Just when it seemed that service charges were all the rage, tip pooling has reemerged to grab the headlines. Making the rounds from courts to agencies, and now Congress, the issue appears to have been settled by Congress that employers can impose mandatory tip pooling to include certain non-tipped employees.
Can Non-Tipped Employees Participate in the Mandatory Tip Pool?
Under the Fair Labor Standards Act (the “FLSA”), employees who are customarily and regularly tipped can be required to participate in a mandatory tip pool. Under a tip pooling approach, the employer directs tipped employees to combine their tips, and the employer determines a structure for redistributing the tips among the employees in the tip pool. As we have reviewed previously in this blog, employees in tipped positions have challenged mandatory tip pools that include non-tipped employees, such as dishwashers and cooks, asserting that they violate the FLSA. Because those employees are not customarily and regularly tipped, the argument was not without merit as the law has always made clear that tips are the property of the employees to whom customers given them. However, the law also provided that tip pools may be imposed by employers. The FLSA further allowed that employers may claim a tip credit against the federal minimum wage.
Both the courts and the National Labor Relations Board (NLRB) seem to keep changing the definitions of joint employment. It is no wonder this has left employers scratching their head about the situation. The cause for this itch is the analysis differs depending on the law at issue. For example, the Fair Labor Standards Act (FLSA), various state employment laws defining “employees,” common law (guided by the National Labor Relations Act), the Family and Medical Leave Act (FMLA), and workers’ compensation laws all have joint employer doctrines and associated tests that are slightly different from the others.
To demonstrate these differences, we will look at two of the most recent cases that modify the joint employer analysis under both the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (the FLSA). Both these cases define a test – but it is not the same test. Unfortunately, the lesson is that an employer or putative employer will not know whether a person is an employee for the purposes of a particular law without determining first what test should be applied for that law.
If you had asked me one month ago to predict the winner of the presidential election, I would have been wrong. Therefore, rather than make my own [ill-fated] predictions of the changes that await employers when PEOTUS takes office, I consulted my trusty Magic 8 Ball. Here’s what it predicted:
Will the overtime rule ever become law?
MY SOURCES SAY NO.
We all have heard by now that the Department of Labor (DOL) rules extending eligibility for time-and-a-half overtime pay to some 4.2 million additional workers (including many employees in the hospitality industry) are on hold thanks to an injunction by a federal court judge in Texas. So what now? The DOL under the Obama administration was expected to appeal the ruling to the US Court of Appeals for the 5th Circuit, but the Trump administration has different priorities and may decide not to pursue an appeal after all.
When we last visited this topic, the proposed regulations revising the overtime exemptions were still very new. The regulations are due to go into effect on December 1 of this year. There has been legislation introduced to stop them from being implemented and court cases are pending. This article will remind you of the obligations, answer some additional questions that keep coming up and will bring you up to date on the efforts to stop the regulations from going into effect.
The good news is the long awaited rule on overtime has arrived – finally. The proposed rule goes into effect on December 1, 2016. The quick summary is the changes aren’t quite as bad as everyone feared. The long summary is below. We have broken out the rules into specific talking points to try and make them easier to digest. This does not erase the entire prospect of heartburn, however. The Department of Labor has also developed a page of Questions and Answers on the new rule, which includes a comparison between the old rule and the new rule.
In the latest of a series of twists and turns regarding the legality of certain tip pools in Western states, on February 23, 2016, a divided three judge panel of the Ninth Circuit Court of Appeals validated regulations by the Department of Labor (“DOL”) that significantly limit employers’ ability to have tip pools that include more than “customarily and regularly tipped” employees. This development means that employers operating in states or territories in the Ninth Circuit (covering Washington, Oregon, Alaska, Idaho, Montana, Nevada, California, Arizona, Hawaii, Guam, and the Northern Mariana Islands) cannot include in their tip pools “back of the house” employees (such as cooks or dishwashers) or other employees who are not customarily tipped. We examine the impact of and history behind this decision below.
In a recent blog post, we highlighted the trend amongst hoteliers and restaurateurs toward adopting service charge models to meet the rise in state and local minimum wage requirements. Although “no-tip” and “service charge” policies are receiving their fair share of attention in the news, employers with improperly designed tip pools are garnering their own headlines—and lawsuits. For example, Red Robin recently agreed to a $1.3 million settlement in response to class action claims against the company that it impermissibly included back of house kitchen staff in the servers’ tip pool. If your company requires employees to pool their tips, or is considering doing so, it will want to avoid some common and costly pitfalls that have beleaguered others. For starters:
Nancy Cooper, member of our Labor and Employment group and Hospitality, Travel and Tourism practice team, discusses how the recent Supreme Court ruling, Integrity Staffing Solutions v. Busk, may impact potential employee wage and hour claims for hourly employees in the future. Thank you for today’s post, Nancy! – Greg
The Supreme Court ruled recently that employers did not need to pay employees for the time the employees spend waiting to go through a security screening to make sure they were not stealing from the company. The case is Integrity Staffing Solutions v. Busk. While many employers applauded this ruling they were also confused because it is initially difficult to determine how going through the security clearance is different than the requirement that you must pay certain employees for the time it takes to change in and out of uniforms or special apparel, also known as donning and doffing time. This article will explore those differences and attempt to make some sense in the distinctions.
