TIP THEFT

Joe Lyon is a class action attorney investigating wage and hour cases nationwide, including wage theft, tip theft and tip pooling claims.

What is Tip Pooling?

Tip pooling is when a portion of the tips from an entire team are collected and redistributed every pay period. The lawful redistribution is guided by tip pooling laws described by the Wage and Hour Division of the Department of Labor. But staff have to agree to enter such a scheme. Calculations for the redistribution of tips can vary, especially in states that pay a full minimum wage to all employees.

With that said, no company can lawfully take a percentage of tips from delivery drivers, waitstaff, or other service employee working for tips. This makes it illegal to share tips with the kitchen, adding a manager to the tip pool, or making servers add to a pool of money for a dishwasher.

Tip Pooling Laws

State labor laws vary widely, but they all aim to protect tipped employees. State and federal minimum wages for tipped employees may differ, and staff are encouraged to educate themselves on their legal rights. Tip pooling may seem like a fair system in some cases, but can take advantage of some service staff.

Individual staff should monitor their own tip totals and measure that against what they are take home at the end of each pay period. It is generous to share tips on occasion, but don’t allow employers to take advantage of you. Even in states where a tip pool is allowed, tip pooling might go a little too far.

When is Tip Pooling Illegal?

Participation may be limited to a certain class of employees. Tip pooling can be used with employees not in tipped positions but only if an employer is paying full minimum wage to all employees. In almost all cases, restaurant owners, managers, and supervisors should not be part of a tip pool.

The Fair Labor Standards Act does not dictate a specific percentage or amount staff members need to contribute to a tip pool, but it does require employers to inform all team members of the agreed-upon percentage or amount. Tip distribution needs to take place within every pay period, and employers may not use tips for any purpose other than redistributing to the employees that earned them.

What is the 80/20 Rule?

The 80/20 rule states that a team member is eligible for the tip pool if they are performing duties that support the work of directly making tips, ONLY IF those duties make up 20 percent of their shift.

Can I File a Class Action Tip Pooling Lawsuit?

The Lyon Firm is reviewing class action tip theft cases against restaurants when management dips into gratuities left by customers for delivery drivers or servers. Legal action may be considered when managers take a percentage of the tips from waitstaff, or tips are shared with the kitchen.

Claims can be made when a restaurant operates a tip pool and uses the money to pay employees in a non-tip producing job. Any restaurant that operates a tip pool may not withholds tips for its own use.

What is Tip Credit Notice?

The Fair Labor Standards Act allows employers to take a tip credit toward the federal minimum wage, meaning they are permitted to pay tipped employees a lower wage than the federal minimum wage.

Employers who claim a tip credit, however, are required to inform employees of the following five important provisions:

• The exact wage the employer is paying a tipped employee
• The additional amount claimed by the employer as a tip credit
• Note that the tip credit claimed by the employer cannot exceed the amount of tips received by a tipped employee
• All tips received by the tipped employee are to be retained by the employee except for any legal and agreed upon tip pooling arrangement
• Tip credit systems do not apply to any tipped employee unless the employee has been informed of these tip credit provisions

States without a tip credit system include Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. Employers in a state without a tip credit must pay all employees at least the standard minimum wage, even if they receive tips. If employees are subject to both federal and state minimum cash wages, employers must pay employees the greater of the two cash wages.

What are Some Examples of Tip Theft Settlements?

Amazon: Amazon agreed to pay over $6 million to settle Federal Trade Commission charges that the company pocketed tips promised to Amazon Flex drivers. Amazon allegedly changed their driver compensation structure in 2016 without informing drivers.

DoorDash: In 2019, the Washington, D.C. Attorney General brought a lawsuit against DoorDash, alleging the company misrepresented that tips from customers through the DoorDash app would be distributed to delivery staff. DoorDash was accused of pocketing money intended for workers. The company agreed to pay $2.5 million to settle the tip theft claims.

What Are Some Common Tip Theft Violations?

Workers relying on tips, particularly in the food and beverage industry, have rights under federal law. However, sometimes employers in hospitality and service jobs try to take advantage of employees, and violate fair labor law. In tip pooling arrangements, the following must be satisfied:

• Tips are fully redistributed
• The distribution of tips must follow a consistent formula
• Tipped employees cannot be forced to share tips with workers who do not usually receive tips
• Employers cannot pay themselves out of a tip pool

In many workplaces, employers first fail to ensure a proper minimum wage, fail to pay overtime, and pool tips to put money in their own pocket. Tipped employees are urged to learn more about their rights in basic FLSA and labor law requirements.

The federal Fair Labor Standards Act requires employers to pay employees at least the federal minimum wage rate, currently $7.25 per hour, or for tipped employees $2.13 per hour. This is standard for many waiters/waitresses, bartenders, and others in the service industry.

One important note: If the low base wage and total employee’s tips do not equal the minimum wage, the employer is required to make up the wage difference. Employers must also inform their employees if they intend to treat tips as part of employer’s minimum wage obligation.

Also, tipped employees who work over 40 hours per week are entitled to overtime pay at a rate of at least one-and-a-half times the standard hourly rate.