The federal government is planning to rescind a controversial regulation preventing restaurants from pooling tips, a major victory for industry advocates who had fought the rule for years.
This week, the U.S. Department of Labor published a notice that it intends to rescind the tip-pooling rule, which the Obama administration put in place in 2011.
“By all means, this is a huge victory for us,” said Angelo Amador, executive director of the National Restaurant Association’s Restaurant Law Center. “This is a great development.”
Under the Fair Labor Standards Act, restaurants are able to pay wait staff a lower wage as long as their tips make up the difference, which is known as a “tip credit.”
Historically, restaurants that don’t take the credit have been able to take tips and “pool” them, to share with back-of-house staff. Tip pooling is designed to make pay more equitable throughout a restaurant.
But the Obama administration repeatedly tried to change the rules to forbid tip pooling and let wait staff to keep their tips. The National Restaurant Association has repeatedly fought the efforts in court.
“We have been litigating this since at least 2010,” Amador said.
The courts have differed in their views over whether the Department of Labor could make such a regulation, with some federal courts agreeing with the association, and others agreeing with the federal government.
The Department of Labor’s decision to rescind the rule should eliminate some confusion over the future of the regulation.
“At least for the time being, it lifts the confusion that has been created by issuing the rule to begin with,” Amador said. “Courts have been all over the place.”
Still, the rule is not in place yet, and Amador said that until it is published restaurants should still follow previous regulations forbidding tip pooling.
“While this is good news, the law is still what the law is,” Amador said. “Proceed with caution.”
Nor will the rule stop the potential litigation.
Amador suggested that a recent court ruling against the Department of Labor led the agency to reconsider the rule. The U.S. Court of Appeals for the 10th Circuit recently sided with the association and denied a government motion for a rehearing.
Meanwhile, the association wants to bring tip pooling to the Supreme Court to decide once and for all whether the labor department can make such a regulation.
Amador said the labor department opted to change the rule in part to make an argument to the Supreme Court to avoid that step. The government would argue that a Supreme Court decision is unnecessary because it rescinded the rule.
But the association wants to continue litigating to settle the issue.
“We want to prevent this is three years down the line a different labor secretary decides to give it another try,” Amador said. “We want the Supreme Court to decide.”
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