Judges Serve Owners a Slice of Tip Control

March 23, 2010
by William Pilgrim

The 9th U.S. Court of Appeals handed down a ruling on February 26 that could be a blow to tipped employees.  In the case of Cumbie v. Woody Woo, Inc. the court ruled that tip-pooling is legal in Oregon as long as an employee is paid more than the federally prescribed minimum wage and the tips are not used as credit towards paying that wage.

Under federal regulations tip pools can only include “customarily tipped employees” generally excluding kitchen staff, like dishwashers or cooks, who do not normally receive gratuities from patrons.

Misty Cumbie was a waitress at the Portland restaurant the Vita Cafe. Woo forced his wait staff to pool their tips, 55-70% of which went to back-of-house staff like cooks and dishwashers.  The rest was redistributed to the wait staff based on their proportion of hours worked.  Cumbie, represented by labor attorney Jon Egan, argued that this tip-pooling arrangement was “invalid” because the bulk of a server’s tips went to non-tipped employees. The Secretary of Labor agrees.

The Secretary filed an amicus curiae brief on behalf of Cumbie.  In the brief, the Secretary reaffirmed earlier precedent that “tips, as sums presented to tipped employees by a customer ‘as a gift or gratuity in recognition of some service performed’…are the property of the employee.”

At issue is the concept of a “tip credit.”  Federally, and in 43 states, employers are allowed to apply a percentage of an employee’s tips towards the employer’s minimum wage obligation.  An employee’s cash wage, plus the tips they earn, must meet or exceed the federally prescribed minimum.

Oregon does not allow employers to take a tip credit so Woo argued, successfully in this case, that federal tip pool rules do not apply.

The Secretary stated that, “if the tipped employees did not receive the full federal minimum wage plus all tips received, they cannot be deemed under federal law to have received the minimum wage `free and clear,’ and the money diverted into the invalid tip pool is an improper deduction from wages that violates section [20]6 of the [Fair Labor Standards] Act.” At the hearing, Maria Van Buren, United States Department of Labor, Washington, D.C., argued on behalf of the Secretary of Labor in support of Cumbie.

The court’s opinion, written by Judge Diarmuid F. O’Scannlain, rejected Cumbie and the Secretary’s argument outright, calling their “interpretation of the regulation as plainly erroneous and unworthy of any deference.” Woo was supported by amicus curiae brief from law firm of Davis Wright Tremaine LLP, Portland, Oregon, on behalf of the Oregon Restaurant Association, as well as an additional brief from the Nevada Restaurant Association.

O’Scannlain further noted that, “The FLSA does not restrict tip pooling when no tip credit is taken. Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her,” contrary to the Secretary’s interpretation. The Court concluded that, ” the FLSA does not prohibit Woo’s tip-pooling arrangement does not thwart this purpose…Naturally, [Cumbie] would prefer to receive all of her tips, but the FLSA does not create such an entitlement where no tip credit is taken.”

The ruling was a “first impression” for the court, and sets a precedent that could potentially be applied in other states that don’t have a tip credit.  As long as there is a consistently applied, preexisting arrangement between an employer and employee tip pools are valid.  As a condition of being hired, an employer can require an employee to participate in a tip pool, either through a written agreement or as an expressed and consistently applied rule.

An employer cannot take the tips for himself, but can force employees to redistribute those tips and subsidize the wage of non-tipped employees or even managers.  The Oregon Restaurant Association (ORA) is advising employers not to extend tip pools to management staff but notes the ruling “did not expressly prohibit the practice.”

The Oregonian reports that, ORA spokesman Bill Berry said he doubted the ruling would have much impact on Oregon restaurants. But we beg to differ.

As of now, your tips are not your tips until they are redistributed to you.  Cumbie stresses that the issue is not whether tipped workers share their tips with other hard-working coworkers.  The issue is that workers, and not owners, should be in control of the tips they receive.

Attorney Jon Egan is still pushing to have the case heard by a wider court.  He says: “We are disappointed in the three-Judge Panel’s decision. In ruling that employers are free to confiscate and redistribute employees’ tips to back-of-the-house workers, the Panel went against over 35 years of consistent published Department of Labor tip pooling opinions that interpret the Fair Labor Standards Act (the federal law regulating minimum wages and overtime, originally passed by Congress in 1938 and amended many times since then).”

Cumbie’s last hope is to have the case judged en banc. Cumbie and Egan are currently petitioning, and “if a majority of judges vote to take the case up en banc, then a larger panel of 11 judges will be assigned to consider the case from scratch.”

The case may be in limbo, but the ORA notes, “The US Department of Labor does not have to apply the ruling of a District Court, but does have to apply the ruling of a Circuit Court.”  We’ll have to wait to see the true impact.

