In 2011, the Obama Department of Labor (DOL) adopted a rule stating that service industry employers could not implement tip pooling rules, even if they did not claim the tip credit for minimum wage compliance purposes. Tip pooling means requiring servers to share a portion of their gratuities with cooks, bussers and other untipped employees. Fair Labor Standards Act regulations have long prohibited tip pooling arrangements for employers that claim the subminimum wage available for tipped employees.

The 2011 regulation expanded the interpretation of this tip pooling prohibition to all employees who receive gratuities, even where the employer pays the full federal minimum wage, and does not use part of the tips to make up the difference (the so-called “tip credit”). The Ninth and Tenth Circuit Courts of Appeals both concluded that the 2011 rule misinterpreted the law, limiting the tip pooling ban to employers that claim the tip credit.

The Trump administration apparently agrees with these courts. On July 20, DOL’s Wage and Hour Division announced a nationwide non-enforcement policy for the 2011 rule pending a new rulemaking intended to void the regulation and return DOL to the previous interpretation. This move should also end litigation brought by the restaurant industry seeking a nationwide reversal of DOL’s prior position. Service industry employers should remain aware that a number of states (including North Carolina) prohibit or restrict tip pooling arrangements under state law.