What you do care about in California is this: the DOL regulation will probably invalidate California law on tip-pooling in most cases. That is because federal law trumps state law when it is more generous to employees.
The court in Oregon Restaurant and Lodging Association LLC v. Perez (Opinion here) decided that the DOL was within its rights to issue a regulation defining what a tip pool is, and that the DOL's definition applies regardless of whether the employer is using the employees' tips as a credit against the minimum wage.
So, let's look at the federal regulation:
§ 531.52 General characteristics of “tips.”
A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity. Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The employer is prohibited from using an employee's tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool. Only tips actually received by an employee as money belonging to the employee may be counted in determining whether the person is a “tipped employee” within the meaning of the Act and in applying the provisions of section 3(m) which govern wage credits for tips.
Ok so this regulation means that the employer cannot use a tip for any purpose except for a tip credit or "a valid tip pool." What's a valid tip pool under federal law?
A valid tip pool is explained here:
§ 531.54 Tip pooling.Where employees practice tip splitting, as where waiters give a portion of their tips to the busboys, both the amounts retained by the waiters and those given the busboys are considered tips of the individuals who retain them, in applying the provisions of section 3(m) and 3(t). Similarly, where an accounting is made to an employer for his information only or in furtherance of a pooling arrangement whereby the employer redistributes the tips to the employees upon some basis to which they have mutually agreed among themselves, the amounts received and retained by each individual as his own are counted as his tips for purposes of the Act. Section 3(m) does not impose a maximum contribution percentage on valid mandatory tip pools, which can only include those employees who customarily and regularly receive tips. However, an employer must notify its employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each employee ultimately receives, and may not retain any of the employees' tips for any other purpose.
Now the DOL's regulation says that only people who "customarily and regularly" receive tips can be in tip pools under federal law. The cases say that those are people directly involved in service. They include bussers, waiters, bar staff, even hosts. But cooks, dishwashers, expediters, and the like are out of luck. There are federal cases that say so. So, bottom line is that federal law says that tip pools cannot include back of the house people.
State law, on the other hand, says that they can be included. We've blogged a bunch about tip-pooling under California law here. The net-net is that California does permit participation by back-of-the-house employees in the tip pool because they participate in making the service experience pleasant.
Anyway, the 9th Circuit may re-consider its decision in the Oregon case or the Supreme Court could decide to hear it. If neither of those things happen, California employers that are covered by the Fair Labor Standards Act may wish to revisit their tip-pooling policies.
