Managers at the Paradise Showgirls strip club argued that collecting a share of the tips their exotic dancers earned was necessary to keep the business running. The dancers said it was against the law. A Southern California jury sided with the exotic dancers in 2015, awarding 250 women a total of $6.5 million to compensate for tips they claimed they unlawfully had to share with the club’s owners and managers.
The suit is just one of many examples highlighting the contentious issue of tip sharing, a practice that has long divided workers and employers. In 2011 under the Obama administration, the Department of Labor (DOL) sided with workers with the passage of a rule that explicitly banned service industry managers from pooling and pocketing a percentage of their workers’ tips.
But testimony from workers and attorneys suggests that the practice continued well after the tip sharing ban went into effect.
“We see a lot of this in restaurants where it’s suggested, not mandatory,” that you share your tips with management, labor attorney Bob Debes said in a recent interview. Workers who didn’t go along with the “suggestion” reported facing penalties.
“The repercussion of not tipping-out or not tipping-out enough is receiving abusive behavior from the management and staff,” one exotic dancer wrote several years ago, in a post advising dancers to share 20 percent of their tips with management and other club employees.
Re-legalizing tipping pools
Exotic dancers and restaurant service workers have filed several major lawsuits in recent years to assert their rights to keep their own tips. They cited a number of federal laws in their suits, including the 2011 law that barred employers from mandating and controlling a tipping pool.
Now, the DOL under the Trump administration is proposing a solution to what it describes as the “significant amount of litigation” arising from the 2011 tip pool ban: make tip pools legal again.
In a December press release, the DOL announced that it intends to reverse the Obama-era rule in order to help “decrease wage disparities between tipped and non-tipped workers.”
The DOL says that allowing employers to require tip pools will give workplaces the “freedom to allow sharing of tips among more employees.” The agency specifically points to “back of the house” employees such as busboys or dishwashers.
Employer-controlled tips
But beyond the press release, the DOL’s actual proposal does not explicitly require restaurant managers to share tips with the back-of-the-house. Rather, the DOL clarifies in the Federal Register that they are proposing a removal “of the regulatory limitation on an employer's ability to utilize tips,” essentially turning power over tips to employers.
The DOL says this change “could result...in tips being shared with employees who are not customarily and regularly tipped,” but that’s not guaranteed, as advocacy groups that represent service industry workers note.
“By allowing employers to take control of their employees’ tips, this regulation would push a majority-women workforce...further into financial instability, poverty, and vulnerability to harassment and assault,” Saru Jayaraman, of the union-backed Restaurant Opportunities Centers United, told Reuters.
Supporting the proposed rule change is the National Restaurant Association, the trade group that represents restaurant owners. The organization has been fighting to overturn the ban on tip sharing since it was implemented in 2011.
Pocketing billions in tips
Citing numerous documented violations of tipping and labor laws, the Economic Policy Institute (EPI)–a left-leaning think tank–says allowing tip sharing would be disastrous for workers. The organization estimates that employers could legally pocket $5.8 billion in tips (16 percent of their employee’s tipped earnings) under the DOL proposal.
The organization notes that the rule change has no requirement that employers distribute pooled tips to the bus boys or dishwashers. Instead, “employers could legally pocket those tips,” as they had been doing in the past.
The DOL is inviting the public to comment on its proposal online until February 5. An agency spokesman referred specific questions back to the DOL's press release.