The Employer's Legal Resource: Can Your Employer Keep Your Tips?

07.01.2017

As you know, the Fair Labor Standards Act (FLSA) mandates that all employees be paid a minimum wage of $7.25 per hour. What you may not know is that the FLSA also permits certain employers (like hotels and restaurants) to satisfy their minimum wage obligations in part with tips retained by their employees. However, a new decision from the Tenth Circuit, Marlow v. The New Food Guy, Inc., allows employers who pay their employees more than minimum wage to keep tips from customers (and not distribute them to employees) without violating the FLSA.

Bridgette Marlow worked for Relish Catering. She was paid $12 per hour standard rate, and $18 per hour for overtime. At the end of each catering event, Relish accepted tips from customers paying their final bill. But Relish did not supplement the hourly wage of its workers with any share of the gratuity.

Marlow filed suit, alleging that Relish violated the FLSA's tip-credit provisions, which allow employers of "tipped employees" to pay a reduced minimum wage (not less than $2.13 per hour) if employees additionally receive tips from customers in an amount sufficient to bring them to the mandated federal minimum wage (at least $7.25 per hour). If there are not enough tips, the employer must make up the difference; if there are more than enough, the excess tips go to employees. "Tipped employees" are defined as those who "customarily and regularly receive more than $30 a month in tips."

Marlow argued that paying a set wage of more than $7.25 per hour but retaining tips can be the economic equivalent of paying below minimum wage if, for example, she received $12 hourly wage but Relish retained $11 in tips for each hour worked, then the bottom line would be the same as if Relish paid her only $1 per hour. But the Tenth Circuit rejected Marlow's argument, clarifying that "the FLSA's concern is only with the wage payments that employees receive, not with tracing the sources of the money ultimately used by the employer to pay the wage." Relish always paid Marlow well above the minimum, and that wage was not dependent on the amount of tips left by customers.

The court explained: "under the clear text of the FLSA, restrictions on employers' use of tips apply only when the employer uses tips received by the employee as a credit against the employee's minimum wage. If an employer pays more than the minimum wage without regard to tips, the FLSA does not restrict the employer's use of tips" and does not require that those tips be distributed to employees. The tip-credit provisions simply do not apply to employers who provide a set wage above $7.25 per hour. The FLSA itself says nothing about ownership of tips in general and does not instruct that tips are always the property of the employee.

With regard to a 2011 Department of Labor (DOL) regulation directly to the contrary, which explicitly declares that "tips are the property of the employee whether or not the employer has taken a tip credit" under the FLSA, the Tenth Circuit ruled that the regulation was invalid because the DOL did not have authority to promulgate it. The DOL has the power only to issue rules that fill "ambiguities" or "gaps" in the FLSA and other statutes, but none exist here. The text of the FLSA is clear that it limits tip-credit restrictions only to those employers who take the tip credit (and pay their employees less than $7.25 per hour), thus leaving the DOL without authority to regulate otherwise. The DOL's rule simply should not have been issued in the first place.

By Rebecca D. Bullard, RBullard@dsda.com

 

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
litigation and counsels clients regarding everyday employment matters. 

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