First, the history behind the law. The Fair Labor Standards Act (FLSA) and its regulations require that employees are paid for all hours worked. The courts immediately started to broadly interpret this obligation and Congress was concerned about the financial impact on the businesses of the country. As a result, Congress passed the Portal-to-Portal Act to more clearly define what time was actually considered to be work time.
The portion of the Portal-to-Portal Act that is implicated by this opinion is the portion that discusses what activities before (preliminary) and after (postliminary) must be paid. Generally, those activities that are preliminary or postliminary to the performance of the principal activities that an employee is hired to perform must be compensated. “Principal activities” includes all activities which are an “integral and indispensible part of the principal activities.” In order to be considered an “integral and indispensible” activity, it must be one that is intrinsic to the employee’s duties and one which he cannot dispense if he is to perform his principal activities.
Now that the law and terms have been defined, let’s turn to the facts of the case. The employees were hired by Integrity Staffing Solutions to work in a warehouse fulfillment center that filled orders for Amazon. The employees were responsible for receiving an order and picking the items from the proper locations within the warehouse to fulfill the orders. Integrity Staffing Solutions required the employees to clock out from work and then stand in a line to go through security clearance – essentially a metal detector similar to those at an airport – as they left work for the day. This allowed Integrity Staffing Solutions to control the loss of merchandise through employee theft. The lines for these clearances were often long and would take as long as thirty minutes to get through. The employees sued on the basis this 30 minute wait time was actual work time and they should be paid for waiting in line. The Supreme Court disagreed.
In order to be paid for such preliminary or postliminary activity the activity must be so related to the employee’s duties that the job could not be performed if the preliminary or postliminary activity did not occur. The Court decided the focus should not be on whether or not the activity was required by the employer. Instead, the focus should be whether not the activity was actually tied to the work the employee was hired to perform. For example, employees required to wear protective clothing due to the nature of their work, such as dealing with chemicals used in the battery making process, could not perform the work they were hired to do without putting on the protective clothes. The same is true of the time that meat packers spend sharpening their knives.
So, what does all this mean to the hospitality industry? Does it really change the rules on donning and doffing? The short answer is no, it doesn’t change the rules. What it does do is make sure that employers really look at the activity and determine just how integral to the job the activity is. For example, the employer who puts a lot of emphasis on uniforms as a part of the brand (including defining the level and quality of customer service associated with the uniform) may have to pay for the time it takes to don and doff the uniform. This is true if the employer places a lot of emphasis on the public face of the uniform and the associated internal expectations of customer service created by the identity. In short, the uniform becomes a part of the job since it defines the customer service portion of the job.
In contrast, a server who wears a uniform simply as a uniform, but not as a part of the customer service brand and standards may not have to be paid for the time spent changing clothes. The server can still perform the integral functions of the position (serving food and beverages) without the uniform. It is somewhat removed from the position, unless of course the policies of the employer indicate otherwise as discussed above.
What is the takeaway? If there is a question about preliminary and postliminary requirements, take the time to look at the relationship between the activity and the job the employee was hired to perform. Be critical of the situation and candid with yourself as you analyze the situation. If there is any question, reach out to your legal counsel. Be sure that you understand the risks and benefits so that you are not facing a potential wage and hour claim.
 Steiner v. Mitchell, 350 US 247, 252-253.
 Steiner v. Mitchell, 350 US 247, 249, 251.
 Mitchell v. King Packing Co., 350 US 260, 262.
To Pay or Not to Pay?
As the school year begins again, it is a great time for hoteliers to think about their unpaid internship programs. Unpaid internships can be great symbiotic relationships. College students or individuals trying out new fields are willing to work for free in exchange for real-life work experience and something to add to their resumes. However before accepting free labor, employers must be aware of the potential consequences of this relationship and take steps to ensure their internship program complies with the law.
The Fair Labor Standards Act (FLSA) is a federal statute that requires companies to pay all employees a minimum wage and overtime. Who counts as an “employee” is a tricky question and some companies who thought they had unpaid “interns” found out the hard way that they actually had “employees” they were not paying. A recent New York case that is getting a lot of attention is Glatt v. Fox Searchlight Pictures, Inc. In that case, unpaid interns who worked on the movie Black Swan brought a lawsuit claiming that they actually were employees and, as such, should have been paid minimum wage and overtime for their 50-hour weeks. The interns had performed routine administrative tasks such as making photocopies, running errands, ordering lunch, and getting people coffee.
