year the U.S. Department of Labor (DOL) sought comments related to rescinding portions of the 2011 Obama Administration’s ban on tip-sharing arrangements (see my earlier blog here). However, the Act eliminated the issue before the DOL could address it. Under the Act, “employers who pay the full FLSA minimum wage are no longer prohibited from allowing employees who are not customarily and regularly tipped—such as cooks and dishwashers—to participate in tip pools.” However, there are two important caveats worth mentioning. First, the Act does not eliminate the prohibition on managers and supervisors from participating in tip pools. Second, the Minnesota Fair Labor Standards Act (MnFLSA) prohibits employers from requiring employees to share tips (it has to be their choice to tip pool).  Thus, while the FLSA now allows tip pooling, employers in Minnesota are still prohibited from requiring employees to share tips.  Additionally, the Act amends the FLSA to prohibit employers from keeping tips.

The DOL issued a Field Assistance Bulletin on April 6, 2018, further detailing the impact of the amendment, noting it expects to proceed with rulemaking in the near future to address what this means exactly. Importantly, the DOL stated that when determining whether an employee is a supervisor or manager for purposes of tip pooling, it will use the duties test set forth at 29 CFR 541.100(a)(2)-(4). This test looks at whether the individual’s primary duty is management of the business or a department or subdivision, whether that person customarily and regularly directs the work of two or more employees, and whether the individual may hire or fire other employees or whose suggestions and recommendations as to hiring/firing/promotions/other change of status is given particular weight. Violations of the amended Act may result in recovery of all tips unlawfully held by the employer plus an equal amount as liquidated damages as well as possible civil money penalties.

Late last year, the U.S. Department of Labor (DOL) issued a notice of proposed rulemaking, requesting comments related to rescinding portions of the 2011 Obama Administration tip pooling regulations that prohibit an employer from controlling or diverting tips (tips remain with the employee they are given to and up to him/her to share with others or not). The new rule would rescind “the parts of its tip regulations that bar tip-sharing arrangements in establishments where the employers pay full Federal minimum wage and do not take a tip credit against their minimum wage obligations.” As the tip-pooling ban may negatively affect the potential earnings of back-of house-staff, this is not only an issue for employers to keep an eye on, but those back-of-the-house employees as well.  While most wait staff share tips, it is not often split equally, resulting in a disproportionate amount of tips to the front-of-the-house and rescinding this regulation would allow employers to ensure all its staff are equally tipped for their combined team efforts.

Interestingly, after the notice and comment period ended on February 5, 2018, the DOL Office of the Inspector General (OIG) informed the DOL’s Wage and Hour division that an audit on the rulemaking process the DOL engaged in regarding the proposed tip pooling regulation was ongoing.  OIG launched the audit in response to concerns the DOL allegedly hid internal estimates of the proposal’s impact on workers. Accordingly, employers in industries where tipping is a prevalent practice should continue to monitor the developments with the proposed rule.

As food industry businesses are well aware, in Minnesota, you cannot take a credit for tips when computing minimum wage, nor can an employer require tip pooling (Surly Brewing recently paid $2.5 Million in back wages for alleged tip pooling).  In response to cities in Minnesota passing or introducing higher minimum wage ordinances (such as $15 in Minneapolis and St. Paul), Republican lawmakers introduced a bill that would allow employers to pay their tipped employees a lower minimum wage. The bill is in response to concerns from primarily restaurants and bars, regarding the strain a higher minimum wage will incur on them.  The House committee is currently debating this proposed bill.

Under the bill, large employers (employers with annual gross receipts of $500,000 or more), may cap an employee’s minimum wage at $9.65, so as long as the employee makes an average of $14 per hour, including tips.  For small employers (employers with annual gross receipts of $500,000 or less), an employer may cap an employee’s base wage at $7.87 if the employee makes an average of $12 per hour, once the tips are included. If an employee does not make $14 or $12 per hour, depending on the employer’s size, the employer is required to pay them the higher of the Minnesota or federal minimum wage. Stay tuned!

CookUnless you’ve been sleeping for the past decade, you know that Minnesota is an at-will employment state. Thus, either an employee, or an employer, may terminate the employee’s employment at any time, with or without notice. But what happens if an employee is terminated for not sharing tips with other employees? Despite not losing tips (the employee didn’t share the money as requested, after all), the Minnesota Court of Appeals held in Burt v. Rackner, Inc. d/b/a Buny’s Bar & Grill (MN App. June 27, 2016), that the employee’s termination of employment for refusing to share tips resulted in lost employment, and thus, he had an actionable claim to recover future lost wages:

Where an employer requires, as a condition of employment, that an employee consent to working rules expressly prohibited by the MFLSA, the employee is authorized by the statute to sue for damages normally associated with a wrongful-discharge cause of action.”

In other words…although the server’s employment was “at-will”, because his employment was terminated for failing to follow the employer’s directives to share tips, which were in violation of the Minnesota Fair Labor Standards Act (MnFLSA), he was “wrongfully discharged” contrary to law. Thus, an exception to at-will employment is born.

Recall, the MnFLSA prohibits employers from requiring employees to share tips. Minn. Stat. 177.24, Subd. 3. This is not new. Though most servers will share tips out of respect for their teammates in the back of the house, an employer cannot require tip sharing or tip pooling. Often, the back of the house will self-regulate this bad form, whether conscious or subconscious (providing faster service and help to those who share tips). What is new, is the Court holding that an employee can sue an employer when that employee is fired for refusing to comply with an employer’s illegal condition of continued employment based on a violation of the MnFLSA.

In this case, the employee did not lose any wages – he didn’t share after all – but he was fired for not sharing wages (which he can’t be required to do by an employer) and thus, he lost future wages.  The takeaway? Employers should not require tip-sharing or terminate an employee for failing to share tips. Chances are the employee will figure it out soon enough with the help of his or her teammates in the back of the house.

Just as soon as Minnesota employers start to understand the new Minnesota Wage Theft Law (enacted July 1, 2019), the City of Minneapolis has passed its own ordinance, the Minneapolis Wage Theft Prevention Ordinance, effective January 1, 2020.  Employers located in Minneapolis and employers located outside of Minneapolis but who have employees who work at least 80 hours per year in the City, must adhere to the Ordinance.

What Is Different Between the State Law and Minneapolis Ordinance?

The Ordinance requires more than the state law to largely incorporate information about the Minneapolis Sick and Safe Time Ordinance:

  • The Employee Notice must be given to ALL employees – not just new hires (as with the State law)
  • Employee Notice and earnings statements must include information about Sick and Safe Time:
    • Hours of leave the employee receives
    • Type of year used to determine accrual and carryover
    • Earliest date SST may begin (no more than 90 days from date of hire)
  • Employee notice must also require:
    • Employee’s date of hire
    • Overtime pay rates, number of hours to work to be eligible (typically 40 or 48)
    • If position involves gratuities, a statement that tip sharing or pooling is voluntary
  • An explanation of sick and safe time rules and employee’s signature of approval
  • Posters must be posted in English and other language (if applicable) and distributed to employees

Employers who fall under this ordinance should be sure that their time off policies are compliant and they are ready to roll out the employee notice and posters by January 1, 2020.  It is no small task – do not procrastinate and underestimate the work needed!  Also, looking into my crystal ball, I would not be surprised to see St. Paul (and then Duluth) follow suit as is common with such ordinances.