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Ninth Circuit Agrees to Reconsider Tip Credit Case

    Client Alerts
  • March 07, 2018

For employers in the hospitality industry, tipping policies continue to pose significant litigation risks. A number of restaurant groups have faced recent class and collective action claims based on allegations that the employers wrongfully deprived waitstaff of tips by requiring that they share them with non-tipped employees (called “tip pooling” arrangements). Federal courts have drawn a distinction between tip pooling policies based on whether the employer claims the federal tip credit that allows them to pay servers a sub-minimum wage. For employers that do not claim the tip credit, most courts have concluded that the prohibition against tip pooling arrangements does not apply.

The U.S. Department of Labor recently agreed to follow this interpretation, proposing to reverse its position that tip pooling is prohibited regardless of whether or not the employer claims the tip credit. A number of congressional Democrats have decried this proposal, saying that it will result in employers diverting tips from waitstaff in order to pay part of the wages of other employees.

Perhaps in response to this controversy, the Ninth Circuit Court of Appeals recently agreed to revisit a panel decision that sided with the new DOL position. The court will hear en banc a consolidated appeal of nine tip pooling cases. In the meantime, the Ninth Circuit directed its district courts not to cite the panel decision as precedential in any ongoing litigation.

If the Ninth Circuit reverses its earlier decision, this could prompt the U.S. Supreme Court to resolve the split among federal appellate courts. The Ninth Circuit could also decide to defer to DOL’s new position on this issue, or conclude that it has the authority to make a final determination on the interpretation of the relevant statutory language.