March 23, 2018

A budgetary compromise that quiets the controversy on restaurant tip skimming is now creating an ambiguous path forward for federal wage-and-hour law.

The government spending bill, signed into law March 23, includes a policy rider to amend the Fair Labor Standards Act by prohibiting employers—including managers and supervisors—from participating in tip-pooling arrangements. The DOL leadership and a bipartisan team of Senate and House members agreed on the language to prevent businesses from retaining workers’ gratuities as a result of the department’s contentious rulemaking that allows restaurants to require employees who directly earn tips to share them with workers who don’t.

The December 2017 rule proposal may now be pulled entirely or revised to conform with the omnibus bill. But the legislative provision leaves a few glaring holes on the next steps, attorneys representing workers and businesses told Bloomberg Law. The biggest uncertainty, they said, is that the FLSA doesn’t define the terms manager and supervisor.

Mixed Bag from Worker Perspective

The bill was largely hailed as a victory by Democratic leaders and worker advocacy groups. They were pleased that the rule essentially nullifies the piece of the DOL’s pending regulation that would’ve given businesses the right to include managers in the tip pool.

Labor Secretary Alexander Acosta urged Congress to reach this deal in the aftermath of controversy that escalated after Bloomberg Law reported Feb. 1 that the agency buried from the proposed rule internal estimates showing the regulation could lead workers to lose out on up to billions of dollars in gratuities per year. The concerns about this rule then reignited in response to a March 20 Bloomberg Law article revealing that Acosta proceeded to delete a reduced version of that analysis—projecting management would skim $640 million per year—by gaining approval from Office of Management and Budget Director Mick Mulvaney.

The spending bill updates to the FLSA now render those estimates moot by making it illegal to transfer tips to management. But to one former official at the DOL Wage and Hour Division, the language doesn’t go far enough to protect workers.

The rider “completely ignores the fact that the owner of the business may not fit either” the manager or supervisor category, Michael Hancock, a WHD assistant secretary under President Barack Obama who now represents plaintiffs at Cohen Milstein, told Bloomberg Law. The language “seems like a fairly superficial attempt to quell the outcry over the pending regulation. They could have explicitly said that the owner of the business is precluded from directly or indirectly benefiting from or taking any part of the tips.”