The Tenth Circuit Has a Tip for Food Service Employers

The Tenth Circuit has just decided Bridgette Marlow v. The New Food Guy, Inc. (10th Cir. June 30, 2017), a case that may change the way hospitality and restaurant employers pay their tipped employees.

At issue was the U.S. Department of Labor’s (DOL) regulation holding that “[t]ips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA.” Instead, The New Food Guy, operating under the name “Relish,” retained tips provided by customers at events Relish catered. But Relish did not take the tip credit, choosing instead to pay servers a cash wage well above the minimum wage and overtime at time-an-a-half the established hourly wage.

The Tenth Circuit held that unless an employer takes the tip credit, tips are not the property of the server. Instead, an employer may pay at least minimum wage and retain tips, as Relish properly did.

While this case allows employers flexibility in compensating employees who traditionally make part of their wages in tips, it raises practical questions. Relish was a caterer, all tips went to Relish, and Relish only retained the tips. How would the employer enforce a policy requiring employees to surrender cash tips? Would such a policy alienate customers who believe their tips go directly to their server Would paying a higher cash wage disincentivize better servers who receive more in tips? MSEC recommends that employers of tipped employees consult our employment law attorneys before taking action based upon this case.

The Ninth Circuit has upheld the DOL regulation in question, so this case may make its way to the U.S. Supreme Court. Stay tuned.