Ninth Circuit Rules on Tip Pooling: No Mandated Sharing With Back-of-House

A three-judge panel of the Ninth Circuit Court of Appeals recently released a 2-1 decision that would essentially outlaw tip pooling arrangements in which tips are required to be shared with employees who do not usually receive them. Such employees would generally include dishwashers, cooks, and janitors. The ruling affects employers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

The question at issue was whether the Department of Labor (DOL) has the authority to enforce rules related to tip pooling if the employer does not take a tip credit (it is undisputed that the DOL can regulate if the employer does take a tip credit). The court ruled that the DOL does have that authority. As a result, the Department of Labor can enforce its 2011 regulation that prohibits tip sharing with those who do not customarily or regularly receive tips.

The National Restaurant Association and its co-plaintiffs are considering appealing the ruling to a full 11-judge panel of the Ninth Circuit Court of Appeals. In the meantime, employers in affected states should evaluate their current tip pooling arrangements to ensure they are in compliance with the DOL’s regulations.

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