Court Upholds DOL Regulation on Tip Credit Notice

In May 2012, an important federal regulation that relates the wages of tipped employees was upheld by the United States District Court for the District of Columbia. The Department of Labor regulation at issue requires employers to notify tipped employees in advance of the use of a "tip credit," which is where an employer such as a restaurant (or other establishment with tipped employees) relies on tips paid by customers to count as part of its obligation to pay employees the federal minimum wage (which is currently $7.30/hour). In this lawsuit, the National Restaurant Association, a lobby group for restaurant-employers, sought to invalidate the regulation. However, the Association's efforts failed, and the DOL's regulation was deemed to be valid and enforceable. The regulation can be found in the U.S. Code of Federal Regulations at 29 C.F.R. Section 531.59(b).

Federal Law permits employers to pay tipped employees less than the minimum wage under certain circumstances. Known as the "tip credit", the Fair Labor Standards Actallows employers to use tips received by tipped employees to partially satisfy the hourly minimum wage requirement. However, for employers to take advantage of the tip credit, they must meet certain legal requirements. One such requirement is that employers must notify tipped employees in advance of the intention to utilize the tip credit. The regulation at issue, which went into effect May 5, 2011, interprets this requirement by detailing the level of explanation that employers must provide to their tipped employees.

The regulation states that in order to take advantage of the tip credit, an employer must give advance notice of the following to its employees: (a) the amount of cash wage to be paid to the employee by the employer; (b) the additional amount by which wages of the tipped employee are increased on account of the tip credit; (c) that all tips received by an employee must be retained by the employee (except for valid tip pooling arrangements); and (d) that the tip credit shall not apply to employees who have not been informed of the preceding requirements.

The National Restaurant Association took issue with the regulation and filed a lawsuit alleging that the Department of Labor violated certain procedural requirements in codifying the regulation. The United States District Court in the District of Columbia disagreed. On May 29, 2012, the Court granted the Department of Labor's motion for summary judgment, allowing the regulation to stand. To read a copy of the Court's opinion, click here. In order to be in compliance with the law, restaurants will continue to be required to notify their tipped employees of their intention to take advantage of the tip credit.

If you are a tipped employee and you think your rights to fair pay have been violated, or if you need more information about whether your compensation arrangement is compliant with the law, you should contact a Missouri wage and hour lawyer.