In a final rule published on September 24, 2021, the U.S. Department of Labor ("DOL") expanded the circumstances in which businesses can be fined under federal law for retaining their workers’ tips. The new rule withdraws a more employer-friendly 2020 regulation announced by the DOL during the Trump administration, but which had not yet taken effect. That rule would have limited the DOL's ability to assess penalties in cases of “repeated and willful” violations.
Under the new rule, which is scheduled to take effect on November 23, 2021, the DOL will be able to levy penalties against restaurants and other hospitality industry employers up to $1,100 for each violation (plus back wages).
What sort of conduct with respect to tips will trigger the new penalty provisions? The rule provides that the beefed up penalty provisions only apply when employers (which includes supervisors and managers) keep customer tips intended for service employees (e.g., servers, food runners, bartenders and others in the tip chain). It is worth noting that such conduct was only recently prohibited at the federal level. Congress amended the Fair Labor Standards Act ("FLSA") in 2018 to prohibit employers from retaining tips.
The new rule, which is a substantial departure from California state law on the subject, seeks to clarify that supervisors and managers are permitted to keep tips that they receive directly from customers, but only when the supervisor or manager is “solely” providing a service (and not merely assisting workers who regularly rely on tips). The DOL notes that these "regulations reflect the reality that some managers or supervisors perform work for which they receive tips, while ensuring that managers and supervisors do not keep any portion of other employees' tips" in violation of existing FLSA regulations. Notably, under California law, managers and supervisors may not take any part of the customer tip under these circumstances. Thus, in California and other states with more restrictive policies, employers may not reply upon DOL’s rule allowing supervisors to share in the tips left by customers because the federal Fair Labor Standards Act specifically permits individual states and municipalities to impose their own more restrictive requirements.
Finally, employers who are reeling at the prospect of a hefty $1,100 per violation maximum penalty will have far worse news if a House budget reconciliation bill passes. One of the many provisions in the draft bill (which is part of a broader $3.5 trillion so-called “human infrastructure” package) would increase these penalties more than tenfold—from $1,100 per violation to $11,620 per violation.
As our readers know, there are many more requirements and complexities at the state and local level with respect to tipped employees (including minimum wages and lawfulness of tip pools). If you have any questions about the issues discussed in this issue of Compliance Matters, please call your firm contact at (818) 508-3700, or visit us online at www.brgslaw.com.
Richard S. Rosenberg
Katherine A. Hren
Daniel J. Corbett
Ballard Rosenberg Golper & Savitt, LLP