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7 Responses to “Judges Serve Owners a Slice of Tip Control”

  1. Judge O’Scannlain lied in court by suggesting that only the tips redistributed to Cumbie from the pool ever belonged to her.

    What this would suggest is that Cumbie’s employer has a right to determine who the customer’s tip belongs to,
    even though customers have not authorized Cumbie’s employer to appropriate their property in such a manner.

    The truth of the matter is, only those customers who presented such tips are authorized to decide whether or not their tips belong to Cumbie. Where does this judge get off pretending that he has somekind of authoriy to decide who the customer’s private property belongs to?

    Federal regulations, CFR 531.52 clarify and substantiate the fact that it is the right of the customer, not Cumbie’s employer, not judge O’Scannlain, to determine whether a tip is given, it’s amount and who will be the recipient of his tip.

    Judge O’Scannlain apparently thinks he is authorized to determine whether or not customers are giving their tips to the waitress or her employer.

    Where does this guy get the idea that he has been authorized to govern the customer’s private property?

    Judge O’Scannlain went on to quote CFR 531.52 as support for his ruling by suggesting that CFR 531.52 gives employers a right to determine who will be the recipient of the customer’s tip. The judge suggested that Cumbie had agreed to let her employer take contol and posssession of the tips and that CFR 531.52 substantiated that such arrangements were legal.

    The truth of the matter is, Cumbie didn’t agree with a third party that tips wouldn’t belong to her as CFR 531.52 suggests could interfere with the customer’s right to determine who will be the recipient of his gratuity.

    Instead, Cumbie had no choice. Cumbie’s employer mandated such an agreement. Either give her tips over to her employer, or find a different job.

    You see, what this case comes down to is whether or not Cumbie agreed wtih her employer that tips wouldn’t belong to her when she accepted the job. While Judge O’Scannlain stated in court that Cumbie had agreed that her tips would, in essence, belong to her employer, Cumbie was right there in court to dispute such a claim.

    The truth of the matter is, Cumbie could not have entered into an employment agreement stipulating that her tips would not belong to her.

    Federal regulations, CFR 531.56 clarifies that fact that when Cumbie accepted the job, she had no legal claim to any tips yet. Therefore Cumbie, could not have agreed, as Judge O’Scannlain suggested, that her tips would belong to her employer.

    CFR 531.56 states,

    Individual tip receipts are controlling. An employee must himself customarily and regularly receive more than $20 a month in tips in order to qualify as a tipped employee. The fact that he is part of a group which has a record of receiving more than $20 a month in tips will not qualify him. For example, a waitress who is newly hired WILL NOT be considered a tipped employee merely because the other waitresses in the establishment receive tips in the requisite amount.

    So Judge O’Scannlain lied when he stated,

    Tips presumptively belong to the server unless there is a contract between the employees and the employer, Judge then states “which we have here”.

    The truth of the matter is, there was no contract produced as evidence in this case.

    The truth of the matter is, even if there had been somekind of agreement at the time of Cumbie’s hire, CFR 531.56 substantiates the fact that such an employment agreement would have no merit due to the fact that Cumbie had no legal claim to her tips yet. Cumbie couldn’t have agreed that her tips would belong to her employer because she had not yet qualified as a tipped employee or one who is legally entitled to enter into an agreement concerning the customer’s tip.

    The Cumbie ruling errored in so many ways.

    Federal laws state that nothing in this section, section 203(m), shall be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

    Federal regulations define “THE POOLING OF TIPS” as where employees practice tip splitting, as where the waiters give a portion o THEIR tips to the busboys.

    The Ninth CIrcuit’s ruling is exactly the misconstuing of federal law that section 203(m) prohibits.

    How can the waitresses practice tip splitting when the Ninth Circuit has construed section 203(m) to where the tips don’t belong to the waitresses?

    How can the waiters give a portion of their tips to the busboys when Judge O’Scannain has misconstrued federal laws to where tips don’t belong to the waiters?

    The Ninth Circuit’s ruling is in direct violation of section 203(m). It is a construing of section 203(m) that prohibits those employees who customarily and regularly receive tips from pooling or governing their property.

    You see, what the courts have refused to acknowledge, is the fact that the “pooling of tips”, as referenced in section 203(m), is a governing of private property.

    When section 203(m) states that nothing in this section shall be construed to prohibit the “pooling of tips” among employees who customarily and regularly receive tips, what it is explaining is that, due to our Constitution, employees who customarily and regularly receive tips cannot be prohibited from govening the tips customers present them, just as no citizen of this country can be prohibited from governing and enjoying the use of their private property.

