How Tip Credit Leaves Employees at the Mercy of Employers

Tip Credit is a federal law that allows employers to take a 'credit' against the minimum wage, and pay lower wages to employees who earn tips.
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PostPosted: Mon Jan 09, 2012 8:12 pm
Mr. Pink1 Never Leaves a Tip: How Current
Tip Credit and Tip Pool Guidelines Leave
Employees at the Mercy of Employers ... %20621.pdf
[See link for numbered references]

Neil Patrick McConnell*

Table of Contents
I. INTRODUCTION........................................................................... 622
II. BACKGROUND............................................................................ 624
    A. The Federal Hourly Minimum Wage .................................. 624
    B. Tips and Tipped Employees ................................................ 625
    C. The Tip Credit Provision .................................................... 625
    D. Tip Pooling ......................................................................... 626
    E. Impact of Unlawful Tip Pools on the Employer ................. 627
III. ANALYSIS................................................................................... 628
    A. Uncertainty as to Whether a Tip Pool May be
    Mandatory........................................................................... 628
    B. Disputes as to the Sufficiency of Tip Credit Notice ............ 630
    C. Customarily Tipped Employees Within a Tip Pool............. 632
    1. Front-of-the-House vs. Back-of-the-House
    Employees..................................................................... 632
    D. Applying the Tip Credit to Employees Engaged in Dual
    Jobs..................................................................................... 636
    E. Managerial Employees Unlawfully Taking from Tip
    Pools ................................................................................... 638
    F. Tip Pool Guidelines in Non-Tip Credit States .................... 639
IV. CONCLUSION.............................................................................. 640

At every restaurant there is the familiar sound of after-meal chatter,
everyone at the table giving their closing thoughts as to what the cooks
did correctly or the criticisms from the dining companion who has
watched too many episodes of Bravo’s “Top Chef.” The bill arrives, and
then glances are made to see if the waiter is within earshot. The critical
question is spoken: “How much should we tip?”

Each year, diners give roughly $42 billion in tips at full-service
restaurants which employ about 2.6 million waiters and waitresses who
rely on tips for the bulk of their income.2 A general conception of tips is
that they provide employees with immediate compensation for their hard
efforts.3 Although eighty percent of Americans reason that they prefer
paying a tip as opposed to a service fee because they believe it provides
an incentive to the waiter or waitress,4 Cornell professor of consumer
behavior and marketing Michael Lynn stated that the correlation between
the satisfaction with service and the size of the tip is less than two
percent.5 Instead, the amount of the bill is the most determinative factor
of the size of the tip.6 Professor Lynn discovered that diners generally
tip the same percentage regardless of the service in large part because it
is expected of them and because of fears of social disapproval in leaving
behind a small tip.7 Ben Franklin recognized this social phenomenon
when he said, “[t]o overtip is to appear an ass: to undertip is to appear an
even greater ass.”8 The size of the tip may also be related to some other
social experience. Actor John Goodman said in a recent interview, “I
always overtip. Because at the end of the night, your feet hurt and you
get to count it up and there’s a nice feeling when you’ve gotten tipped
well. I know what it’s like. My mom lived on tips.”9 Thus, the size of
the tip may not be any reflection on customer satisfaction. This
Comment will discuss how the customer compulsion to tip is reflective
of the underpinning problems associated with the tip credit and tip

The origins of the tipping custom have been attributed to Tudor
England where overnight guests would provide sums of money to private
homeowners.10 The custom trickled over to coffeehouses, restaurants,
and other commercial establishments.11 Some speculate that “tip” is an
acronym for the phrase “To Insure Promptitude,” which was inscribed on
a bowl at a coffeehouse frequented by the 18th century English author
Samuel Johnson.12 After the Civil War, wealthy Americans began
traveling to Europe, bringing back with them the tipping custom to flaunt
their worldliness.13 At first, Americans opposed the custom and viewed
it as contradictory to democratic ideals.14 Some states even passed antitipping

