Tenth Circuit: Employers Who Take Tip Credits May Keep Customer Gratuities

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July 3, 2017

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In Marlow v. New Food Guy, the Tenth Circuit stated that employers of tipped employees may keep customer gratuities, as long as the employee is already paid the required minimum wage.  An employer’s retention of tips under this circumstance does not violate the tip credit provision of the Fair Labor Standards Act (“FLSA”).

In Marlow, employer New Food Guy (dba Relish Catering) paid employee Marlow $12 per hour, which satisfied the minimum wage requirement.  Relish kept all tips paid by customers during catering events and did not distribute the tips to employees. Marlow sued, alleging that, according to a 2011 regulation promulgated by the U.S. Department of Labor (“DOL”), Relish was required to provide tipped employees a share of all customer tips. The Tenth Circuit stated that the FLSA is primarily concerned with ensuring that employees receive their required minimum wage, not the actual source of the wage. Because Relish did not take a tip credit and already paid Marlow a satisfactory wage, Relish was not subject to the tip credit provision of the FLSA.

The DOL’s 2011 regulation—which states that tips are the property of employees, regardless of whether or not an employer takes a tip credit—has been contested in other circuit courts.  With Marlow, the Tenth Circuit joins the Fourth Circuit in holding that the DOL overstepped its authority with the 2011 regulation. The DOL recently announced a repeal of the 2011 regulation, which is discussed in further detail here.

Action Items

  1. Review tip pooling practices with legal counsel for compliance with this ruling and current requirements.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2017 ManagEase, Incorporated.

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