Outrage Over Proposal to Let Employers Pool or Pocket Workers Tips

I scanned the latest 1,000 comments about the Labor Dept.’s proposed rule on tip-sharing, and the imbalance was startling. Nine hundred ninety-six of them did not like the idea.

Here are some unedited excerpts, with names and hometowns of commenters where available. There were more than 5,300 comments in all as of Dec. 13. Forgive me for not looking at all of them.

— Ronald Putman, Spring Hill, Fla.

— Donna Pociecha

— Merlin Moore, Lawrence Township, N.J.

I’ll give more excerpts of comments below, but first a few paragraphs about the rule. On Dec. 4, the Labor Dept. announced it wanted to rescind an Obama Administration rule that restricts what employers can do with their employees’ tip income. As long as the employees earn at least the federal minimum wage ($7.25 an hour), the proposed new rule would allow employers to share the workers' tips with non-tipped employees or use the tips for other purposes.

Some of the commenters don’t like the idea that front-of-the-house people such as waiters and bartenders would have to share their tips with such back-of-the-house people as cooks and dishwashers. Others are worried that employers would simply keep the tips for themselves, which they would be allowed to do under the new regulation. The notice of proposed rulemaking mentions that restaurant owners might choose to use tip money to enlarge the dining room or lower restaurant prices, for example.

The logic of the law goes back to the origins of the Fair Labor Standards Act of 1938. There’s always been an exemption from the federal minimum wage for tipped employees. Employers are allowed to pay them a subminimum wage, as little as $2.13 an hour, depending on the state, and apply some of their tip income to bring them up to the federal minimum. That sets a precedent for employers’ effectively “owning” some or all of workers’ tips. The current controversy is over whether employers who do choose to pay their employees at or above the federal minimum wage can control what happens to their tip income. Two federal appeals courts have split on the issue. The Labor Dept. rule is intended to put the matter to rest.

The Economic Policy Institute on Dec. 12 issued a study estimating that Labor’s proposed rule would transfer about $6 billion a year from employees to employers. Crucially, the institute assumes that employers would not give any of the tip money to back-of-the-house workers. The institute’s assumption is that employers pay people no more than necessary, so giving back-of-the-house workers a windfall from the tip jar would be a needless extravagance.

The new proposal is "a license to steal the money that customers clearly intended to be a gratuity to a worker for the service provided,” Michael Hancock, a Wage and Hour Division assistant administrator in the Obama administration, told Bloomberg BNA.

My colleague Josh Eidelson spoke last month with Saru Jayamaran, co-director of Restaurant Opportunities Center United, who said letting owners keep workers’ tips could even exacerbate sexual harassment in the hospitality business. “Now you’d have to have women having to tolerate the harassment to get the money in tips, and then turn around and have to face harassment from their managers who have the right to keep that money in tips and dangle that power again over women, saying, ‘I can keep your tips unless you do something for me’ or ‘unless you put up with such and such.’  So we know it’s going to get much worse if we allow this rule to pass."

Restaurant groups see things differently. The Oregon Restaurant & Lodging Assn., a co-plaintiff against the Obama administration’s 2011 rule, said reversal of the rule “would help decrease wage disparities between front-of-house and back-of-house employees.” The National Restaurant Assn., which has also been active on the issue, doesn’t have much on its website. If you type “tips” into the search bar you get “5 tips to ensure a safe and successful back-yard barbecue.”

Of the four pro-rule comments on the website, two were from people who called themselves restaurant operators and used identical language. “Allowing kitchen staff to participate in a tip pool will help to close the gap in pay between the front of the house and the back of the house,” said the two letters, from Cynthia Papasavas and Jeremy Johnson. “The jobs that kitchen staff perform are no less important to the customers overall dining experience than are the tasks performed in the dining room. If the food is the wrong temperature, the plating is unattractive, the courses arrive in the wrong sequence, the plates or glassware are not spotless, and so on, the customers experience suffers, and tips decline accordingly. And if the kitchen prepares the food well and on time, this augments the customers experience, leading to higher tips.”

A third pro-rule comment was very brief. The fourth was fleshed out and appeared to have been written independently. “Tips should be able to be distributed to back of house employees as well,” wrote Sarah Smith. “When you work in a back office position, you see the disparity in wages. As minimum wages increase and menu prices increase, it only benefits the front of house staff. When working in fine dining, the wage difference is disappointing. Restaurants are not profitable enough to give higher wages to kitchen staff without finding a source of income for that. The back of house is just as much a part of the full guest experience as the person serving the table is.”

The anti-rule letters—at least those that weren’t form letters—tended to be more emotional. One even managed to get in a dig at President Trump’s odd reference to eating chocolate cake at Mar-a-Lago while the military attacked a Syrian air base. 

— Sean Mulhern

— Talitha Chernick

— Gerhard Rohlf, Pittsburgh

— Chandra Holsten, Santa Fe, N.M.

— Kerrie Pollock

— Kimberly Komers

— Joseph Gonzalez

    Peter Coy
    Bloomberg Businessweek Columnist

    Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985.

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