HR Management & Compliance

FLSA: Federal Circuit Court Offers Tips for Avoiding Tip-Related Trouble

By Maggie LeBato, JD

A recent case decided by the U.S. 5th Circuit Court of Appeals in New Orleans (which covers Louisiana, Mississippi, and Texas) serves as good guidance for hospitality and restaurant industry employers with tipped employees.

The court’s decision addresses who’s allowed to participate in a tip pool and provides a reminder of what can happen if you’re not careful about following those rules. Let’s take a look at the facts of the case as well as some suggestions for best practices.

Two waiters sued Tony’s, claiming the restaurant violated the Fair Labor Standards Act (FLSA) by requiring them to share their tips with the “coffee man.” Tony’s dining room was divided into different “stations,” and at the end of each shift, employees at each station were instructed to divide the station’s tips among the captain, front waiter, back waiter, busboy, bartender, and coffee man.

All participants received a percentage of the station’s tips, while the coffee man received a fixed sum of $10 from the pool. In addition to the tips, Tony’s paid the waiters $2.13 an hour, the base rate permitted by the FLSA for tipped employees subject to the tip credit.

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