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National Restaurant Association - Association urges withdrawal or delay of harmful tip rules

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Association urges withdrawal or delay of harmful tip rules

The National Restaurant Association and the Council of State Restaurant Associations are taking aggressive steps to get the U.S. Department of Labor to withdraw or delay new regulations that would have an immediate and negative impact on U.S. restaurants with tipped employees.

Under DOL rules issued April 5, employers who apply tip credits toward employee wages must take significant new steps to inform tip-earning employees about the credit. The rules would take effect May 5.

The agency strongly suggested that employers notify employees in writing, although the law doesn’t require written notices. It also outlined five basic notice requirements rather than continue the current and very easy approach of simply notifying employees (verbally or in writing) of the tip credit taken (e.g., “Management is taking a tip credit of $____ per hour as permitted by law.”).

The Association and CSRA asked the Labor Department to withdraw the regulations or delay the rules for at least 120 days so the agency can find a less burdensome alternative. Once the rule takes effect, employers would have to notify as many as 2.4 million waiters and 500,000 bartenders, along with many other employees who receive tips indirectly of each of these five elements.

The new rules require employers to notify employees of (1) their direct cash wage, (2) the amount the employer claims as a tip credit, (3) that the tip credit can’t exceed actual tip earnings, (4) that employers can’t claim federal tip credits unless they inform employees of the federal law's provisions on the tip credit, and (5) that the law requires employees to retain all their tip earnings, with the exception of whatever they contribute to valid tip pools limited to employees who customarily and regularly receive tips.

The Labor Department published the new final rule without advance notice and didn’t give employers an opportunity to comment. The agency published a notice nearly three years ago that proposed various changes and updates to federal minimum-wage regulations, but the new tip credit-notification rules weren’t mentioned in the 2008 proposal. The new rules represent a major and substantive change to federal regulations, the Association says.

About the rule

Recognizing that tipped employees receive a substantial portion of their earnings in tips, current federal law allows employers to apply up to $5.12 an hour in employee tips toward their obligation to pay employees the $7.25 federal minimum wage.

Federal law requires employers to pay tipped employees a cash wage of at least $2.13 an hour. (Note: Some states require a different minimum wage, or prevent employers from taking any tip credit or restrict it to less than $5.12 an hour.)

Employers can apply tip earnings toward the minimum wage only under certain conditions. For example, employers must inform employees that they take the credit. Employers also must prove that employees earned tips in at least the amount of the tip credit claimed.

Restaurants that don't follow the new DOL requirements could lose their right to apply tip earnings toward the minimum wage paid to tip-earning employees.

Concern over process

Since the 1930s the federal Administrative Procedure Act has required federal agencies to publish advance notice of regulations and give affected industries a chance to comment. The Association believes that the changes to the final rule from the 2008 proposed rule are enough to trigger the legally required notice-and-comment period.

The agency also has not conducted public outreach to prepare employers for the expanded notice requirements, the NRA said in a letter to the agency. "Most employers are not currently aware or positioned to accurately and fully comply with these new and enhanced notice requirements."

The Association is working closely with the Small Business Administration’s Advocacy Office to register the industry’s alarm. The advocacy team at SBA is the federal watchdog charged with making sure other agencies follow proper regulatory procedure and consider the economic impact of regulations on small businesses.

Tip ownership rules also at stake

Restaurant employers are also troubled by a second part of the Labor Department’s rules.

The final regulations attempt to reverse a 2010 9th Circuit U.S. federal appeals court decision that affects employers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. The Labor Department’s rule would apply tip-credit regulations regarding tip ownership to employers who pay the full minimum wage in cash and do not rely on or take the tip credit.

The 9th circuit case involved an Oregon restaurant that took no tip credit and ran a tip pool that included back-of-house staff and required employees to contribute a large share of their tips to the pool. Since the restaurant took no tip credit and paid tip pool participants the full minimum wage, the court agreed that typical federal Fair Labor Standards Act restrictions on tip ownership and tip pools did not apply in this case.

The Labor Department’s new rule contradicts the appeals court ruling by saying federal restrictions on tip ownership apply even if an employer doesn’t take a tip credit. The 9th circuit rejected this Labor Department argument last year when the agency filed a brief in the Oregon case.

Contact Ellen Mize at emize@restaurant.org for more information.

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