Today, April 5, 2011, the Wage and Hour Division ("WHD") of the Department of Labor issued a final rule (regulation) which has the effect of clarifying the WHD's position on a number of thorny issues that arise under the Fair Labor Standards Act. While the WHD pitches the regulations as being issued to conform to "recent" statutory changes (understand that the DOL's idea of recent is within the last 20 to 40 years), much of the preamble to the regulation addresses whether or not the WHD agrees with certain court of appeals decisions.
A large part of the preamble addresses rules relating to the "tip credit" an employee working in a hotel or restaurant. The WHD expresses its strong disagreement which Cumbie v. Woody Woo, 596 F.3d 577 (9th Cir. 2010), which the WHD said held that "an employer’s use of an employee’s tips apply only when the tip credit is taken, and that when a tip credit is not taken, tips are only the property of the employee absent an agreement to the contrary." The holding was wrong, the WHD states, because:
Congress would not have had to legislatively permit employers to use their employees’ tips to the extent authorized in section 3(m) unless tips were the property of the employee in the first instance. In other words, if tips were not the property of the employee, Congress would not have needed to specify that an employer is only permitted to use its employees’ tips as a partial credit against its minimum wage obligations in certain prescribed circumstances because an employer would have been able to use all of its employees’ tips for any reason it saw fit.
To reflect this, the WHD is amending 29 C.F.R. § 531.52 "to make clear that tips are the property of the employee, and that section 3(m) sets forth the only permitted uses of an employee’s tips—either through a tip credit or a valid tip pool—whether or not the employer has elected the tip credit."
The WHD also disagrees with an important Sixth Circuit decision regarding the level of notice that is required before an employer may claim the tip credit. Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294 (6th Cir. 1998), which held "an employer must provide notice to the employees, but need not necessarily 'explain' the tip credit." While not exactly disagreeing with the Sixth Circuit's decision, the WHD explained that the new rule will require the following notice:
an employer must inform a tipped employee before it utilizes the tip credit, of the following: (1) The direct cash wage the employer is paying a tipped employee, which can be more than, but cannot be less than, $2.13 per hour; (2) the additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage specified in section 6(a)(1) of the FLSA and the actual cash wage paid by the employer to the employee; (3) that the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee; (4) that the tip credit shall not apply with respect to any tipped employee unless the employee has been informed of the tip credit provisions of section 3(m) of the Act; and (5) that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips.
The WHD revised the rule on tip pooling to permit mandatory tips pools without a cap on the maximum contribution percentage but only among "those employees who customarily and regularly receive tips" and where an notifies "employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each employee ultimately receives, and may not retain any of the employees’ tips for any other purpose."
Other subjects addressed (fodder for a later post) included meal credits, compensatory time for public employees (agreeing with the Sixth Circuit's decision in Beck v. City of Cleveland, 390 F.3d 912, 925 (6th Cir. 2005), and the Fluctuating Workweek Method of Computing Overtime.
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