In 1938, Congress passed the Fair Labor Standards Act (FLSA)
with the intention of regulating “labor conditions detrimental to the
maintenance of the minimum standard of living necessary for health,
efficiency, and general well-being of workers. . . .”16 The FLSA set
minimum wages,17 limited the maximum number of hours employees
were to work,18 provided for overtime wages in certain industries,19 and
prohibited “oppressive child labor.”20 It was not until 1966 that
Congress added restaurant workers to the list of protected workers under
the FLSA.21 That same year, Congress adopted the concept of a tip
credit which allowed employers to credit an employee’s tips to satisfy
the federal minimum wage requirement.22 Along with the tip credit,
Congress adopted the practice of tip pooling among customarily and
regularly tipped employees which allowed employees to pool their tips
together.23 Tip pooling was a method of ensuring fairer distribution of
tips and promoting harmony among employees.24

This Comment will discuss the legal uncertainties associated with
the current tip credit and tip pool guidelines and demonstrate the
potential for employees within the restaurant industry to be denied the
right to their tips. Section II of this Comment supplies background
information on the Congressional goal of providing a minimum wage to
hourly employees. Also, Section II explains the general guidelines for
implementing a tip credit and tip pool and how both are intended to
provide employees the statutorily mandated minimum hourly wage.
Section III of this Comment then analyzes the areas of imprecision
within the tip credit and tip pool guidelines and examines cases where
employees were unlawfully denied their tip wages. Lastly, the Comment
presents arguments supported by Labor Unions which demand more
stringent policies of the tip credit or for an abolition of the tip credit
altogether. The Comment then concludes by re-evaluating the general
custom of tipping.


Before discussing the complications with respect to the tip credit
and tip pools, it is important to first understand the development of the
minimum hourly wage. After discussing the establishment of the federal
minimum wage, Section II(b) examines the concept of a tip. This
Section subsequently explains the tip credit and tip pool models. Lastly,
Section II(e) provides a brief snapshot of the devastating consequences to
an employer in implementing an unlawful tip pool.

A. The Federal Hourly Minimum Wage

The Fair Labor Standards Act requires employers to pay employees
a legally prescribed minimum hourly wage.25 Employers are required to
pay the federal minimum wage “finally and unconditionally or ‘free and
clear’” in order to comply with the Congressional intent of providing a
minimum standard of living.26 This requirement has generally been
interpreted to mean that employees must not be required to return their
minimum wages to employers.27 As of July 24, 2009, the current U.S.
federal minimum wage is $7.25 per hour.28

B. Tips and Tipped Employees

A tip is defined under federal regulation as a “sum of money
presented by a customer as a gift or gratuity in recognition of some
service performed for him.”29 An employee must be engaged in an
occupation that customarily and regularly receives at least $30 per month
in tips in order to be considered a tipped employee.30 The term
“customarily and regularly” is defined as “a frequency which must be
greater than occasional, but which may be less than constant.”31

C. The Tip Credit Provision

The FLSA permits employers to implement a tip credit in which an
employee’s tips are credited toward the employer’s minimum wage
obligation.32 Under the tip credit provision, an employer is only required
to pay $2.13 per hour in direct wages so long as that amount, combined
with the employee’s tips, equals the hourly minimum wage.33 The
employer must pay any differences to ensure the employee receives
at least the federal minimum wage for every hour worked.34 For example,
in a tip-credit state where the minimum wage is $7.25, the current federal
minimum wage, an employer would be permitted to pay tipped
employees $2.13 an hour, provided the employee makes at least $5.12
per hour in tips.35

D. Tip Pooling

The FLSA allows employees to pool their tips together.36 Although
the Sixth Circuit has found that an employer may require employees to
pool their tips,37 the general practice for a valid tip pool is to have
employees initiate the pool, participate voluntarily, and limit the
employer’s involvement to only managerial functions, such as
distributing tips charged on credit cards based on a formula developed by
the employees.38 It is common to limit participation in the tip pool to
customarily and regularly tipped employees and to ensure that
managerial employees do not take from the pool.39 Tipped employees
cannot be required to contribute a greater percentage of their tips than is
“customary and reasonable” to the tip pool.40 The Wage and Hour
Division will not question contributions to a pool that do not exceed 15%
of an employee’s tips.41 If a dispute arises concerning the validity of a
tip pool arrangement, the employer bears the burden of proving its

