That $5 you leave behind for the server at your favorite restaurant produces a lot more angst than you might think.
The laws on tips and who gets to keep them are highly contentious issues inside the restaurant industry. The Trump administration in mid-December waded right into it.
The Labor Department has proposed to change an Obama-era rule that said tips are the property of the person who receives them. The Trump administration wants to allow employers to claim the tips if all of their workers are paid at least the state or federal minimum wage, whichever is higher. That would allow employers to re-distribute the wages to the workers who don't receive tips.
Wage disparities between the “front of the house” people such as the wait staff and bartenders who receive tips and the “back of the house” workers such as cooks and dishwashers who don’t have produced major friction, proponents of the change say. Allowing restaurant owners to ensure that all workers share the money would resolve the issue.
“In a nutshell, it's about fairness and freedom,” said a Labor Department official who requested anonymity.
Critics argue it’s a thinly veiled attempt by restaurant owners to seize the tips for themselves. Heidi Shierholz, an economist with liberal Economic Policy Institute, argues that as much as $5.8 billion could be taken by employers each year. “This is not a rule about pooling tips. This is about employers getting control of tips,” Shierholz said.
Supporters of the change don’t dispute that employers would get control of the money, but they argue that they would be insane to keep it for themselves. The labor market, especially in the restaurant industry, is far too tight, argues Gary Huffman, owner of Chefstable, a Portland, Ore., restaurant development company and co-owner of several eateries in the city.
“The reality of the labor market is you just cannot keep the tips. Owners who did that would go out of business fast because they wouldn’t be able to hire anybody,” Huffman said. “To the owners who would do it, I say, ‘Go for it, because I am going to steal all of your best servers away from you.’”
The problem the Trump administration proposal is ostensibly trying to address is economic inequality in the restaurant industry. In states where the minimum wage has been sharply raised, the increases have made front of the house jobs highly prized because they can be lucrative. Meanwhile, filling the other jobs has become a struggle.
“People just don’t want to work the back of the house,” said Angelo Amador, chief counsel with the National Restaurant Association, which supports the administration’s proposal. Restaurant owners say they cannot afford to pay the back of the house a high minimum wage plus tip income the servers and bartenders receive. Raising prices to pay them more doesn’t fix the situation because that causes tips to rise with the bill.
Allowing employers to pool those tips with back of the house workers would resolve the issue, proponents say. But the only way that can be done is to give management control over the tips.
The Fair Labor Standards Act, however, says employers cannot do that. A 2011 rulemaking by the Labor Department said the tips are legally the property of the person who receives them. Employers in most states are allowed to count tip money toward the requirement that those workers be paid the minimum wage, but the tips remain with the person who receives them. But seven (mostly West Coast) states prohibit the practice. The West Coast is the main region where cities and states have been sharply raising their minimum wages.
Restaurants have challenged that 2011 rule, and the appeals courts have delivered conflicting rulings, with the 10th Circuit saying this year the prohibition on employers taking and pooling tips applies only if they are not paying the minimum wage, while the 9th Circuit said last year that employees cannot be forced to share tips. The cases have been appealed to the Supreme Court, which has not said if it will take up the issue.
The Trump administration, meanwhile, decided not to wait to see what the Supreme Court decides. The Labor Department's proposed rulemaking would allow employers in all states to take the tips, provided they pay the relevant local minimum wage. This, the department said, would "allow for employers to provide in their agreements with employees for tip sharing among a larger tip pool of employees. This change could result, for example, in tips being shared with employees who are not customarily and regularly tipped, such as back-of-the-house employees in restaurants.”
Critics such as Shierholz point to language in the proposal that indicates that employers could keep the money for other purposes besides distributing it among workers. One section of the proposal says one potential benefit of changing the rule would be for owners “to allocate any customer tips to make capital improvements to their establishments.”
The Labor Department source stressed that the administration was still in the “gathering input” phase of the rule and hadn’t made any decisions on how it would be written.
Asked if he would support the rule being rewritten to say that employers can take tips only for the purposes of redistribution among employees, Huffman said he would. “That’s what we are going to do anyway,” he said.