Wednesday, September 28, 2011

Are you tipping your waitress or paying the cook?

Waiting tables is not only one of the most common occupations for college kids, but also for single mothers. It’s a humble job, that is thought to build character and personality. But, it’s not always the best paying: tips are notoriously erratic. Indeed, that’s why Congress amended the Fair Labor Standards Act (FLSA) in 1966 by setting a minimum wage for tipped employees at 50% of the national minimum wage, phasing it up to 60% in 1980. But, in the 90’s, Congress reversed that thirty-year trend and froze the minimum wage for tipped employees at $2.13 per hour. It has now been the same for twenty years.

Meanwhile the economic crisis has reduced the giving nature of tipping patrons. This means that the average pay for a waiter/waitress is declining on both ends. On the one hand, in the states that don’t have requirements beyond the FLSA, the pay an average waiter gets from his employer has decreased to half of what it was in 1991 (adjusted for inflation). On the other hand, because patrons are hurting from the economic crunch, the tips an average waiter gets have also decreased. It’s no wonder the average waiter/waitress is twice as likely to go with out health insurance, when compared to the national average, and three times as likely to live in a family below the poverty level. Many of these individuals don’t simply live paycheck-to-paycheck; they live day-to-day, table-to-table.

In addition to the minimum wage freeze and the tipping recession, the FLSA is also unclear regarding who qualifies as a “tipped employee.” For an employer to pay their employees the lower minimum wage, the employee has to receive tips and be allowed to keep those tips in their entirety. But, the FLSA does allow employers to force employees to share their tips in a tip pool. The problem is that while the FLSA does require that the tip-pool employees be “customarily and regularly” tipped, the Code of Federal Regulations (CFR) is explicit that an employee need not receive tips directly to be included in the pool. To illustrate, a DOL opinion letter says “[i]t is customary for waiters/waitresses to receive gratuities and share them with the busboys/busgirls who assist in serving the patrons.”

This example may seem simple enough, but the evident lack of clarity in the FLSA becomes obvious with other job types. For example, if a cook is included in the tip pool by an employer, does the fact that she now receives tips make her “customarily and regularly” tipped? Wouldn’t this eviscerate any and all statutory limitations that the words “customarily and regularly” impose? Indeed, such an interpretation would ignore clear legislative intent, as demonstrated by a 1974 Senate Report:
      Nor is the requirement that the tipped employee retain such employee’s own tips intended to discourage the practice of pooling, splitting, or sharing tips with employees who customarily and regularly receive tips-e.g., waiters, bellhops, waitresses,  countermen, busboys, service bartenders, etc . On the other hand, the employer will lose the benefit of this exception if tipped employees are required to share their tips with employees who do not customarily and regularly receive tips-e.g., janitors dishwashers, chefs, laundry room attendants, etc.

Judge Xavier Rodriguez, sitting in San Antonio, Texas, has recently tackled this issue head-on. Looking at the report above, Judge Rodriguez held that “the Senate Report’s nomenclature is simply a list of general examples meant to illustrate the categorical distinction being made” (Barrera v. MTC, Inc.). That distinction is between employees who visibly or directly provide a service to customers, and employees who are mostly out of sight performing preparatory tasks. Again this means the nomenclature of the Senate Report is not dispositive. Indeed, Judge Rodriguez gave the example of a sushi chef to point out that while the Senate Report puts “chefs” generally in the second category, industry custom means that it’s a fact question whether sushi chefs are considered to be part of the first category.

The test used by Judge Rodriguez had two parts. First, to be considered “customarily and regularly” tipped, an employee must directly interact with or visibly perform service for customers. Second, that direct interaction or visible service must be “sufficient to incentivize customers to ‘customarily and regularly’ tip ‘in recognition’ of” the service being provided.”  While this test makes the best out of a legislative mess, it does not solve the bigger problem. The FLSA is unclear. This lack of clarity allows unethical employers to take advantage of statutory ambiguity. It also presents a headache of potential liability for law-abiding employers.

In sum, the FLSA needs to be amended to protect two groups that define the American dream. The first, a group largely made up of college kids and single mothers, who have seen their pay diminish on multiple fronts. The second, a group largely made up of small businesses and first-time entrepreneurs, who lack clear guidance on how to follow the law and avoid being sued.  

Jacob Alford

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