E. Impact of Unlawful Tip Pools on the Employer

Under the FLSA, employees are permitted to file an action for
unlawful tip pools on behalf of themselves and other similarly situated
employees.43 Employees generally have to show that they were similarly
affected by a common policy, plan, pattern or practice in order to
proceed collectively.44 A testifying witness’ testimony is justified in a
collective action if his or her experiences are sufficiently similar to the
rest of the non-testifying plaintiffs.45 Only a small number of testifying
employees may be needed in order to fulfill this requirement so as to
proceed with a collective lawsuit.46 However, the court may allow
employees to prepare an alternative trial plan if the court initially
determines that the employee testimony does not appear to be reflective
of company policy.47

The ramifications of invalid tip pool arrangements can be
devastating to an establishment. When invalid tip pooling cases are
initiated, the court may allow a yearly span of employees to opt into the
lawsuit if they faced similar invalid tip pooling arrangements. Over
100,000 employees in California joined in an action against Starbucks in
2008 because of invalid tip pooling.48 As a result, Starbucks had to pay
over $105 million in tip money that it had unlawfully taken.49 In Rousell
v. Brinker International, Inc.,50 there were over 3,500 employees who
were employed by Chili’s restaurants between August 2003 and August
2006 who joined in the invalid tip pool action.51 Also in 2008, the
Fireman Hospitality Group, which owned several New York restaurants,
paid a $3.9 million settlement to employees for various labor and wage
violations; unlawful managerial participation in tip pools was among the


At first glance, uses of the tip credit and tip pool do not appear to
have many intricacies. The purpose of this section is to demonstrate
questionable facets of the tip credit and tip pool. Section III(A) will
demonstrate the inconsistencies among court decisions and also
legislative history as to whether employers may mandate tip pools. Next,
Section III(B) looks into the adequacy of information employers must
give employees if the employer intends to credit the employees’ tips
toward their wages. Section III(C) and III(C)(1) will then examine the
discrepancy among courts as to which employees may participate in a tip
pool. Then, Section III(D) will explain the application of the tip credit to
employees who perform both tip producing and non-tip producing
functions. Following that, Section III(E) will explore the ineligibility of
managerial participation in a tip pool arrangement. Lastly, Section III(F)
will explain the different approaches to tip pooling in the seven states
that do not allow employers to use the tip credit.

A. Uncertainty as to Whether a Tip Pool May be Mandatory

Conflicts have arisen as to whether a tip pool may be mandatory or
whether it must be voluntary. While the Fair Labor Standards Act
permits a tip-pooling arrangement among employees who customarily
and regularly receive tips, it does not expressly prohibit mandatory or
coerced tip-pooling arrangements.53 However, the Senate Committee on
Labor and Public Welfare states that an employer “will lose the benefit
of [the tip credit] exception if tipped employees are required to share
their tips with employees who do not customarily and regularly receive
tips.”54 The Department of Labor Handbook similarly expresses that an
employer cannot require employees to share tips with employees who
traditionally are not tipped.55 The voluntariness of a tip pooling
arrangement is also questionable when the employer recommends that
certain percentages on the dollar amounts be shared among employees.56

A tip pool arrangement may be considered mandatory, and thus
invalid in some jurisdictions, if managers have oversight over the tip
pool and make efforts to enhance the tip-pooling arrangement.57
Management cannot lawfully urge an employee to share tips with nontipped
employees nor can management speak personally with employees
who do not comply.58 Employees may share their tips with other
employees who are not customarily and regularly tipped provided they
are not coerced to do so and it is not a condition of employment.59

Although the Senate Committee and Department of Labor Field
Operations Handbook voiced concerns against required tip pools, the
Sixth Circuit in Kilgore v. Outback Steakhouse of Florida, Inc.60 decided
otherwise. In Kilgore, the Sixth Circuit reasoned that the tip credit
provision which permits the pooling of tips does not expressly prohibit
employers from requiring tip pooling.61 Additionally, the Sixth Circuit
noted that 29 C.F.R. § 531.54 distinguished the practice of tip splitting,
“where waiters give a portion of their tips to busboys,” from voluntary
tip pooling, “whereby the employer redistributes the tips to the
employees upon some basis to which they have mutually agreed among
themselves. . . .”62 The Court of Appeals in California, a non-tip credit
state,63 allowed mandatory tip pooling among employees who directly
serviced patrons.64 In its reasoning, the court recognized the custom and
usage of tip pooling within the restaurant industry and found that fairer
distribution of tips promoted harmony among employees.65

