The debate over tip pooling heats up.
Update, April 2, 2018: Restaurant industry groups scored a major victory in the fiery tip pooling debate. A federal spending bill passed March 23 abolished a 2011 regulation prohibiting tip pooling, meaning that managers can now require that servers share tips with kitchen staff.
Labor groups, however, managed to ensure that the rule change explicitly forbids managers, supervisors and owners from participating in the tip sharing arrangement. That makes it less open to abuse from managers pocketing servers’ tips.
This change has far-reaching consequences for the restaurant industry, where margins are tight and tension between industry and labor groups is on the rise. In the story below, we explored how the rule change will affect servers, kitchen staff and managers.
Original article: Published Jan. 15, 2018
The question of whether to force servers to share tips with cooks and dishwashers (a practice known as tip pooling) sent Salem restaurant owner Dino Venti into a mild panic recently.
“I feel kind of between a rock and a hard place,” says Venti, who owns two Venti’s Cafe locations. One has counter service, the other a full wait staff. “I don’t know what I’m going to do. This creates a minefield for restaurateurs.”
Venti feels pressured by rising costs, but the labor market is tight. He can’t afford to have waitstaff walk out because they won’t share tips.
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As tip pooling law stands today, the front and back of the house can share tips. But the decision is entirely up to employees, not managers. Under a rule change proposed by the Department of Labor, Venti and other restaurateurs could direct staff to pool tips and decide how to distribute the money.
The proposed rule could go into effect by the end of the year and is the subject of heated discussion in the hyper-competitive restaurant industry.
Oregon is one of the few states without a tip credit rule, which allows employers in other states to pay tipped workers as little as $2.13 an hour. Restaurant associations here hail the DOL rule as a way to compensate for the lack of a tip credit rule in Oregon. They argue the rule change will promote income equality while fending off rising labor costs.
Labor advocacy groups and unions, on the other hand, characterize the proposal as attempted wage theft.
“I feel kind of between a rock and a hard place,” says Venti. “I don’t know what I’m gonna do.”
Jason Brandt, CEO of the Oregon Restaurant and Lodging Association, warns that without the rule change, Oregon restaurants will buckle under union pressure to increase wages, forcing full-service establishments to lay off servers and transition to counter service. That would disappoint tourists and other patrons.
Chuck Sheketoff, executive director of the liberal think tank Oregon Center for Public Policy, meets Brandt’s argument with several seconds of hearty laughter.
“The sky is always falling for them,” he says, “even though they’re one of the fastest-growing industries in Oregon.”
Sheketoff and labor advocacy groups worry employers will direct servers’ hard-earned money toward capital improvements, or as Sheketoff puts it, create “a backdoor way of having a tip credit.” He says there’s no reason to cede control of tips to managers, when servers can already decide what to share with kitchen staff.
Oregon is one of the few states where servers earn more than minimum wage before tips, making it a battleground for tip pooling regulations.
In a 2010 case, Cumbie v. Woody Woo, Inc, the Ninth Circuit (which covers Oregon) ruled that even in restaurants where servers make above minimum wage, managers could pool tips between the front and back of the house.
The pendulum swung in the opposite direction in 2011, when the Obama-era Department of Labor responded with a regulation that essentially gave employees in non tip-credit states the decision to pool tips.
In 2012, ORLA sued to block the DOL regulation and let managers mandate a tip pool. Now, under the rule change proposed by the Trump administration’s DOL, they’re getting another shot.
Some restaurant owners paint a picture of greedy servers making as much as $50 an hour, unwilling to share the bounty with their hardworking peers in the kitchen. In previous tip pooling debates, Venti says, “nobody was representing the back of the house.”
The lunch rush at Tasty & Alder
Venti, a Democrat, says he’s watched in horror as his party backed unions on minimum wage increases. He says the Obama administration’s efforts to create living wage jobs strained restaurateurs in Oregon and other states where employers don’t get a tip credit. When it comes to profit margins, he says, “We don’t have a lot of wiggle room.”
John Gorham, the Portland restaurateur responsible for Tasty & Sons and Toro Bravo, agrees.
As costs and customer expectations skyrocket, especially in foodie Portland’s restaurant scene, raising the minimum wage isn’t so simple.
“We used to be more freewheeling,” Gorham says. “The food service came first, numbers came last. Now, in the last few years, I’ve been really crunching the numbers.” Tip pooling, he says, allows restaurants to pay everyone a living wage without burdening restaurant owners.
