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Alert! DOL Seeks Immediate Comments On Proposed Change To Tip Pooling Regulation

Volume 16, Issue 21
December 11, 2017

On December 5, 2017, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) seeking public comments on its proposal to change its tip pooling regulation and allow employers the discretion and flexibility to use mixed tip pools. Employers that wish to provide input to the DOL on this important issue must do so by January 4, 2018.

Many Nevada employers require tipped employees to share tips via a tip pool. Nevada law allows tip pools as long as the employer does not keep any of the tips. Under state law, Nevada employers are also permitted to decide which employees will participate in a tip pool.

However, in 2011, the DOL issued a revised regulation under the Fair Labor Standards Act (FLSA) that limited employers' rights in relation to tip pools. Specifically, the DOL's regulation prohibits employers from using "mixed tip pools" - i.e., tip pools that require traditionally tipped employees to share tips with traditionally non-tipped employees. You may remember, this change resulted in a number of lawsuits including one filed by Nevada casino employees who argued tip pools amongst casino dealers and casino service team leaders violated the FLSA. The Ninth Circuit Court of Appeals determined that the DOL's regulation barring mixed tip pools was valid. The Nevada employer in that case, Wynn Las Vegas, LLC, appealed the decision to the U.S. Supreme Court. The Supreme Court has not yet ruled on Wynn's request for review or a request in a similar case filed by the National Restaurant Association.

In the meantime, the DOL's current NPRM signals a complete turn around on this issue. The DOL "is concerned about the scope of its current tip regulations as applied to employers that pay the full Federal minimum wage to their tipped employees. [It] is also seriously concerned that it incorrectly construed the statute in promulgating the tip credit regulations that apply to such employers." Accordingly, the DOL is considering removing the restriction against mixed tip pools for employers who pay the full federal minimum wage to their tipped employees - i.e., employers who do not credit a tipped employee's tips toward part of the employer's hourly minimum wage obligation to the employee. Because Nevada law prohibits tip credits, this proposed change would apply to all Nevada employers.

The DOL's proposed change would allow Nevada employers to once again decide what is best for their business model and employees in relation to tip pooling. The DOL now recognizes "[t]he proposed rule, . . . , provides employers greater flexibility in determining the pay policies for tipped and non-tipped workers. Theoretically, it additionally allows them to reduce wage disparities among employees who all contribute to the customers' experience and incentivize all employees to improve that experience regardless of position."

To read the DOL's proposal in full, click here. We encourage you to comment on the DOL's proposal because it is beneficial for Nevada employers. If you would like assistance with this process, please contact a KZA attorney.

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.