Thus, the dissention among jurisdictions as to whether or not a tip
pool may be voluntary gives employers room to argue either way. Even
in jurisdictions where tip pools must be voluntary, one could argue that
tip pools are never purely voluntary. It is not hard to imagine the
pressure or encouragement from a manager to participate in a tip pool,
especially with employees who rely on their wages to survive.66

B. Disputes as to the Sufficiency of Tip Credit Notice

Another area of confusion is the sufficiency of notice employers
must give to employees that they will be using the tip credit. Employers
must notify employees of the provisions of subsection 203(m) in order
for a tip credit to be lawful.67 An employer does not have to “explain”
the tip credit to employees, but rather it is enough to “inform” employees
that tips will be treated as satisfying part of the employer’s minimum
wage obligation. Under this requirement, to “inform” an employee
requires less effort than it would to “explain” the tip credit to the
employees.68 Although the Department of Labor regulation explicitly
requires employers to post a notice concerning the tip credit provision,69
it is not certain that employers must “display” the notice.70 Courts have
found that notice of the tip credit may be conveyed to employees through
a file folder containing the relevant information,71 a co-worker, written
materials,72 or a prominently-displayed poster.73 Most evidently, an
employee would have also been on notice if the employer informs him or
her of the amount the employer intends to treat as a tip to satisfy the
minimum wage obligation.74

Unions have stressed for an elaboration of the notice requirement.75
Perhaps some of the problems associated with tip pools could be avoided
if the employee was made aware of its implications.76 Going against the
court’s decision in Kilgore, unions have argued that legislative history
indicates that “informing” employees of the tip credit does in fact mean
“explaining” it to them.77 Some unions have pushed for the requirement
that employers provide written notice to employees explaining how their
minimum wage will be calculated and that employees have a legal right
to keep all of their tips if they do not agree to participate in a valid tip
pool arrangement.78 The American Federation of Labor and Congress of
Industrial Organizations (AFL-CIO) has taken the position that a poster,
which has been found to be sufficient notice in court decisions,
inadequately informs tipped employees of their rights.79 Expanding the
notice requirement seems appropriate in that it would help to educate
employees and also employers who would have to explain the
implications of the tip credit, thus allowing for more educated and lawful
decisions from both employees and employers.

C. Customarily Tipped Employees Within a Tip Pool

Additionally, it is legally ambiguous as to who may legally
participate in a tip pool arrangement. If an employer claims a tip credit,
employees must be permitted to retain their tips unless they participate in
a valid tip pool among other employees who “customarily and regularly
receive tips.”80 The Department of Labor Wage and Hour Division has
stipulated that “‘customarily and regularly’ signifies a frequency which
must be greater than occasional, but which may be less than constant.”81
Employees who only occasionally receive more than $20 a month in tips
would not fall within this categorization.82 Additionally, employees who
customarily and regularly receive tips will not lose this distinction if they
fail to receive more than $20 a month in tips because of a temporary
condition, such as sickness or seasonal fluctuations.83

1. Front-of-the-House vs. Back-of-the-House Employees

In an attempt to categorize the types of employees who may be
included in a tip pool, the Senate Committee on Labor and Public
Welfare specifically names “waiters, bellhops, waitresses, countermen,
busboys, and service bartenders” as employees who are customarily and
regularly tipped and mentions that tip pooling among these employees
should not be discouraged.84 Conversely, employees such as janitors,
dishwashers, chefs, and laundry room attendants are categorized as those
who do not customarily and regularly receive tips and, thus, should not
participate in a tip pool.85

A flaw with these listings is that neither the Senate Report nor the
Department of Labor Handbook explains the employee characteristics
which qualify or disqualify particular types of employees from being
able to participate in the tip pool.86 In considering who may participate
in a tip pool, courts have placed great significance on whether the
occupation entails regular interaction with customers.87 The test reflects
the lists created by the Senate Committee on Labor and Welfare and the
Department of Labor because those employees who are visible and have
contact with patrons are the employees who are more likely to have an
impact on customer service.88 This test was exemplified in Kilgore v.
Outback Steakhouse of Florida, Inc., where the Sixth Circuit considered
how hosts at Outback Steakhouse restaurants had sufficient interaction
with customers, such as greeting them, supplying them with menus,
seating them at tables, and occasionally “enhancing the wait.”89 Similar
to bussers, who are explicitly listed in 29 C.F.R. § 531.54 as customarily
tipped employees who may participate in a tip pool, Outback hosts did
not necessarily have direct contact with the customers but still had more
than a “de minimis interaction with customers.”90 Further, a host’s
interaction with customers was dissimilar from that of back-of-the-house
employees such as dishwashers, cooks, or overnight maintenance who
may not have any interaction with customers.91 Accordingly, hosts were
permitted to participate in a tip pool and the employer could lawfully use
a tip credit for hosts.92 Occupations such as a maitre d’,93 sommelier,
busser, and bartender have also been validly included in mandatory tip

