Years of organizing by groups like Presente.org, Restaurant Opportunities Center (ROC) United, National Employment Law Project (NELP), the Economic Policy Institute (EPI), Million Hoodies Movement for Justice, the National Women’s Law Center, the Leadership Center for Civil Rights, CREDO Action, Daily Kos, among others led to a historic victory for restaurant workers. Thursday's Omnibus bill includes specific text that not only blocked the Trump administration's effort to allow employers to steal worker tips but closed a loophole in the Fair Labor Standards Act: federal law now states that worker tips are the sole property of the workers who earned them.
House Republicans passed a spending bill Thursday that includes an important amendment to the Fair Labor Standards Act. It bars employers from keeping tips earned by workers.
The text, written by Sen. Patty Murray (D-WA), was added to the bill to block a proposed Trump administration rule that would have allowed employers to pocket the tips of millions of workers — a move that could cost service workers $5.8 billion a year in lost tips.
The amendment would soften the blow of the new tipping rule the Department of Labor (DOL) is developing. The rule, which the agency proposed in December, would repeal an Obama-era regulation that made official what had been the common view for decades: that tips are the sole property of the workers who earn them. It would essentially allow employers to share their workers’ tips with other staff, or keep tips for themselves, provided they pay workers the full minimum wage. The provision in the spending bill would prevent employers from pocketing the tips, but would not stop them from pooling tips earned by servers to share with non-tipped employees.
The department’s proposal had sparked a backlash from labor rights groups and restaurant servers across the country, who flooded the agency with more than 375,000 comments. Earlier this month, Labor Secretary Alexander Acosta told members of Congress that they would have to change the law to stop employers from pocketing tips, because his agency doesn’t have the legal authority to do so.
That’s why the language clarifying that employers can’t keep workers’ tips was inserted into the spending bill, which still needs to pass the Senate. Murray, a fierce critic of Acosta’s tipping rule, praised the labor secretary Wednesday for working with her to craft the amendment.
But even if it does pass, the amendment wouldn’t completely void the Labor Department’s proposed tipping rule. The rule would still allow employers to share a worker’s tips with a larger pool of workers if they are paid the full minimum wage. That would immediately effect workers in at least seven states — including Nevada and Arizona — that already require employers to pay tipped workers the full minimum wage. (Under federal law, the minimum wage for tipped workers is only $2.13; the full minimum wage is $7.25.)
Bartenders and servers in those states might have to share their tips with more of their co-workers, such as dishwashers and cooks, who don’t normally receive tips. If the new rule is finalized, it will still be a boon to the restaurant industry, which has been fighting for years to control how servers’ tips are distributed.
Restaurant owners say that back-of-the-house workers should get a share of the tips because they contribute to a customer’s overall experience, but labor rights groups and servers argue that restaurant owners should just pay those workers better, instead of using servers’ tips to subsidize their pay.
Federal law does not clarify who owns tips
A common response from people who submitted comments to the DOL about the proposed rule was disbelief: How could it even be legal for employers to keep a worker’s tip?
The custom of tipping has been around since the Middle Ages but didn’t gain momentum in the United States until after the Civil War, when wealthy patrons began tipping carriage drivers and workers at lodges and restaurants. By the mid-20th century, most American customers were giving tips regularly to reward workers for good service.
The assumption that service gratuities belong to the workers who provided the service is ingrained in American history and culture, but it was never clearly stated in federal law.
Tipped workers have always been treated differently under US labor laws.
Congress didn’t include them when it passed the Fair Labor Standards Act of 1938, which established the 40-hour workweek and a federal minimum wage. The law was amended in 1966 to include tipped workers, but they were still treated differently. Most importantly, the amendment created a sub-minimum wage for tipped workers: 50 percent of the federal minimum. Employers could count a worker’s tips toward the other 50 percent needed to make sure they earned minimum wage. This is known as a “tip credit.” On days when workers don’t make enough tips to earn the federal minimum wage, employers must pay the difference. The sub-minimum wage marked a major change to tipping culture in America, essentially turning customer gratuities into wage subsidies.
In 1996, Congress made another change. It set the minimum wage for tipped workers at $2.13 an hour, instead of calculating it as a percentage of the federal minimum wage (at the time, the full minimum wage was $4.26). Since then, Congress has raised the federal minimum wage — but not the minimum for tipped workers. That means that over the years, tips have become a larger share of workers’ incomes. In response, eight states have passed laws requiring employers to pay tipped workers the full state or federal minimum wage. Some states have raised the sub-minimum wage, but 18 states have done neither.
As more states abolished the sub-minimum wage, the Department of Labor decided to clarify its interpretation of the law. The Obama DOL published a rule in 2011 establishing that tips were the property of the workers who earned them, whether or not an employer pays the full minimum wage, and that employers could only pool those tips with other tipped workers.
The proposed rule would be a victory for the National Restaurant Association
The powerful National Restaurant Association has pushed back against the idea that tips are always the property of the workers who earned them. The group has long argued that the law only dictates that workers must keep all their tips if they earn a sub-minimum wage, but doesn’t specifically prohibit employers from redistributing, or keeping, tips if they pay the full minimum wage. The new DOL rule, if implemented, would be a win for the restaurant trade group.
For their part, the federal courts are split on the issue of who owns tips.
In 2013, restaurant and casino owners challenged the Obama-era rule in Oregon Restaurant & Lodging Association v. Perez, arguing that employers can share tips with non-tipped workers as long as they pay servers and bartenders the full minimum wage. The federal district court agreed. But the Ninth Circuit Court of Appeals reversed the decision in 2016, saying that since the law doesn’t specify who owns a worker’s tips, then the DOL had the right to write a rule that clarifies it.
The NRA has petitioned the Supreme Court to hear the Oregon case decided by the Ninth Circuit. So far, the Court has not added it to the docket.
“This is a fairness issue. If employees working the dining room are not receiving a lower hourly wage (because no tip credit is taken) and are receiving an hourly wage at or above the minimum wage, like employees in the kitchen, there is no good reason to exclude kitchen staff from receiving some portion of tips left by guests,” wrote Angelo Amador, executive director of the Restaurant Law Center, the legal division of the National Restaurant Association.
Servers flood the Labor Department with comments opposing the rule
More than 375,000 comments from servers, bartenders, restaurant owners, and customers have come into the DOL after it announced the proposed rule. Here are a few of them: