Labor Department leadership scrubbed an unfavorable internal analysis from a new tip pooling proposal, shielding the public from estimates that showed employees could lose out on billions of dollars in gratuities, four current and former DOL sources tell Bloomberg Law.
The agency shelved the economic analysis, compiled by DOL staff, from a December proposal to scrap an Obama administration rule. The proposal would permit tip pooling arrangements that involve restaurant servers and other workers who make tips and back-of-the-house workers who don’t. It sparked outrage from worker advocates who said the move would permit management to essentially skim gratuities by participating in the pools themselves.
Senior department political officials—faced with a government analysis showing that workers could lose billions of dollars in tips as a result of the proposal—ordered staff to revise the data methodology to lessen the expected impact, several of the sources said. Although later calculations showed progressively reduced tip losses, Labor Secretary Alexander Acosta and his team are said to have still been uncomfortable with including the data in the proposal. The officials disagreed with assumptions in the analysis that employers would retain their employees’ gratuities, rather than redistribute the money to other hourly workers. They wound up receiving approval from the White House to publish a proposal Dec. 5 that removed the economic transfer data altogether, the sources said.
The move to drop the analysis means workers, businesses, advocacy groups, and others who want to weigh in on the tip pool proposal will have to do so without seeing the government’s estimate first. The public notice-and-comment period for the proposal is set to end Feb. 5.
The new revelation lends credence to concerns from Democrats and labor organizers that the proposed rule will short change workers. It also raises questions about how much the DOL intends to take public feedback into account in shaping a final version of the rule.
The More Data the Better
The DOL insisted in the rule proposal that uncertain employer responses make it difficult to produce reliable estimates of managers participating in tip pools and how customers might change their tipping habits. Former agency officials said, however, that the regulation breaks from protocol because it is still the department’s duty to release a best attempt at the data in the proposed rule.
“To punt on that and say we’ll let the public come up with the economic analysis, that’s really not how the process is intended to work,” Michael Hancock, a former assistant administrator at the WHD, told Bloomberg Law. “The agency has an obligation to provide its best judgment on what the likely impact is economically, and that will give the public an opportunity to comment on that.”
Tough to Estimate
In reality, both business and employee-side sources told Bloomberg Law that it’s difficult to arrive at a confident estimate on this rule change, because of many possible employer and customer reactions, and interactions with a maze of state and local minimum wage laws.
The new methods ordered by the DOL leadership on the tip pool rule reduced the transfer total by changing the industries affected and how the rule would interact with state laws, which dropped the total, a few sources said.
Hancock, whose 20-year career at the WHD spanned three presidents from both parties, said that during the approximately 15-20 economically significant rules he’s worked on, he never once witnessed the agency excluding the cost-benefit analysis from a significant regulation. Lack of data accuracy is no excuse, Hancock said.
“If their view is they’re not really confident with the data you have, you put it out there, you identify those areas where you have uncertainty about the data, and invite the public to fill in those gaps,” said Hancock, who is now of counsel at plaintiff-side firm Cohen Milstein in New York.
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