Sounds like typical intern work, right? Wrong. The Federal District Court held these individuals did not categorize in the FLSA exception for interns because their work was purely routine and did not further their education in the way a true internship should. The court also found it was the employer, not the interns, who got the better deal, deriving the most benefit from the relationship. Significantly, the court also held the interns performed work that otherwise would have been done by regular employees, thereby permitting the employer to get the same amount of work done with fewer paid workers. Even though the interns had agreed to serve without pay, the court found overall that the interns were employees and should have been paid wages and overtime. This case is not a fluke — there have been a number of similar intern-related cases lately.
In ruling in favor of the interns, the Glatt court followed a Fact Sheet from the Department of Labor (DOL) detailing a test for whether an internship is exempt from minimum wage laws. To see if your internship program is kosher under the DOL guidance, check out these requirements for a legal unpaid internship:
- Must be educational. The internship, even though it includes actual work for the company, must be similar to training that would be given in an educational environment. This factor is often satisfied when the program is for course credit and when there is a degree of oversight by the intern’s educational institution.
- Must benefit the intern, not the company. This is key. The internship experience must be set up for the primary benefit of the intern. The company must not derive immediate advantage from the activities of the intern; in fact, its operations should potentially be impeded by the intern’s presence.
- Must not displace regular employees. Interns cannot be used to displace or substitute regular employees or to supplement the workforce during times when the company would otherwise hire more employees or ask existing employees to work longer hours.
- Must not be a job interview. The intern cannot necessarily be entitled to a job at the conclusion of the internship. The internship should be for a fixed period of time, established prior to the outset of the internship, with no expectation that it will lead to a permanent position.
- There must be no expectation of wages. Both the employer and the intern must understand that the intern is not entitled to wages for the time spent in the internship.
In short, based on the above federal guidelines (which Washington state closely follows), it is fine for a company to have an unpaid intern, provided the intern — not the company — is the primary beneficiary of the program. To ensure the company is not deriving benefits from or depending on the intern’s work, the company should ensure the intern’s duties don’t regularly include routine operational tasks, such as janitorial work, clerical work, or work that other employees would normally perform. The company should also make sure the intern is closely supervised, receiving more supervision than regular employees, and should give the intern plenty of training opportunities. If the intern is doing operational work, the company should ensure he or she is learning skills that would be transferable to another company, rather than skills that are specific to the company’s own operations. Finally, the company should consider requiring the intern to sign a document expressly stating that he or she is an intern and not an employee, that the internship is unpaid, and that the intern is not entitled to a job at the conclusion of the internship.
Those of you following the challenge to the Department of Labor (“DOL”) tip pooling regulations interpreting the Fair Labor Standards Act (“FLSA”) may recall the events below. You may also want to view our past updates and insights on the tip pooling topic in the following articles: DOL Restrictions, Tip Pooling Remains a Hot Topic, Tip Pooling - Update, Tip Pooling in Oregon and Washington.
- In 2010, in a case called Cumbie v. Woody Woo 596 F.3d 577 (9th Cir. 2010), the Ninth Circuit (with jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington) ruled that the FLSA did not prohibit employer-mandated tip-pooling arrangements if the employer did not take a tip credit. This meant it was lawful for employers in the Ninth Circuit to require that their tipped employees share tips with non-tipped employees (bussers, dishwashers and cooks, for example), just so long as all employees got paid minimum wage and the restaurant did not take a tip credit. (Seven states – Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington – do not allow a tip credit.)
- The DOL then issued regulations in April 2011 addressing ownership of employee tips, in conflict with the ruling of Cumbie v. Woody Woo. The regulations created legal uncertainty for any employers who were engaging in mandatory tip-pooling with back-of-the-house employees.
- In February 2012, the DOL issued a field assistance bulletin to its staff, declaring ”the employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit …” and the DOL would “enforce nationwide the 2011 final rule explaining that a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit[.]” The field assistance made clear on no uncertain terms that that the DOL considered it a violation of the FLSA for an employer to institute a tip pool that required sharing tips with back-of-the-house employees, even if the employer did not take a tip credit.
- In July 2012, restaurant industry associations and others filed a lawsuit in Oregon federal court, contending that the DOL regulations unlawfully prohibit back-of-the-house kitchen workers from sharing in tips left by customers when the employer does not take a tip credit against minimum wage. See Oregon Restaurant and Lodging Association v. Solis et al., Case No. 3:12-cv-01261 (D. Or.).
Greg Duff, Editor
Greg Duff founded and chairs GSB’s national Hospitality, Travel & Tourism group. His practice largely focuses on operations-oriented matters faced by hospitality industry members, including sales and marketing, distribution and e-commerce, procurement and technology. Greg also serves as counsel and legal advisor to many of the hospitality industry’s associations and trade groups, including AH&LA, HFTP and HSMAI.