Ninth Circuit Decision Reaffirms Employers' Right to Require Tip Pooling
February 24, 2010

A new decision from the Ninth Circuit, Cumbie v. Woody Woo, Inc., reaffirms that employers of tipped employees have the right to establish and enforce tip-sharing policies.

In this case, the employer was a restaurant that required employees to share customer tips among all restaurant employees, with the largest share going to dishwashers and kitchen staff (who did not receive tips directly from customers). Plaintiff, a waitress, argued that this practice violated the law and claimed she was entitled to keep 100 percent of the tips in addition to her hourly wages.

There is a general rule: Employers can require employees to pool or share tips as long as the requirement is clear. The wrinkle that led to this lawsuit is the Federal law that recognizes a tip credit which permits employers to count tips as part of the employee's hourly wages (Oregon employers be aware, however, that using a tip credit this way violates state law). Employers who use a tip credit are allowed to have tip pooling arrangements, but only if the pool is made up of employees who customarily receive tips. The employee in this case argued that dishwashers and kitchen staff do not customarily receive tips; so, she argued, this employer was doing the tip pool wrong and she should have been allowed to keep all the tips.

Here's where her argument fell apart: The requirement that tips go to employees who customarily receive them applies only if the employer is taking the tip credit towards minimum wage. In this case, the employer was not doing that. Instead, the employer paid more than minimum wage, but required tips to be shared - which made all the difference to the court. Because the employee already received minimum wage, the employer could require tips to be shared even with the dishwashers and other kitchen staff. In cases where the employer is not taking the credit against minimum wage, it can have a policy that says that employees do not own their tips.

If your employees receive tips from customers, this case serves as a good reminder that distribution of tips creates different rights and obligations. If you credit the tips towards the federal minimum wage (outside of Oregon), be sure that your employees either receive all of their own tips or share them only with others who customarily receive tips. However, if you do not credit tips toward employee wages, you are free to distribute them as you see fit, provided that your employees are made aware of the requirement. Make sure that it is in writing or prominently posted.