Ninth Circuit court decision upholds Department of Labor tip pool rules: What this means for your restaurant

Ninth Circuit court decision upholds Department of Labor tip pool rules: What this means for your restaurant

By Paul Schlienz

In an unexpected decision, the U.S. Court of Appeals for the Ninth Circuit, on Tuesday, February 23, ruled that the Department of Labor has the authority to regulate the tip-pooling practices of employers who do not take a tip credit, including prohibiting these employers from instituting tip pooling programs that include back-of-the-house staff, management, and other workers who are not customarily tipped.  This decision reverses two federal district court rulings, and essentially ignores the Ninth Circuit’s 2010 ruling on this issue, Cumbie v. Woody Woo.

“We did not expect this ruling, and we’re still consulting with our litigation partners on how we will respond,” said Anthony Anton, president and CEO of the Washington Restaurant Association. “We will inform our members when we have chosen a course of action.”

Possible options include petitioning to have the case reconsidered by the panel that made this decision, petitioning to have the entire Ninth Circuit court hear the case, or appealing the decision to the U.S. Supreme Court.

Question:  What should I do now, if I have a tip pool that might be impacted by this ruling (e.g., includes back-of-house staff)?

Answer:  There is no right answer for all operators.  There are practical considerations, as well as potential risk, to consider which approach is best for you. Specifically:

  • From a practical standpoint, changing the tip pool now to address this ruling will require a lot of adminsitrative issues, changes to compensation structure, impact employee morale, and create other challenges. This is a big change, and you may end up changing back to your current model if the Ninth Circuit then changes its ruling, if a request for review is made and granted.
  • From a legal standpoint, there is some risk with not changing your tip pool at this time. These risks may be lessened, however, while a request for reconsideration or appeal is pending. We are working with our legal counsel to better understand the scope of these risks depending on next steps.

Question:  What are WRA’s next steps, in terms of the lawsuit and providing guidance to its members?

Answer:  WRA and its partners in this litigation will be reaching a decision in the next several days on its course of action in the litigation. Once this decision is reached, we should have a better understanding of risks to members of maintaining a tip pool prohibited by federal law while the matter is pending further review. We will then provide our members with updated information, which may include a webinar, to provide further guidance.

Question:  What should members do in the meantime?

Answer:  You will need to decide whether you want to make a change to your tip pool program now, or wait for updated information.  We believe, however, that given the magnitude of the changes implicated, an appropriate course of action is to develop a plan for changing the tip pool program (e.g., a new compensation model, communicating to your team) in the coming days while awaiting additional information, so you are prepared to implement such a change on short notice if deemed appropriate.

For more information, contact the WRA at 360.956.7279, and we’ll put you in contact with employment law attorney Bob Donovan, from the WRA’s Advisory Network. Additionally, the WRA will be holding a half hour conference call with Bob Donovan at 2 p.m. on Monday, February 29, where he will provide updates on the ruling and our response in addition to answering your questions. If you are interested in participating in this conference call, contact the WRA’s Paul Schlienz at pauls@warestaurant.org.