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Tip pooling restrictions apply only when ‘tip credit’ claimed DOL Tip-Pooling Regulations Ruled Invalid
Employers that pay employees above minimum wage, without claiming a "tip credit," are not obligated to give employees a share of customer tips, according to the 10th U.S. Circuit Court of Appeals, which rejected Department of Labor (DOL) regulations as invalid.
Employees in the food services industry often are compensated through a combination of hourly wages and tips. The Fair Labor Standards Act (FLSA) recognizes this industry standard and provides that employers can claim a tip credit against their minimum-wage obligations on the basis of tips that employees receive.
If an employer wishes to claim the credit, employees must be permitted to retain all of the tips they receive, unless the employee participates in a valid tip pool. The FLSA is silent as to whether these rules apply when an employer does not claim the tip credit. However, in 2011 the DOL issued a regulation purporting to bar all tip-pooling that does not comply with the FLSA's notice and retention requirements, regardless of whether an employer claims the tip credit.
Bridgette Marlow worked for The New Food Guy, a catering company doing business as Relish Catering. For her work, Marlow was paid $12 per hour and $18 per hour for overtime. Relish Catering accepted tips from customers but neither shared those tips with its employees nor offered any explanation to its employees of how those tips were shared. Marlow filed a lawsuit, alleging that the FLSA required her employer to pay her a share of all tips received from catering customers.
The lower court dismissed the case on the pleadings, implicitly stating that the DOL regulation was invalid. Marlow appealed.
On appeal, Marlow argued that Relish Catering's practice of retaining tips violates the FLSA and that she was entitled to a share of any tips the company received from customers. Regardless of what the employee receives in wages, she argued, if an employer retains tips, it can achieve the equivalent of paying out less than minimum wage. If a $15-per-hour employee works 8 hours and receives $120 for that shift, but the employer receives and retains $80 in tips attributable to the employee's work, the employer has really only paid out $40—or $5 per hour—for that shift, or so the argument goes.
The 10th Circuit rejected this argument, finding that the FLSA is concerned with what employees receive, not the source of funds that are used to pay the wage. The appellate court held that if the employer pays an employee at or above minimum wage but does not claim a tip credit against its minimum-wage obligations, there can be no FLSA violation.
Marlow next argued that Relish Catering violated a DOL regulation stating that tips are the property of an employee, regardless of whether the employer claims a tip credit.
The appellate court compared the FLSA with the regulation and concluded that the FLSA's silence did not allow the department to issue this type of rule, which was therefore invalid. Because the regulation was invalid, the claim based on the regulation was dismissed. It is worth noting that the 10th Circuit made no mention of the fact that the 9th Circuit recently considered the same regulation and reached the opposite conclusion.
Marlow v. The New Food Guy, 10th Cir., No. 16-1134 (June 30, 2017).
Total nonfarm payroll employment increased by 209,000 in July, and the unemployment rate was little changed at 4.3 percent, the U.S. Bureau of Labor Statistics reported today.
Employment increased in food services and drinking places, professional and business services, and health care.
Household Survey Data
Both the unemployment rate, at 4.3 percent, and the number of unemployed persons, at 7.0 million, changed little in July. After declining earlier in the year, the unemployment rate has shown little movement in recent months.
Among the major worker groups, the unemployment rates for adult men (4.0 percent), adult women (4.0 percent), teenagers (13.2 percent), Whites (3.8 percent), Blacks (7.4 percent), Asians (3.8 percent), and Hispanics (5.1 percent) showed little or no change in July.
Among the unemployed, the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.8 million in July and accounted for 25.9 percent of the unemployed.
The labor force participation rate, at 62.9 percent, changed little in July and has shown little movement on net over the past year. The employment-population ratio (60.2 percent) was also little changed in July but is up by 0.4 percentage point over the year.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 5.3 million, was essentially unchanged in July. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.
In July, 1.6 million persons were marginally attached to the labor force, down by 321,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Among the marginally attached, there were 536,000 discouraged workers in July, essentially unchanged over the year. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.1 million persons marginally attached to the labor force in July had not searched for work for reasons such as school attendance or family responsibilities.
Establishment Survey Data
Total nonfarm payroll employment increased by 209,000 in July. Job gains occurred in food services and drinking places, professional and business services, and health care.
Employment growth has averaged 184,000 per month thus far this year, in line with the average monthly gain in 2016 (+187,000).
Employment in food services and drinking places rose by 53,000 in July. The industry has added 313,000 jobs over the year.
Professional and business services added 49,000 jobs in July, in line with its average monthly job gain over the prior 12 months.
In July, health care employment increased by 39,000, with job gains occurring in ambulatory health care services (+30,000) and hospitals (+7,000). Health care has added 327,000 jobs over the past year.
Employment in mining was essentially unchanged in July (+1,000). From a recent low in October 2016 through June, the industry had added an average of 7,000 jobs per month.
Employment in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities, and government, showed little change over the month.
The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in July. In manufacturing, the workweek was also unchanged at 40.9 hours, and overtime remained at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was 33.7 hours for the fourth consecutive month.
In July, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $26.36. Over the year, average hourly earnings have risen by 65 cents, or 2.5 percent. In July, average hourly earnings of private-sector production and nonsupervisory employees increased by 6 cents to $22.10.
The change in total nonfarm payroll employment for May was revised down from +152,000 to +145,000, and the change for June was revised up from +222,000 to +231,000. With these revisions, employment gains in May and June combined were 2,000 more than previously reported. Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors. Over the past 3 months, job gains have averaged 195,000 per month.
Felicia G. Harris
EverythingHR News is designed to inform business owners, HR professionals and managers about employment law news and emerging workplace trends.
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