Adhering to this test of employee interaction with customers, courts
have also held that occupations which do not entail direct interaction
with customers cannot lawfully participate in a tip pool.95 Salad
preparers at Copper Cellar restaurants did not have any direct contact
with patrons—they were not even in the view of patrons—or perform
any duties that were traditionally recognized with tips.96 A salad
preparer’s duties conformed more to that of a food preparer, an
occupation which traditionally did not receive tips.97 Thus, they were not
tip credit or tip pool eligible.98

However, courts have also noted that an employee does not need to
have direct contact with customers in order to have an effect on customer
service, such as an employee whose duties include checking the
adequacy of food temperature and monitoring timely service.99 Thus, in
employing these parameters, it would seem appropriate for the court to
consider the employee’s overall duties in addition to the extent of direct
customer interaction, which may have to be only minimal.100

Even in determining the extent of interaction with customers, courts
sometimes fail to address whether employees who perform some
customer service functions but have limited or no interaction with
customers would be eligible to participate in a mandatory tip pool.101

Industry practice may be valuable in determining whether an employee’s
duties reflect those of an employee who is customarily tipped.102

Not all courts have adopted the approach of considering the extent
of customer interaction as being dispositive of whether an employee can
participate in a mandatory tip pool.103 Moving away from the customer
interaction approach, one district court noted that bussers may not have
any direct contact with customers and may not receive tips directly,
usually because their duties are not performed until after the patron has
left, but bussers are nonetheless considered to be customarily tipped
employees.104 Courts have also recognized the difficulty and inequity
that could result if only those who physically serve patrons would be
permitted to participate in a tip pool.105

Even courts that have utilized the customer interaction distinction
have recognized that those employees who take from the tip pool do not
themselves need to contribute to the pool, and their tip income may
derive solely from the tip pool.106 These particular employees may not
be allowed to take tips from customers and, therefore, would have no tip
income to contribute to the pool.107

A fundamental question to ask is why regularly tipped employees
are distinguished from those who are not. There does not seem to be
much justification in paying cooks, who make the food but do not have
contact with customers, at a fixed hourly wage while allowing waiters
and waitresses to make a tip profit from that food simply for bringing it
to the patrons’ tables.108 When one considers the data which shows
diners will generally tip the same percentage regardless of the quality of
service, this widely accepted practice appears even more puzzling.109
Once an employer is able to muddle through case history to determine
who is considered a customarily and regularly tipped employee, the
labeling of an employee is nonetheless confusing due to the non-existent
reasoning behind this distinction. Again, employees are left at the mercy
of the employer’s decision as to who may participate in the pool.
Without more certainty as to who may participate in the pool, employees
could be unknowingly and unlawfully deprived of their tips until they
ask the court to decide whether they or their fellow employees are
considered customarily and regularly tipped employees.

D. Applying the Tip Credit to Employees Engaged in Dual Jobs

An employer is permitted to take a tip credit for an employee who
works dual jobs, but only for the time that the employee spends working
in a tipped employee capacity.110 For example, a waiter/waitress “who
spends part of her time cleaning and setting tables, toasting bread,
making coffee and occasionally washing dishes or glasses” may still be
engaged in a tipped occupation even though these regular, incidental
duties are not by themselves directed toward producing tips.111

On the other hand, not all duties in an occupation that is tipped need
to be directed toward producing tips to qualify for a tip credit.112 An
employer may take a tip credit for all of the employee’s time even if the
employee performs duties which are incidental to the main job but not
considered to be tipped work, provided the employee does not spend
more than 20 percent of his or her time performing those incidental
tasks.113 For example, a person who is dually employed as a waiter and a
maintenance person, or another occupation in which the employee
spends a substantial amount of time (in excess of 20 percent) in a nontipped
capacity, that employee is a “tipped employee” only with respect
to the employment as a waiter and the tip credit is not applicable to his or
her hours of employment in the occupation as a member of the
maintenance staff.114

