No Woo-ries For California Employers

Ninth Circuit Hears Landmark Tip Pooling Case

On February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit issued an opinion in Misty Cumbie v. Woody Woo, Inc. The court held that where the employer paid at least minimum wage before tips to restaurant wait staff, the employer did not violate the Fair Labor Standards Act (“FLSA”) when it required the wait staff to participate in tip pooling with the kitchen staff.

This case involved an Oregon restaurant that tip-pooled. Tip pooling typically involves collecting all tips received by directly tipped employees (such as a waitress) so that they may be then redistributed among a larger group of employees (customarily the bussers and other “front of the house” employees.) In this case, Misty Cumbie was a waitress at Vita Café, owned by Woody Woo and Aaron Woo, where her tips were redistributed in a tip pool to members of the kitchen staff or “back of the house.” Ms. Cumbie argued that the “tip-pooling” violated the FLSA.

Under the FLSA, employers must pay their employees a minimum wage. 29 U.S.C. § 206(a). The FLSA’s definition of “wage” recognizes that under certain circumstances, employers of “tipped employees” may include part of such employee’s tips as wage payments. 29 U.S.C. §203(m). This is called a “tip credit.” Oregon law prohibits employers from paying their employees subminimum wages. Therefore, Vita Café did not take a “tip credit” and paid Ms. Cumbie Oregon’s minimum wage (which is higher than the federal minimum wage) plus her apportionment of tips from the tip-pool. As a result, the U.S. Court of Appeals for the Ninth Circuit affirmed the trial court’s ruling and held that there is nothing in the FLSA which prohibits tip-pooling, even to members of the kitchen staff, when the employer does not take a tip credit. This case is significant for employers, such as restaurant owners, casinos, hotels, spas and others, where tips and tip-pooling is a customary part of that industry.

Cumbie v. Woo Does Not Significantly Alter Tip-Pooling Rules for California Employers
Similar to Oregon Law, California does not allow employers to pay subminimum wage. Therefore, California employers cannot take a tip credit and in the circumstances set forth in Cumbie v. Woo would also be exempted from the tip pooling restrictions of the FLSA. Nevertheless, California Labor Code §351 has specific tip pooling regulations for California employers. Recent California cases have interpreted this section of the Labor Code to allow tip pooling for most employees in the chain of service to customers, including busboys and bartenders. In Etheridge v. Reins Int’l California, Inc. the California Court of Appeal for the Second District, in a holding similar to Cumbie v.Woo, stated that tip pooling which included members of the kitchen staff and dishwashers did not violate the state law. Nevertheless, California case law clearly prohibits tip pooling when it includes supervisors, managers and shift managers, but carved out an exception in the case of Jou Chau v. Starbucks Corp., by allowing Starbuck’s shift supervisors to share in an apportionment of tips from a tip box.

Rules and Tools for Tip-Pooling
Employers in the effected industries, via their capable human resource departments, should implement the following Proactive Lawsuit Prevention Strategies:

1) Ensure that nonexempt employees receive minimum wage for all hours worked and that the tips are supplemental to their wage.

2) Explain to all employees that the reasoning behind tip pooling is to ensure a team oriented atmosphere and to be fair to all employees whether they directly interface with the customers or provide support to those who do.

3) Emphasize the critical importance of team work and team benefits over individual rewards (such as tips) by having employees “train” in each role of a restaurant before they become servers. That is, they will be less inclined to resent tipping out the cook when they intuitively realize that their “tip” is contingent upon the kitchen staff’s hard work and efficiency.

4) Create policies and procedures that keep employees happy and reward them for their hard work in addition to tips, making them value their workplace and less inclined to sue.

5) Be clear from the first day as to who is a participant in the tip pool. In California, those who are managers or supervisors may not participate in the tip pooling. State in writing and inform employees how the tip pool will be distributed.

6) If the employer operates in more than one state, ensure that the company complies with federal law as well as the state laws where it operates. This may involve learning the different statutes and regulations for each jurisdiction.