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New tipping rules will help restaurant owners and hurt workers, advocates say

Depending on who is reviewing them, America’s new tipping regulations will either help bridge the historic pay gap between servers and line cooks, as well as clarify practices that have resulted in countless lawsuits, or they will continue to benefit restaurant owners at the expense of workers.

On Dec. 30, the Labor Department’s Wage and Hour Division published its final rules on tipping, including some 11th-hour additions. The regulations include a few major revisions, including a 2018 compromise already approved by Congress that prohibits employers from keeping tips earned by workers and sharing them with managers and supervisors. In 2017, the Trump administration’s Labor Department had proposed rules that would have allowed employers to control all worker tips, potentially legalizing a practice now considered wage theft under the law. The proposal caused an immediate uproar among worker-advocate groups.

What’s more, the new rules will allow employers who pay workers at least the full minimum wage to establish “nontraditional” tipping pools. These pools will give owners the flexibility to share tips with employees who don’t traditionally receive them, including line cooks, dishwashers and other back-of-the-house workers who typically earn less than servers. The regulations will also eliminate the old “80/20” rule, which stated that employees could spend as much as 20% of their time performing non-tipped tasks but still get paid the tipped minimum wage for their entire shift.

The National Restaurant Association, which lobbied for some of the changes, praised the regulations as “a victory for the restaurant industry and its workers after years of litigation,” said Shannon Meade, vice president of public policy and legal advocacy in a statement to The Washington Post.

“The changes in this rule bring much needed regulatory clarification for the small business owners and their employees about what the law allows and requires,” Meade added. “At a time when the restaurant industry is faced with instability, this rule provides renewed sensible regulations on tip-pooling and tip-credit standards.”

Labor lawyers and nonprofit executives who advocate for workers were less impressed with the regulations, which are scheduled to take effect March 1. They fear employers could use the rules to manipulate the tipping system to pass more payroll costs on to customers, particularly now when many restaurants are struggling with declining revenue during the pandemic. Employers in 43 states and the District of Columbia can pay tipped workers as little as $2.13 per hour, with the understanding that customer tips will make up the difference so servers earn at least the minimum wage. Employers are on the hook if tips don’t cover the difference.

The elimination of the 80/20 rule was particularly troublesome to labor advocates. The new regulations replaced clear-cut guidelines with vague ones, said Molly Elkin, a Washington-based attorney who represents workers in cases brought under the Fair Labor Standards Act.

Restaurant owners, for example, can now have waiters and waitresses perform “related, non-tipped duties” for a “reasonable time” before or after their shifts in the dining room or even during service, according to the language in the regulations. The list of related duties, according to the O*Net database, includes mopping floors, cleaning bathrooms, preparing salads, taking reservations and preparing dining rooms for large parties.

“Once restaurants are up and going again, they’re going to be taking advantage of workers and having these waiters and waitresses come in early, stay late, do tons of non-tip-generating work that they’re going to get paid $2.13 an hour for,” said Elkin. “The employer is getting something that no other employer gets, which is they don’t have to pay the minimum wage for the non-tipped work.”

The Economic Policy Institute, a nonpartisan think tank, estimates that elimination of the 80/20 rule will cost workers $700 million annually.

The rule change, EPI argues, “will transfer large amounts of money from workers to their employers. We also find that as employers ask tipped workers to do more non-tipped work as a result of this rule, employment in non-tipped food service occupations will decline by 5.3% and employment in tipped occupations will increase by 12.2%, resulting in 243,000 jobs shifting from being non-tipped to being tipped.”

For example, EPI suggests that restaurant owners may require tipped workers to assume duties once done by cleaning crews, dishwashers or prep cooks, all of whom receive a full minimum wage.

In its comments to the Labor Department over the proposed regulations, the National Restaurant Association argued that the government never should have divided a tipped server’s job into related and non-related duties, with time limits. This division of labor “unleashed a wave of class and collective action litigation,” argued executives with the Restaurant Law Center, the NRA’s legal advocacy arm.

“None of that litigation, which imposed untold millions of dollars in costs and burdens on the industry, should have happened,” the executives wrote.

The elimination of the 80/20 rule won’t stop Elkin from filing lawsuits on behalf of tipped workers, she told The Post. She said both employers and workers need clear regulatory guidance, so that the former won’t “take advantage” of employees and the latter will know “when to put their foot down.”

“I think the courts will basically ignore this regulation because it’s an interpretive regulation, and it went through at the midnight hour at the end of the last president’s term,” Elkin said.

Sekou Siby is the president and chief executive of ROC United, a restaurant-worker advocacy group that argues that the two-tiered minimum wage system leads to economic insecurity, encourages sexual harassment and discriminates against people of color. Siby predicts trouble with the new nontraditional tip pools. He said employers may be tempted to lower the hourly rates for kitchen workers, who often earn a few dollars more than minimum wage, and use server tips to boost the salaries of those cooks and dishwashers.

“I think this is going to open a Pandora’s box,” Siby said.

Danny Meyer, founder of the Union Square Hospitality Group in New York and an early adopter of no-tipping policies, disagrees, saying that restaurateurs who try to lower their back-of-the-house payroll in such a way would be at a “massive competitive disadvantage when trying to get qualified servers to work for them.”

When some of Union Square’s restaurants reopened for outdoor dining in July, they began accepting tips again, jettisoning Meyer’s experiment to rely only on menu prices to provide all employees with a living wage and benefits. To help correct the wage imbalance – since servers’ pay increases whenever menu prices rise or when diners are in a generous mood – Union Square instituted a program to give 1% of revenue to workers in the kitchen.

Meyer says the new nontraditional tip pool would accomplish the same goal: help even out the wages between front- and back-of-the-house workers. “It would mark an amazing opportunity to be able to preserve the American tipping system, but make it a far more equitable system for all employees, and I would feel good,” he told The Post.

Unfortunately, Meyer said, New York state restaurant owners will not be able to take advantage of the new regulations because state tipping rules take precedent over federal ones, and New York prohibits the sharing of tips with workers who don’t spend at least 80% of their time interacting with customers. A spokesman for the New York State Department of Labor confirmed: There is “no impact on New Yorkers.”

Good or bad, the regulations may not be around for long. President-elect Joe Biden, who will be sworn into office on Jan. 20, has already indicated he would quickly reverse many of the Trump administration’s policies. Biden also supports eliminating the tipped minimum wage in America.

“I think we can undo (the new regulations) quickly and then go over the entire process where the Labor Department is having a conversation with all the stakeholders to see how we can really create good jobs in the food industry,” said Siby.