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Ninth Circuit Court Addresses Tip Pooling Under Federal Law

Volume 9, Issue 1
February 24, 2010

On February 23, 2010, the Ninth Circuit Court of Appeals issued a decision in Cumbie v. Woody Woo, Inc., addressing whether a restaurant violated the Fair Labor Standards Act ("FLSA") by allowing non-tipped kitchen workers to participate in a tip pool. The Court's decision is refreshingly concise and offers simple information about tip pools while reaffirming the employer's discretion in this area.

Misty Cumbie worked as a waitress in Oregon and was paid an hourly rate of at least minimum wage and a portion of her tips. Cumbie's employer required the servers to contribute their tips into a pool that was redistributed to all restaurant employees. The largest portion of the tip pool was distributed to the traditionally non-tipped kitchen staff. Cumbie argued that this arrangement violated the FLSA.

In rejecting her lawsuit, the Ninth Circuit Court first explained that tips belong to the recipient unless there is an explicit agreement or understanding to the contrary. When there is an explicit agreement for pooling or reallocating tips, it is presumed valid unless it interferes with a state or federal statute. The Ninth Circuit Court held that the FLSA restricts tip pooling only if the employer uses a "tip credit."

A tip credit entails an employer using all or part of an employee's tips to count toward and make up a portion of the employer's minimum wage obligation. Tip credits are permitted under the FLSA if: (1) the employer informs the employee of the law's tip-credit provisions; and (2) the employer allows the employee to keep all of her tips except when she participates in a tip pool with "employees who customarily and regularly receive tips." Cumbie's employer could not take a tip credit because they are forbidden under Oregon law. As such, the Ninth Circuit Court found that its inclusion of kitchen workers in the pool did not interfere with the FLSA because the tip credit provision was inapplicable.

Nevada law does not allow tip credits but does allow tip pooling. In fact, the Nevada Supreme Court has held that an employer can impose tip pooling as a condition of employment, and the Nevada federal court has held that a casino employer can impose tip pools which distribute tips amongst several classes of employees, such as dealers, boxmen, casino cashiers and floormen. In this developing area of wage and hour law, a decision by the Ninth Circuit Court concluding that "an employment practice does not violate the FLSA unless the FLSA prohibits it," is especially welcome.

To read the decision in Cumbie, visit: http://www.ca9.uscourts.gov/datastore/opinions/2010/02/23/08-35718.pdf. For more information on tip pooling in Nevada, contact Bryan Cohen or Gregg Kamer.

Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.