Restaurateurs must comply with very specific federal and state tip pooling laws, rules, and regulations as lawsuits and Department of Labor (DOL) audits remain popular with both plaintiffs and government regulators. These rules vary by state, however, so it is critical that the owner/manager be familiar with state laws in order to ensure compliance.
While employers may require employees to pool and share their tips, very definitive rules have been put into place in New York State that require:
Employees who are eligible to participate in a tip pool are defined as those who have personal contact with patrons as a principal and regular part of their day, not merely occasionally or incidentally. The DOL says eligible employees include: waiters, waitresses, bellhops, counter personnel (who serve customers), bussers, and service bartenders. The DOL also notes that a valid tip pool may not include employees who "do not customarily and regularly" receive tips, including dishwashers, cooks, chefs, and janitors.
The most cited rulings to date came in May 2013, when the New York State Court of Appeals issued a decision in two lawsuits against Starbucks Corporation. In the first case, a group of baristas wanted to exclude "shift supervisors" from the tip pool. In the second case, a group of assistant store managers sued to be included in the tip pool. The Court of Appeals ruled that employees with a limited degree of supervisory authority may receive tips provided their primary duty is to serve patrons and they did not perform managerial functions.
According to the ruling, a manager has the ability to affect a subordinate's compensation by preparing work schedules, interviewing applicants, disciplining employees, attending management meetings, and evaluating staff.
So what does this mean to the consumer? To the restaurateur?
In all likelihood, the consumer will have no knowledge of a restaurant's tip policy except in the case of large catered events. In those instances, the consumer may be made aware of the policy regarding administration or house charges. Also, at these events, the tip is customarily built into the event contract. The consumer is free to add to that tip amount should he/she feel that service exceeded expectations.
But it is a different story for those running restaurants. Restaurant management may consider any of these initiatives to help them remain compliant:
Though this landscape is likely to face continued challenges, the best rule of thumb is that managers should be left out of tip pools and paid as non-tipped employees.
The issue is perhaps the most challenging for those in the fine dining landscape, where many positions in the higher end of a restaurant - maître d's, mixologists, sommeliers, and others - perform some functions as do other tipped employees as well as some non-tipped or supervisory duties. Tip pooling is likely to remain in place at these establishments, as it is designed as a tool to motivate all team members to provide customers with a memorable dining experience.
If you have questions, contact Smit Shah or your Berdon advisor.