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DOL’s prohibition on employers retaining tips is invalid

August 1, 2017 by 

The Department of Labor (DOL) exceeded its authority when it implemented a regulation categorically prohibiting employers from retaining tips regardless of whether they avail themselves of the tip credit, the Tenth Circuit held. The underlying suit was brought by a catering employee whose employer pocketed the gratuities added by customers when paying the final bill after catering events. Because the caterer did not take the tip credit-in fact, the server earned well above the minimum wage-the tip-credit provision did not apply. The bottom line: “An employer that pays its employees a set wage greater than the minimum wage does not violate the FLSA when it retains tips paid by customers,” the appeals court wrote, affirming a district court’s grant of judgment on the pleadings to her employer. The Department of Justice (DOJ) had filed an amicus brief in the case to defend the DOL regulation, to no avail.
The caterer paid its servers a base wage of $12 an hour ($18 an hour for overtime). Catering customers typically added gratuities when paying their final bill at the end of events, and the caterer retained those gratuities rather than pass them on to the servers. Contending that the FLSA requires the caterer to turn over at least a share of those tips, one of the servers filed suit, asserting a cause of action based on the FLSA’s tip-credit provision. She also cited the DOL’s regulation, which mandates that employers may not retain employees’ tips, regardless of whether those employees earn at least the $7.25 federal hourly minimum wage. However, neither entitled her to relief. The tip-credit provision did not apply, since the caterer didn’t take the tip credit. And the 2011 regulatory interpretation of the tip-credit provision was an overreach on the DOL’s part.

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