United States: The Department Of Labor Changes Course On Tip-Pooling Restrictions

Quite a bit of effort goes into making an enjoyable restaurant experience, such as good food, prompt service and, of course, cleanliness. Want to reward the dishwashers for providing you with spotless silverware, expediters for bringing out your food while it is still hot or the chef for cooking the perfect meal by leaving a generous tip? Not so fast. Cooks, expediters and other back-of-the house employees historically have not been able to legally share in the tips that are pooled and distributed among the servers, hosts and others in the front of the house.

However, there may be some relief in sight. On July 20th, the Department of Labor (DOL) announced its intent to rescind its previously issued tip-pooling restrictions, which limited employers' ability to force employees to share tips. This announcement does not immediately change the law, but is promising news for what is on the horizon for restaurants and other employers who use tip pools.

Tip Pooling Basics

Tipped employees are those who customarily and regularly receive more than $30 per month in tips. The Fair Labor Standards Act (FLSA) allows employers to take a tip credit toward the minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage ($7.25; higher in some states).

The FLSA also allows employees to contribute some portion of their tips to a tip pool which is then shared among other employees. Employers who require the pooling of tips must inform the employees of the FLSA's tip pooling provisions. Many employers required employees to share their tips with other "front of the house" employees such as hostesses, bussers and bartenders in tip pools. The FLSA left employers with confusion if back of the house staff, such as cooks and dishwashers, could also benefit from a tip pool. Confusion invariably leads to litigation, and countless restaurants have found themselves on the receiving end of lawsuits alleging they are operating illegal tip pools and owe their employees tens of thousands of dollars plus attorneys' fees.

The Courts Weigh in on the DOL's Tip Pooling Regulation

In 2011, the DOL issued controversial rules establishing that tips are the property of the employee who actually received the tip and could not be shared with other non-customarily tipped employees or retained by the employer even if the employee was not paid on a tip credit basis and was paid the full minimum wage. The DOL justified its rule by reasoning that, "[w]hen the employer uses tips for its own purposes, whether to supplement wage payments to nontipped employees or to otherwise offset its own business expenses ... it is in effect making a deduction from employees' wages. To this end, the department is not regulating the employer's use of the tips; it is regulating the employer's statutory wage payment obligation."

The DOL's 2011 Regulation gained support from the Ninth Circuit Court of Appeals, which governs employers operating in California, Nevada, Washington, Arizona, Oregon, Idaho, Montana, Hawaii, and Alaska. In Oregon Restaurant and Lodging Association v. Perez, decided in February 2016, the Ninth Circuit held that since the FLSA was silent on defining tip pools, the DOL had the authority to interpret the statute as it saw fit. On the other hand, the Tenth Circuit Court of Appeals, governing Colorado, Kansas, Oklahoma, Utah, Wyoming and New Mexico, recently ruled that the DOL's regulation is invalid, holding the tip credit provision does not apply where an employer pays employees at least the required minimum wage, and in such situations the employer may thus retain the tips. The Tenth Circuit's decision agreed with previously-issued decisions from other federal appellate courts in the Fourth (Maryland, Virginia, West Virginia, North Carolina and South Carolina) and Eleventh Circuits (Alabama, Florida and Georgia).

The National Restaurant Association along with others such as Wynn Las Vegas have asked the United States Supreme Court to address what they perceive to be overreach by the DOL and a conflict among the Circuits. The DOL's recent announcement could lead the Supreme Court appeal to be rendered moot.

What Happens Next?

In its Notice of Proposed Rulemaking, the DOL proposes to rescind the restrictions on tip pooling by employers that pay tipped employees the full minimum wage directly. Put another way, if an employer chooses to pay its employees the full minimum wage, it can require the employee to share tips with back of the house staff who certainly contribute to the restaurant experience.

For now, employers outside the Fourth, Tenth, and Eleventh Circuits (particularly those in the Ninth Circuit) should continue to follow the regulation until rescinded. Employers in the Fourth, Tenth, and Eleventh Circuits can feel more confident that their tip pooling arrangements are less likely to be subject to DOL scrutiny. But no matter what Circuit(s) you are in, employers should continue to keep abreast of state and local laws which could limit or prohibit their use of tip pooling arrangements or require some type of notification or posting such as what is required in Colorado. It is not unusual to see an uptick in local legislation in such circumstances.

Employer's Bottom Line

While the rescission process will take time, it is always best to be prepared for change. Employers should take this time to audit their tipping policies, practices and notices to determine what changes, if any, will need to be made to them once rescission occurs. Employers should also evaluate whether an employer-required tip pooling arrangement makes sense for their establishment. The tip-out practice your employees have created themselves may be satisfactory so there is no need to "rock the boat" with management involvement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.