    This Judge should be locked up in prison for aiding and abetting in the theft of private property. That’s all this case amounts to. What was given to Cumbie. now belongs to Woody Woo.

  2. The Ninth Circuit stated,

    It’s seems to me that tips are the property of the employee in some instances but in other instances where we have an employment agreement suggesting that tips become the property of the employer, now tips are not the property of the employees at all, and now we have an agreement that says they are not the property of the employee.

    Is the Ninth Circuit refering to CFR 531.52? It states,

    Whether a tip is given and it’s amounts are matters detemined solely by the customers and generally he has the right to determine who shall be the recipient of his gratuity. In the absense of an agreement to the contrary between the recipient and a third party, a tip becomes the property of the person in recognition of whose service it is presented by the customer.

    The problem is, there was no employement agreement submitted as evidence in this case. Cumbie was in court because she didn’t think she agreed to such an agreement. She didn’t think it was even legal for her to agree to such a ridiculous agreement. She was in court to explain that she was forced into the agreement.

    Employers are currenly extorting these agreements out of their employees. If you don’t agree to let us control your tips, your not going to work here.

    Another problem is, CFR 531.52 DOES NOT state, as the Ninth Circuit has suggested, that sometimes the customer’s tip becomes the property of the employer. What it states is that, it is the sole right of the customer to determine whether a tip is given.

    Now lets look at how federal regulations define that which is not a tip. CFR 531.55 addresses amounts received from customers which cannot be considered tips. What CFR 531.55 explains is that tips which are turned over to the employer are considered the employer’s property and cannot be considered tips.

    Was the Ninth Circuit refering to CFR 531.55 when the Ninth Circuit stated that where we have an employment agreement suggesting that tips become the property of the employer now tips are not the property of the employees at all, and now we have an agreement that says they are not the property of the employee?

    Here is the problem with suggesing that CFR 531.55 substantiates that tips can become the property of the employer by way of an employment agreement between the employer and his employees.

    CFR 531.55 is not in regards to employment agreements between employers and their employees, in the normal sense. The employment agreements CFR 531.55 is in concerns to are employment agreements between the customer and hotel that provide banquet facilities and which could, theoretically, include amounts for distribution to employees of the hotel or amounts which must be credited or turned over to the employer. In either case, the customers is aware and consenting to the tips becoming the employer’s property to control.

    While the Ninth Circuit has suggested that empoyers can enter into an agreement with their employees which would, in effect, deprive customers of their right to determine who will be the recipient of their tip, CFR 531.52 along with CFR 531.55 actually support and substantiate a much different opinion.

    While CFR 531.55 suggests that negotiations or employment agreements between customers and a business can result in tips becoming the property of the employer, CFR 531.52 clarifies that the customer must be aware and consenting, by stating that whether a tip is given is a matter detemined solely by the customer.

    If, as the Ninth Circuit has suggested, tips may become the property of the employer without any consent, or acknowledgement that such will be the case, from the customer, then CFR 531.52 would not have stated that whether a tip is given is a matter determine by the customer.

    CFR 531.55 cannot be suggesting that employment agreements between a normal employer and his employees can result in tips becoming the employers properrty because as CFR 531.52 explains whether a tip is given is a matter determined solely by the customer.

    If employers could simply enter into an agreement with their employees which stipulates that tips will belong to the employer, then business owners, rather than the customer, would have the right to determine whether a tip is given or whether addition income for the employer is given.

    When CFR 531.52 states that whether a tip is given is a matter determine solely by the customers, it contradicts and thus rules out any notion that an employer can enter into an arrangement with his employees where tips will not be given and that instead additional income for the employer will be given.

  3. In conclusion, i honestly believe that the courts are intentionally lying in an attempt to aid business owners in stealing the customer’s private property.

    What cannot be denied is that the Ninth Circuit’s ruling has allowed business onwers to take possession of the tips customers present workers in the service industry. Without any consent, what-so-ever, from tipping customers like myself, the courts are illegally giving over our tips to business owners.

    While the courts suggest that the employees who we tip are giving over our tips to their empoyer, I will not believe such when every year more and more employees come forward testifying that they have not agreed to give their tips over to their employer.

    The reason it’s called employer required tip pooling is, the employees have not agreed to pool their tips. The employees have not agreed that tips will become their employers property and customer’s have not agreed that their tips will become their employer property. But in the end, tip are now the employer’s property, thanks to the Ninth Circuit.

    Wouldn’t you call it stealing?

  4. What happens when the employer is also the cook and asks for 50% of the tips from the one wait staff? How does this ruling apply to that situation.