Venti and Gorham say that although their margins are tighter than ever, they would never use tips for any purpose other than compensating employees.
Labor groups, on the other hand, view the change as an open invitation for managers to abuse employee tips.
The Economic Policy Institute, a left-leaning research group, released a report showing the proposal would allow employers to legally pocket tips at an estimated $5.8 billion annually.
Siding with labor groups, Sen. Jeff Merkley also voiced concerns about wage theft, saying through a spokesperson that the change would “allow employers to pocket tips intended for their employees. The fact that workers keep the tips is at the heart of the customer-employee tipping relationship.”
“If a restaurant took tip income for any other purpose that distributing it to employees we believe they would be absolutely lambasted by public opinion,” says Brandt.
Restaurant owners, on the other hand, already feel squeezed by annual minimum wage increases.
Gorham estimates a $1.25 increase cost him $300,000 a year, and despite record-breaking sales in July, he lost revenue due to labor costs. Barring a tip credit, restaurant owners say tip pooling is the only way to share income more evenly.
“There’s always the possibility,” Gorham says, that managers could divert tips to help their bottom line. “I worked for a few people like that.”
But if he messes with tips, word will get around.
“If a restaurant took tip income for any other purpose that distributing it to employees we believe they would be absolutely lambasted by public opinion,” says Brandt. “If an owner is acting inappropriately word quickly spreads.”
“I think it’s very open to corruption,” Woods said. “Managers in this industry can be very passive/aggressive and petty.”
Back of the house staff would benefit from the rule change but some still worry managers will cheat the system.
Sara Woods, who works in the kitchen of a Portland restaurant (she declined to name the venue), says given the pressure-cooker mentality of the restaurant industry, abuses under the rule change are likely.
“I think it’s very open to corruption,” she says.
At Woods’ restaurant, managers brief incoming employees on the tip pool—tips are shared among servers, and a small percentage goes to kitchen staff. Most just go along with the plan, unaware they could challenge the arrangement on legal grounds.
A public comment letter submitted by the Oregon Bureau of Labor and Industries (BOLI) notes that “given the inherent imbalance of power between employers and employees,” a tip pool might seem voluntary, but can’t escape pressure and coercion from management.
Servers take orders at Mosier Company
Woods agrees with the restaurant associations’ opinion, however, that dishonest employers would face high turnover.
She also looks forward to more equitable wages, especially given the tight profit margins of her restaurant. Woods moved to Portland from New York, a tip credit state. While tip pooling seemed unfair at first, she appreciated that it evened out income somewhat between the front and back of the house.
Venti says some of his servers rack up $40 to $50 an hour, while cooks and dishwashers working the same shifts make $15 an hour, don’t get tips and still have families to support. At Woods’ restaurant, servers take home between $75 and $200 in tips on a six-hour shift; kitchen staff around $3 to $6 during the same time from the pooling arrangement.
Gorham tries to even out the disparity with two blanks for tips on a customer’s receipt, one for the kitchen and one for servers.
The DOL decision won’t happen without a fight. When his staff finds out about the change, Venti fears, “the servers are going to go down kicking and screaming,” tarnishing his business reputation. “There will be table talk about this with our customers,” he says. “How do I control that dialogue?”
Some valuable servers, he worries, might just walk out.
Waiting tables still provides a path to Oregon’s middle class, because of the generous tips, Venti says. He doesn’t want that opportunity to disappear.
If the DOL enacts the change, it won’t put an end to the fiery tip pooling debate.
In its comment letter, BOLI argues that the Department of Labor noted in its own assesment that it didn’t have data to support the rule change, and that employers could use the tip pool however they pleased.
The Bureau proposed that employers who pool tips from employees should, at the very least, have to report to customers and servers how the tips are collected and distributed.
Even if the rule is changed, BOLI could block federal policy, says Jon Egan, a wage and hour law expert in Lake Oswego.
“They could issue an interpretative rule,” Egan says, “that basically says, ‘by the way, you’re also not allowed to take the tips.’”
“There will be table talk about this with our customers,” Venti says. “How do I control that dialogue?”
Venti would also still face a tough call: lose revenue amid pressure to raise wages, or pool tips, angering servers and customers.
As middle-class jobs move from manufacturing to service positions, he says, “The pressure being put on the service industry to create living wage jobs has never been greater.”