The guidelines for the dual job distinction place in the hands of the
employer the improbable duty of checking a stopwatch to ensure tip pool
employees do not exceed the 20 percent threshold for incidental tasks.
Aside from the impracticality of employers performing this duty, another
problem with the dual job guidelines is the indistinctness pertaining to
the duties which are aimed at producing tips and those which are not
aimed at producing tips. Even the U.S. Chamber of Commerce, which
has shown its support of the current tip credit, expressed its disapproval
of the vague treatment for employees engaged in dual jobs and has
requested some clarification.115

E. Managerial Employees Unlawfully Taking from Tip Pools

A chief concern with tip-pooling arrangements is the unlawful
participation of employers and agents of the employer in the pool. Even
where managers assist in serving food by providing such services as
plating food, they still may not share in a tip pool where their primary
duty is to supervise and not to serve food.116

In March 2008, the Superior Court in San Diego awarded Starbucks
baristas roughly $105 million after finding that supervisors were
unlawfully taking from the tip pool.117 Although supervisors at the wellknown
establishment made and served coffee, they also directed other
employees, set schedules and performed other managerial work.118 The
award represented unlawfully-taken tips that belonged to roughly
100,000 former and current Starbucks baristas who had worked in stores
in California since October 2000.119 In April 2008, a similar action was
brought against Starbucks in New York.120 The lawyer representing the
baristas stated that he intended to make the same argument that was
made in California, arguing that the supervisors could not lawfully
participate in the tip pool.121 He was quoted as saying, “The fact that
shift supervisors are underpaid doesn’t mean that baristas should bear the
brunt of that.”122 These cases have the potential to open the gates for
litigation in other states, housing altogether more than 7,000 Starbucks
shops with tip jars on every counter.123

F. Tip Pool Guidelines in Non-Tip Credit States
Some states prohibit an employer from crediting employee tips to
satisfy the minimum wage obligation.124 Those states include Alaska,
California, Minnesota, Montana, Nevada, Oregon, and Washington.125
Accordingly, every employer in these states must pay each employee the
full state minimum wage regardless of the amount of tips employees
receive.126 Courts in these jurisdictions may impose fewer restrictions on
tip pools as opposed to states which permit employers to use the tip
credit because the employers in non-tip credit states still must pay the
entire hourly minimum wage.127 The District Court of Oregon suggested
that tip-pooling restrictions under subsection 203(m) apply only where
an employer takes a tip credit, and, for states that do not allow tip credits,
there are no laws restricting tip pooling.128 Therefore, an employer could
require employees to share tips with each other, whether or not they are
customarily tipped employees, provided the employer does not take,
keep or use tips to satisfy the minimum wage obligation.129 It is
important to note, however, that not all non-tip credit states follow this
unrestricted approach.130

The Oregon approach runs contrary to a Department of Labor Wage
and Hour Division Opinion Letter which states that even where the
employer does not seek a tip credit, tip pooling would be illegal if
“(1) such pooling deprives a tipped employee of any amount of the tips
such employee actually received and (2) the employer does not pay a
sufficiently high cash wage to reimburse such employee for such loss,
plus at least minimum wage. . . .”131 Additionally, the Opinion Letter
explains that the employee would then be “contribut[ing] part of his or
her property to the employer or to other persons for the benefit of the
employer, with the result that the employee would not have received the
full minimum wage ‘free and clear’ as required by section 531.35 of
Regulations 29 CFR Part 531.”132

The District Court of Oregon devalued this Opinion Letter,
reasoning that every tip-pooling arrangement would be unlawful under
this standard because a tip pool would inevitably deprive some
employees of their tips.133 The court added that even tip pool
arrangements explicitly approved of in § 203(m) would be invalidated
under this standard because the whole purpose of the tip pool is to
redistribute tips evenly.134

