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Alert! 2018 Consolidated Appropriations Act Impacts Tip Pools

On March 23, Congress passed, and the President signed, the 2018 Consolidated Appropriations Act ("Act") to appropriate and allocate federal funds for the fiscal year ending September 30, 2018. As part of this Act, Congress has amended the Fair Labor Standards Act ("FLSA") in relation to tip pools – creating an immediate impact on all Nevada employers using tip pools.

First, the good news: The Act nullified the Department of Labor’s 2011 Regulation prohibiting mixed tip pools – those providing for the sharing of tips between traditionally tipped employees and nontipped employees (e.g., between servers and cooks), even where the employer pays the full minimum wage to all employees.

As KZA previously discussed in Volume 15, Issue 4 of the KZA Employer Reports, the 2011 Tip Pool Regulation was quite controversial because it limited an employer’s discretion to decide how to structure its tip pools to best facilitate its operational goals. The 2011 Regulation has been the subject of litigation filed by various employers and industry groups, including Wynn Las Vegas and the National Restaurant Association. You may remember from Volume 16, Issue 21 that in December 2017, the DOL (under President Trump’s administration) announced plans to change the 2011 Tip Pool Regulation. Because of the Act, that regulation no longer applies, unless and until the DOL takes further regulatory action on this issue. In a March 23rd news release, the DOL described this portion of the Act as "a bipartisan statutory provision to ensure that workers in the back of the house (i.e., cooks, bussers, dishwashers) can participate in tip pools in appropriate circumstances."

Next, the bad news: The Act amends the FLSA to prohibit all supervisors and managers from keeping any portion of employees’ tips, by providing that: an "employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit." It also provides additional penalties for any employer who violates this new FLSA provision, consisting of a civil fine of up to $1,100 for each violation and liquidated damages in the same amount as the tips unlawfully taken.

These amendments to the FLSA and related DOL regulations took effect immediately upon the signing of the law, March 23, 2018. Therefore, employers should quickly determine whether any of their supervisors or managers are currently receiving any part of employees’ tips and immediately remedy the situation. We will keep you posted on the DOL’s enforcement of the new FLSA prohibition and any new regulatory efforts related to tip pooling. As always, please contact a KZA attorney with any questions on this developing issue.

KZA 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.