No, Donald Trump Is Not Trying To Steal Servers’ Tips

Original Article:

  • Author: Michael Saltsman

  • Publication Date: February 2018

  • Newspaper: Forbes

Late last year, President Trump’s Labor Department published a proposed rule that would permit back-of-the-house restaurant staff (e.g. dishwashers or cooks) to participate in a workplace tip pool under certain conditions. Labor groups cried foul, claiming it would allow restaurants to “legally steal” tips. (There’s a contradiction in terms!)

The truth is far less controversial. Let’s go through the claims one-by-one:

CLAIM: The Trump Labor Department wants to undo “40 years” of precedent on tips.  

FACT: The proposed rule would rescind a controversial 2011 Obama administration regulation that prohibited back-of-the-house employees from receiving tips. This rule was already the subject of extensive legal scrutiny, first challenged by a lawsuit that included an Oregon server (Susan Ponton) who wanted kitchen staff included in her restaurant’s tip pool:

As a result [of the 2011 DOL rule, Ponton] will be prohibited from continuing to enjoy the benefits from this form of a tip pool, including increased camaraderie between front-of-house and back-of-house employees, a higher level of teamwork among the employees and a higher level of service to customers as a result all of which directly results in higher tips for Ponton and the rest of the employees.

The 10th Circuit Court of Appeals ruled in July of last year that the Perez Labor Department lacked the authority to promulgate the 2011 rule. The Trump Labor Department has dropped the appeal of the 10th Circuit decision, and would again permit back-of-house employees to participate in a tip pool.

CLAIM: The Trump Labor Department wants to allow restaurants to “legally steal” tips.

FACT: In high-cost markets, the proposed rule gives employers and employees the ability to supplement with tips the wages of back-of-the-house staff who are involved in the guest’s experience.

Here’s how it works: If an employer already pays at least the full federal minimum wage, they’re permitted to create a tip pool that includes back-of-the-house employees. This rule is most-applicable in the handful of states where tips aren’t treated as income and employers are required to pay the full minimum wage to employees who earn far more than it in tips.

This shouldn’t be controversial. As one restaurateur explained: “If you can tip out the bartender or busser or hostess — anyone in the chain of service — what is the difference between a dishwasher and cook?”

The misleading talking point about “stolen” tips posits a situation in which an employee voluntarily agrees to work at a food service business where everyone’s paid at least federal minimum wage, and employees agree that all tips are controlled by the management.  Some states have laws that explicitly prohibit such an arrangement from taking place; even in states that don’t have a law, such a business would have a difficult time staffing itself for long.

CLAIM: If the rule was enacted, employers would pocket employees’ tips rather than distribute them to staff.

FACT: Restaurants have spent the better part of the last decade in a legal battle (described above) to defend the right to include back-of-house employees in a tip pool. These lawsuits have included restaurants that were previously including back-of-house employees in a tip pool. It defies belief and common sense that restaurants, having won this battle, would now exclude these same employees from the pool.

It’s also contrary to the real-life testimony of restaurateurs who support broader tip-pooling. In a December 2017 phone call coordinated by the Small Business Administration, restaurant operators described how “allowing tips to be shared with back-of-the-house workers would help close the wage gap impacting women and people of color.”

If opponents of the tip-pooling rule were truly concerned about employers keeping tips, they’d drop opposition to the rule and put forward a bill amending the Fair Labor Standards Act to restrict employers from keeping tips in the tip pool. I suspect they’d receive bipartisan support for such a bill. That they haven’t done this suggests opposition to the tip-pooling rule has less to do with concerns about “tip theft” and more to do with broader labor opposition to tip income.

CLAIM: The rules aren’t necessary because restaurants can simply raise pay for the back of the house.

FACT: Raising pay for the kitchen means raising prices. Yet in the markets that the tip-pooling rule would apply to, restaurants already are raising prices—sometimes to levels that customers have rejected—to fund “raises” for highly-tipped service staff, because of the lack of a tip credit.

Restaurants run on notoriously-thin profit margins and have a customer base that’s notoriously price-sensitive. The consequences of these industry realities are apparent in high-minimum wage markets that don’t permit a wage credit for tips earned on the job. In California, the Bay Area has faced a “death march” of restaurant closures associated with the rising minimum wage. (A study from Harvard Business School and Mathematica Policy Research confirmed this.)

In other markets, even left-of-center restaurateurs have made a strong case for a tip credit–noting that back-of-house hourly staff are denied pay raises when one doesn’t exist.

Angela Stowell and her husband, Ethan, own nine upscale restaurants in Seattle. She says she supports a higher minimum wage for the lowest-paid workers, but the minimum wage doesn’t need to rise for people who earn a lot in tips.

“It’s a way for businesses and specifically restaurants to increase the wage of our lowest earners, which are the back of the house, the cooks, the dishwashers, and maintain the current wages of the front of the house,” she said. Stowell says those servers make about $30 an hour in tips and base pay.

This tip-pooling regulation is necessary because of counterproductive regulations in a handful of states that don’t count tips as income. If labor advocates have a problem with this new rule, it’s a problem of their own making.