Employers May Not Have To Share Tips With Employees

Employers May Not Have To Share Tips With Employees

Introduction

Imagine this scenario – you have hired a catering company to cater an event for you. The company performs its obligations, providing both the food and catering staff to ensure your attendees are well fed and taken care of. Happy at the conclusion of the event, you pay the company in full, and provide extra payment to the catering company in the form of a tip to demonstrate your appreciation. Who owns that tip – the catering company hired to provide the services, or the catering staff who worked the event?

On June 30, 2017, in Marlow v. The New Food Guy, Inc. d/b/a Relish Catering, the U.S. Court of Appeals for the Tenth Circuit determined that the Fair Labor Standards Act (“FLSA”) does not require an employer to share tips earned by an employee with that employee, as long as the employee is paid more than minimum wage.

Case Discussion

Bridgette Marlow worked for The New Food Guy, Inc., dba Relish Catering (“Relish”) from October 2013 to November 2014. Marlow was paid a base wage of $12 an hour, and $18 an hour for all overtime hours worked. Relish collected tips from customers in connection with each catering event, but did not share those tips with Marlow (or other similarly situated workers). Marlow sued Relish in the United States District Court for the District of Colorado, arguing that such a practice violated the FLSA. The District Court granted Relish’s motion for a judgment on the pleadings and dismissed the case. After an unsuccessful motion for reconsideration, Marlow appealed the decision to the Tenth Circuit, alleging: (1) that Relish violated the FLSA’s tip-credit restrictions when it retained the tips, and (2) that Relish violated a DOL regulation prohibiting employers from retaining tips. The Tenth Circuit held that the tip-credit provision of the FLSA was inapplicable, and that the regulation in question was beyond the DOL’s authority.

First, the Tenth Circuit examined the FLSA provision in question. Under the FLSA, employers are required to pay employees a minimum wage of $7.25 per hour, plus time and a half for overtime worked. (See 29 U.S.C. § 206(a)(1)(C) and 29 U.S.C. § 207(a)(1).) Under Section 3(m) (29 U.S.C. § 203(m)), however, the FLSA permits employers to satisfy their minimum wage obligations with tips retained by their employees. The Court determined that this “tip credit” provision applies only when an employer actually seeks to reduce an employee’s minimum wage obligation by claiming a credit for the tips received by the employee. Indeed, it found that “[i]f an employer pays more than the minimum wage without regard to tips, the FLSA does not restrict the employer’s use of tips.” As such, because Relish did not utilize the FLSA’s tip credit provision, and because it paid Marlow well above the minimum wage requirements set forth by the FLSA, the Court determined Relish was acting permissibly within the FLSA.

Next, the Court examined the DOL regulation at issue, which sought to interpret the FLSA “tip credit” provision. There, the DOL promulgated that:

Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool.

(29 C.F.R. § 531.52 (2011).)

The Court determined the DOL acted beyond its authority in issuing the regulation, stating that “[i]f an employer pays more than the minimum wage without regard to tips, the FLSA does not restrict [its] use of tips.” Because the DOL did not have the authority to regulate to the contrary, the Court determined the provision to be invalid.

For these reasons, the Tenth Circuit affirmed dismissal of Marlow’s complaint.

Takeaway For Employers

While certainly welcome news for employers within the Tenth Circuit, the decision is directly at odds with a 2016 decision out of the Ninth Circuit in Oregon Restaurant & Lodging Ass’n v. Perez. There, the Ninth Circuit upheld the DOL regulation in determining that the FLSA does not permit employers to mandate tip-pooling arrangements with employees who are not customarily tipped. (We blogged about that decision here.) That decision has been appealed to the Supreme Court. Given the split between the circuits, it is likely we will see the Supreme Court take up the issue in the very near future.

Contributor:  Meagan D. Bainbridge, Attorney at Law  |  Weintraub Tobin