The Labor Department wants to remove an Obama-era regulation that restricted the circumstances in which employers could force workers to share tips.
The DOL’s Wage and Hour Division, in a proposed rule released Dec. 4, calls for rescinding the 2011 regulation that prohibited restaurants, bars, and other service industry employers from requiring front-of-house employees, such as servers, to share tips with back-of-house workers, such as cooks and dishwashers.
“Our proposal only applies where an employer pays a full minimum wage and does not take the tip credit,” a Labor Department official told Bloomberg Law. “These are restaurant cooks and dishwashers, back-of-the-house staff. The concept here is these employees are as integral to the experience of the customer as front-of-the-office staff, and often they are not compensated to the same degree potentially as front-of-the-house staff.”
Tip credits permit employers to pay an hourly wage of as little as $2.13, depending on the state, provided that gratuities bring the worker’s average pay up to the federal minimum wage of $7.25 per hour.
Two appellate court arguments in the last two years—one a dissenting opinion—found the agency had exceeded its authority with the 2011 rule. Those court cases are cited heavily in the rulemaking notice as motivating this administration’s reconsideration. “The Department has serious concerns that it incorrectly construed the statute,” in the earlier rule, the proposal states.
Although seemingly limited in scope, the DOL’s move has broad implications for payroll policies at restaurants and other businesses with workers who rely on tips. It elicited outrage from worker rights groups. What is characterized by the DOL as boosting employee freedom and lifting the take-home pay for kitchen staff is seen by critics as enabling employers to retain gratuities and do with them what they please.
“It is a license to steal the money that customers clearly intended to be a gratuity to a worker for the service provided,” Michael Hancock, a Wage and Hour Division assistant administrator in the Obama administration, said of the proposed rule.
This article originally appeared in Bloomberg BNA.