The Trump administration aims to reverse an Obama-era rule that made restaurant tips the property of the person who receives them.
The Labor Department has proposed allowing employers to claim the tips if all of their workers are paid at least the state or federal minimum wage, whichever is higher. They reason that this would allow employers to re-distribute the wages to their workers who don’t receive tips, such as cooks and dishwashers, according to a report in the Washington Examiner on Tuesday.
Wage disparities between the “front of the house” wait staff and bartenders who receive tips, and the “back of the house” workers who don’t has been hotly debated, proponents of the change say. Allowing restaurant owners to ensure that all workers share the money would resolve the issue.
“In a nutshell, it’s about fairness and freedom,” said a Labor Department official who requested anonymity.
According to Heidi Shierholz, an economist with liberal Economic Policy Institute, reversing this rule could allow unscrupulous employers to withhold as much as $5.8 billion from their workers each year. “This is not a rule about pooling tips. This is about employers getting control of tips,” Shierholz said.
Employers in control of tips could certainly stiff their workers, but in the real world, doing so would be a fast track to going out of business; especially in today’s tight labor market.
According to the report, the Trump administration’s proposal is attempting to end economic inequality in the restaurant industry.
“People just don’t want to work the back of the house,” said Angelo Amador, chief counsel with the National Restaurant Association, which supports the administration’s proposal. Restaurant owners say they cannot afford to pay the back of the house a high minimum wage plus tip income the servers and bartenders receive. Raising prices to pay them more doesn’t fix the situation because that causes tips to rise with the bill.
According to the Examiner:
The Fair Labor Standards Act, signed by Obama in 2011, says that employers in most states are allowed to count tip money toward the requirement that those workers be paid the minimum wage, but the tips remain with the person who receives them. But seven (mostly West Coast) states prohibit the practice. The West Coast is the main region where cities and states have been sharply raising their minimum wages.
Restaurants have challenged that 2011 rule, and the appeals courts have delivered conflicting rulings, with the 10th Circuit saying this year the prohibition on employers taking and pooling tips applies only if they are not paying the minimum wage, while the 9th Circuit said last year that employees cannot be forced to share tips. The cases have been appealed to the Supreme Court, which has not said if it will take up the issue.
The Trump administration, meanwhile, decided not to wait to see what the Supreme Court decides. The Labor Department’s proposed rulemaking would allow employers in all states to take the tips, provided they pay the relevant local minimum wage. This, the department said, would “allow for employers to provide in their agreements with employees for tip sharing among a larger tip pool of employees. This change could result, for example, in tips being shared with employees who are not customarily and regularly tipped, such as back-of-the-house employees in restaurants.”
One section of the proposal says a potential benefit of changing the rule would be for owners “to allocate any customer tips to make capital improvements to their establishments,” sparking outrage among critics.
The Labor Department source stressed that the administration was still in the “gathering input” phase of the rule and hadn’t made any decisions on how it would be written.
Asked if he would support the rule being rewritten to say that employers can take tips only for the purposes of redistribution among employees, Huffman said he would, according to the report. “That’s what we are going to do anyway,” he said.
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