Thus, it is unclear whether there are any guidelines in states which
do not allow employers to use a tip credit. Although the District Court of
Oregon decided that rules should not apply to tip pools in a state that
does not recognize a tip credit, other non-tip credit states have decided
otherwise, such as the Superior Court in San Diego in the Starbucks case
which held that a manager could not participate in a tip pool. The
inconsistencies in these decisions leave employers and employees in the
dark as to the guidelines for tip pools in states that do not honor the tip


In the opening scene of the film Reservoir Dogs, Steve Buscemi’s
character, Mr. Pink, is dining with his partners.135 After the boss orders
all of them to leave a tip, Mr. Pink uncomfortably scratches his chin and
looks out the window next to him. Buscemi’s character verbosely
reveals that he is defiantly opposed to the entire tipping norm.136 He
protests, “I don’t tip because society says I have to. . . . As far as I’m
concerned, they’re just doing their job”.137 He then questions the norm
of tipping some jobs and not others: “I used to work minimum wage,
and when I did I wasn’t lucky enough to have a job that society deemed
tip-worthy.”138 When a partner raises the point that waitressing is
working hard, Buscemi’s character bounces back with pointing out that
“so is working at McDonald’s, but you don’t feel the need to tip them, do
you? . . . They’re serving you food.”139 Empathetically he states his
disgust that the government taxes tips, but reacts by saying that he is not
personally to blame for that.140 He concludes with telling his partners,
“ . . . if you show me a piece of paper that says the government shouldn’t
do it I’ll sign it, put it to a vote I’ll vote for it, but what I won’t do is play

The cases in this Comment exemplify the uncertainty with the
current structure of the tip credit and tip pooling arrangements. What is
certain is that the Congressional intent in passing the tip credit provision
was not to shortchange employees of their wages. Arguably the tip
credit is mostly benefitting employers “seeking to dilute their federal
minimum wage . . . obligations.”142 Employees at Starbucks, for
example, who rely on their minimum wage and tips should not have to be
penalized because of the fact that shift supervisors are underpaid.143
Courts have attempted to clear the ambiguity within the provision, such
as whether or not a tip pool may be mandatory, how much pressure is
needed to show coercion, the sufficiency of notice to employees of the
tip pool arrangement, who may legally participate in the tip pool, or
which duties can be tip-credited. However, the law still lacks clearlydefined
guidelines for valid tip pools, thus giving employers room to
abuse the shortcomings of the current law until an employee questions its

Obvious solutions to the current abuse of the tip credit would be to
either clarify the guidelines or to even void the provision altogether. The
Service Employees International Union (SEIU) has argued for the
Department of Labor to either withdraw or substantially revise the tip
credit provision, referring to it as “an intent to diminish hourly
compensation through any means possible.”144 SEIU has described the
current structure of the tip credit as an illustration of the Department of
Labor’s failure to proceed with its core mission of protecting American
workers and ensuring that they receive the full minimum wage
guaranteed by the Fair Labor Standards Act.145

Maybe it is not too drastic to look beyond the tip credit and, like
Steve Buscemi’s character, reconsider the tipping custom altogether. It
is an interesting American social norm to tip some service employees,
such as waiters and waitresses, and not others, such as cashiers, bus
drivers, teachers, doctors, or lawyers. An alternative approach may also
be the European model which adds a flat service charge to a diner’s
check.146 One benefit to this model is that would help resolve the
problem of unreported tips, which the I.R.S. has estimated to be over 40
percent of all tips.147 Some resort areas in the United States have begun
using this approach, but some customers still give an additional tip for
extraordinary service, thus re-establishing the question of how to treat
the tip.148

Ultimately, tips are a labor cost advantage unique to the industries
that enjoy them. While some may argue that it is unfair to tip some
employees and not others, the fact remains that Congress had
promulgated guidelines for those industries which recognize tips. In
2009, over forty years after the passage of the tip credit provision and
establishment of tip pooling, hundreds of thousands of employees are
still being deprived of millions of dollars in tips on which some of them
survive. As shown throughout this Comment, it is not hard to imagine
the potential abuses of the tip credit throughout the country. These
unclear guidelines demand revision so that employees are not unlawfully
denied their tips. Ambiguity within the guidelines or employer
ignorance of the guidelines are not valid reasons for employers to abuse
the system, thus relying on employees to be legally vigilant, nor are they
reasons to force patrons to “play ball.”

"If you ain't on the road, you ain't makin' money!" - gregster


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