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.

On January 5, 2018, the Eighth Circuit Court of Appeals (this includes Minnesota), in Boswell v. Panera Bread Co. (8th Cir. 2018), held that Panera Bread Company (Panera) was not able cap the bonuses it had offered a group of 67 managers. In an effort to recruit and retain managers, Panera offered a large-one time bonus. Under the compensation plan, managers were to receive a one-time performance bonus, five years after signing the agreement. Moreover, the manager had to be a manager on the date the bonus was payable (5 years in the future). After the bonus plan was implemented, Panera modified the plan to include a $100,000 cap on the amount of the bonus a manager could receive.

The Court found the bonus cap breached the unilateral contract established when Panera offered to pay the managers a bonus for the managers’ continued at-will employment. Departing from prior Missouri cases finding that an offer could be revoked under a unilateral contract prior to substantial performance, the Court held the managers “beginning of performance would render the offer irrevocable.”

What does this mean for employers?  Tread carefully when offering long term bonus or commission plans; be sure that circumstances can’t change so much that you may not be able to deliver on the promise.  Be sure to insert an explicit reservation clause, stating that the employer may revoke or (prospectively) modify the offer, in its sole discretion. Panera attempted to argue it had reserved the right to revoke or modify the bonus payment, since the payment was conditioned on the managers’ continuance of work, a condition Panera argued it controlled under the employment at will rule. However, the Court rejected that argument, finding “Panera was not entitled to move the goalposts on [the managers] by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer.” In order to demonstrate the parties contemplated a modification or revocation, employers should make sure upon offering a bonus to include clear language stating the bonus is voluntary and may be withheld or modified without notice. That being said, it is also probably not a bad idea to state you will only do so “prospectively” – in other words, provide notice the bonus program is changing before it actually changes.  Then have all employees acknowledge the change.  In this instance, the Court alluded to the fact that Panera could have changed the bonus plan formula, but did not; it erred by adding new conditions (a cap on a bonus).