Tip pooling arrangements have long been standard practice at many restaurants. Yet, the practice has an equally long and troubled history. A recent ruling from the Ninth Circuit Court of Appeals affirms a prior ruling which made tip pooling illegal in certain circumstances. Get the facts to make sure you are not unwittingly doing the wrong thing.

The Latest Tip Pooling Ruling

In the latest case, three judges on the Ninth Circuit Court of Appeals ruled that tips are not required to be shared with employees who normally don't receive tips — in other words, with back of house staff including dishwashers, janitors, and cooks. The 2-to-1 ruling impacts restaurants in California, Oregon, Washington, Alaska, Hawaii, Idaho, Montana, Nevada, and Arizona. 

This case reviewed whether the Department of Labor can enforce tip pooling regulations in situations where the employer personally takes no tip credit. The Department of Labor already has the right to intervene in tip pooling when employers do take tip credits. In the recent ruling, the Ninth Circuit Court of Appeals came down on the side of the Department of Labor, giving them the right to interfere with tip pooling arrangements regardless of tip credit. The Court believes tips should stay with the employee who was given them, regardless of other factors. 

If you have tip pooling, and you operate a business in one of the affected states, you will need to cease your arrangements. 

Next Steps for Tip Pooling

The ruling came as a shock to the industry. Many hoped the judges would understand how tipping only a portion of employees (when all receive the base minimum wage) creates an unfair disparity based on cultural norms. Can a diner really say that the server did more to enhance their dining experience than staff who cooked the meal? 

The National Restaurant Association, and the other co-plaintiffs in this lawsuit, do have an option to appeal to the full 11 judge panel of the Ninth Circuit Court of Appeals. Given the split ruling, they may hope the majority will see the issue more favorably. 

In six of the affected states — Alaska, California, Montana, Nevada, Oregon and Washington — both front and back of house employees earn at or above state minimum wage. Front of house employees receive a significantly inflated wage due to tips, so many employers see tip pooling as a way to "even things out" informally. 

There is no question that this ruling will have an immediate and unwelcome effect on restaurants that have shared tips with cooks, dishwashers, porters, and other staff. 

Given the current national interest in fair pay for workers and raising minimum wage, many in the industry hope to reduce the disparity between payroll wages among coworkers. Tip pooling is one creative way to address the issue, but other solutions include allowing customers to tip kitchen staff directly and eliminating tips altogether. 

Do you have tip pooling arrangements at your restaurant? Why or why not? 

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