  5. Oh you greedy selfish wait staff! Kitchen workers are entitled a small percentage of the tips. As we all know unless the food is cooked correctly, promptly and tastes good and served on clean plates it is very hard to get any tip at all. And when a customer orders a dish cooked a certain special way with extra or without certain ingredients the kitchen works extra hard to get it right. And we all know how hard the Kitchen workers are working back there.

    Those tips are given for the whole experience not just who takes the orders. They never were yours alone from the beginning.

    • Geof, I don’t think the argument is how hard the kitchen staff works…we all know how hard the kitchen staff works, and how hard the servers work, too. Nobody is ENTITLED to a tip…not even the servers. TIPS are To Insure Proper Service….not to get my food cooked correctly, promptly, and on a clean plate…that is expected and what the customer is paying for when they pay their bill. The tip is for the service they get, period.

      Geof, the kitchen is generally paid $2 to $3 more/hour than the floor staff…or they should be anyway. If you are in a kitchen where that is not happening, I suggest asking for a raise or finding a better place to work.

      I think there is a misconception between the BOH and FOH regarding how much money is actually made by the wait staff. It appears that they are rolling in the money, but, in reality, they are living on their tipped wages, because at the end of the day, their paychecks are a joke.

      Here’s an example of what I mean…A server working 35 hours per week in an average restaurant will bring home a check, every 2 weeks for approximately $250-$350…and $350 is way on the high side. That is because they have to claim their tips and pay taxes on them out of their minimum wage checks. So, if you look at that number, that actually gives them $3.50 – $5/hour rather than the actual $8.95 paid in Oregon. Plus, when was the last time you had to claim a tip given to you from the FOH? Probably never…that money is free and clear for you, so I would suggest you stop expecting it and say “thank you” when you get one.

      The kitchen is paid by their employer to put food out that looks good, tastes good, and is done in a timely manner. The kitchen is tipped by the wait staff out of a thank you…not because they should have to.

      It is so frustrating the level of expectation and animosity that is in a kitchen…I just don’t understand it. From the nicest restaurants to the holes in the wall…it is consistent.

      Everyone is supposed to be a team, and if everyone (FOH and BOH) would just look at it that way this conversation wouldn’t have to keep happening. If you really want to be tipped out more money, put on a serving apron, take a hit on your wage, put a smile on your face, and get out on the floor. If you are going to stay in the kitchen, do your job, and do it well.

  6. Geof, if you want kitchen workers to be entitled to a portion of your tip, then why don’t you tip those workers yourself?

    Don’t you dare tell me who is or isn’t entitled to my tip.

    Your suggestion that tips are given for the whole experience not just who takes the orders, is a blatant lie. Maybe your tip is given that way, but my tips is not intended as you say. I expect to be able to decide who my tip belongs to.

    Here’s the problem with your way of tipping. No one knows how much each of these workers is entitled to. You might as well throw your tip on the floor.

    My way is, I tip who a want, what-ever amount I want. This way it is clear as to how much belongs to that employee.

    Your way actually hurts the employees because none of them have any kind of proof to substantiate what amount of your tip belongs to them.

    My way designates who my tip belongs to and what amount belongs to them. I physically hand the worker of my choosing an amount I want them to have. Isn’t that proof enough that my tip belongs to them?

    You, on the other hand, want someone to read your mind and guess correctly at how much of your tip you want the waiter to have. Then guess again at what portion of your tip you want the busboys to have, Then again, guess at how much you want the hostess to have. Then again, guess at what amount you want the bartender to have. Then again, guess at what amount you want the dishwashers to have. Then again, guess at what amount you want the cooks to have.

    Geof, what you are suggesting is that no one should be able to legally claim the money a customer presents a worker because customers, like yourself, don’t want that employee to have the entire tip.

    I’ll tell you what, save us all a headache and stick your tip up your a**.

    What good is a tip if no one knows who it belongs to?

    You know as well as I do that viewing tips as that which doesn’t belong to the employee who was presented the tip only serves to aid employers in stealing those tips for themselves. You know as well as I do, if tips are viewed as that which is intened for others, besides the employee who was presented the tip, none of the employees will have any way ot prove what amount they are legally entitiled to.

    Your arguments are transparent. You want tips regarded as something no one can claim as their own. That way, employers can steal the tips customers are presenting their employees.

    Tips must be regarded as that which belong to the individual whom physically received the tip. If tips are not regarded this way, there will be no possible means to substantiate who the tip belongs to and what amount belongs to them.

    Customers, like yourself, must be admonished for expecting that your tips be divided up among workers. Unless you leave a detailed explanation of how your tip should be divided up, the employee who you presented your tip should have every legal right to keep it as their own.

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