New Federal Law Tipping Changes

By Christina Tillman, McCormick Barstow LLP, Attorneys at Law

In 2016, the Ninth Circuit Court of Appeals issued a decision involving the Wynn Las Vegas that held only those employees who are “customarily and regularly tipped” by customers may participate in a tip pool.  This ruling effectively invalidated California law that permits employees who are “chain of service” but not generally tipped by the customer to participate in a tip pool.

Earlier this year (2018), amendments to the Fair Labor Standards Act prompted a change in the DOL’s position; employers are “no longer prohibited” from allowing non-tipped employees such as cooks and dishwashers to participate in tip pools.

This about-face has clear implications for bars, restaurants and casinos throughout California and is a huge win for proponents of fairness in the service-oriented workplace.

The effect of the change in federal law is that California’s “chain of service” standard is once again operable for companies that require tip pools with back-of-the house employees.  While some attorneys are hesitant about including back-of-the house in mandatory tip pools, such a policy is authorized (in appropriate circumstances) by the leading California precedent, a 2009 Court of Appeal decision Etheridge v. Reins Int’l California, Inc.  In that case, restaurant servers challenged a mandatory tip-pooling arrangement in which they were required to share tips with certain other employees at the restaurant. The servers did not contest bussers sharing in the tip pool but challenged the inclusion of employees who do not provide “direct table service”, i.e. kitchen staff, bartenders and dishwashers.

In Etheridge, the court agreed with the defendant restaurant that employees who do not provide direct table service may nonetheless participate in mandatory tip pools if they are non-management and contribute to the customer’s experience.   Unless a California Court of Appeal in a different district issues a conflicting ruling, back of the house employees may be included in mandatory tip pool arrangements in California.

As a result, under certain circumstances, California employers such as bars, restaurants and casinos can mandate that tipped employees include others in the chain of service not tipped directly in mandatory tip pools.  Such policies promote fairness and equality by equalizing pay and enhance overall operations by motivating non-tipped employees to support and share in the benefits of excellent customer service.  You should consult with a qualified employment practices attorney to determine if your company’s mandatory tip pool is lawful, but it’s clear that the federal DOL and California courts understand that the delivery of services to a patron involves more personnel than the last person in the chain of service.