Court rules restaurants cannot force employees to share tips

A federal appeals court has barred employers from taking tips to share evenly among the staff. The ruling could change how some businesses collect tips.

First Look

A new court decision could change the way restaurants collect tips in some states.

On Tuesday, a federal appeals court ruled businesses cannot collect tips from staff to split them among staff. Restaurants will no longer be able to collect tips from waiters or hosts and split them with cooks or dishwashers.

The 2-1 decision by the 9th US Circuit Court of Appeals upheld a previous US Labor Department rule. The court declared the rule was consistent with Congress’s goal to make tips stay with the employees who received them.

"The premise is the tip is never the employer's," Reuel Schiller, a labor law professor at the University of California, Hastings, told the Associated Press. "The employer doesn't have the power to take that from the waiter and give it to a dishwasher because it's not the employer's money."

The US Labor Department had previously established the rule for any employer that uses tips to fulfill employees minimum wage requirements. The new ruling will have an impact on states that already require employers pay a minimum wage in addition to tips, including Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.

Proponents of the ruling say the decision could force employers to pay dishwashers and other back-end staff and not require other workers to help pay them, Mr. Schiller told AP.

Opponents of the ruling warn that employees are the ones who lost during this ruling.

"The real world impact of this sort of regulation that the Department of Labor has issued is important for people to understand," Paul DeCamp, attorney for the restaurant and lodging association involved in one of the lawsuits, told the AP. "The people who are hurt most by the 9th Circuit ruling are the people in the kitchen, the cooks, the dishwashers, the prep cooks and so on."

The federal appeals court decision overturned two district court decisions in Nevada and Oregon.

Two lawsuits were considered in the ruling: one from two casino dealers against Wynn Las Vegas and the other was a bigger case from restaurant and lodging associations in multiple states, including Washington, Oregon, and Alaska.

The restaurant and lodging association groups sued to be able to share tips with back-end staff, while the dealers sued Wynn over allegations that the casino was taking their tips and sharing them with other workers.

It is still unclear how far the ruling will reach and what the impact will be on other, less traditional methods of payment, like surcharges and service fees.

“At this point most restaurants are trying to understand what does that ruling mean,” Jot Condie, chief executive of the California Restaurant Association, told the Los Angeles Times.

This report contains material from the Associated Press.